A+ Child Development (Canada) Ltd. Financial Statements For the nine month period ended September 30, 2006 For the year ended December 31, 2005                               PageManagements responsibility1Auditors Report2Financial StatementsBalance Sheets3Statement of Loss4Statement of Retained Earnings (Deficit)5Statement of Cash Flows6Notes to the Financial Statements7ScheduleSchedule 1  Cost of sales14   To the Shareholders of A+ Child Development (Canada) Ltd.:  Management is responsible for the preparation and presentation of the accompanying financial statements, including responsibility for significant accounting judgments and estimates in accordance with Canadian generally accepted accounting principles. This responsibility includes selecting appropriate accounting principles and methods, and making decisions affecting the measurement of transaction in which objective judgment is required.  In discharging its responsibilities for the integrity and fairness of the financial statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of financial statements.  Meyers Norris Penny LLP, and independent firm of Chartered Accountants, is appointed by the shareholders to audit the financial statements and report directly to them; their report follows. The external auditors have full and free access to, and meet periodically and separately with, both the Board and management to discuss their audit findings.  February 22, 2007     signed Terry Pallier__________ Terry Pallier  To the Directors of A+ Child Development (Canada) Ltd.:   We have audited the balance sheet of A+ Child Development (Canada) Ltd. as at December 31, 2005 and the statements of loss, retained earnings (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.  Except as explained in the following paragraph, we conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  Because we were appointed auditors of the Company during the year ended December 31, 2006, we were unable to satisfy ourselves concerning inventory quantities as at December 31, 2004 either through observing the inventory count or by alternative means. Since opening inventories enter into the determination of the results of operations and cash flows, we were unable to determine whether adjustments to cost of sales, incomes taxes, net loss for the year, opening retained earnings and cash provided from operations might be necessary.  In our opinion, except for the effect of adjustments, if any, which we might have determined necessary had we been able to examine opening inventories, as described in the preceding paragraph, these financial statements present fairly, in all materials respects, the financial position of the Company as at December 31, 2005 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.           Calgary, Alberta  February 22, 2007 Chartered Accountants    A+ Child Development (Canada) Ltd.Balance SheetsDecember 31 2004        Restated (Unaudited)December 31 2005        RestatedSeptember 30 2006        (Unaudited)AssetsCurrentAccounts receivable97,17245,41039,775Income taxes recoverable11,887--Inventory415,448179,238145,284Prepaid expenses-14,3731,638524,507239,021186,697Receivable from shareholders(Note 3)45,00045,000-Product development costs(Note 4)31,10092,23592,235Property and equipment(Note 5)30,11323,26619,844Future income taxes(Note 9)15,28285,845142,446Deposits12,76511,33611,336658,767496,703452,558LiabilitiesCurrentBank indebtedness (Note 6)344,545333,329396,257Accounts payable and accruals171,868194,433219,430516,413527,762615,687Contingencies(Note 13)Subsequent event(Note 14)Shareholder's Equity (Deficit)Share capital(Note 8)40,80040,80040,800Retained earnings (deficit)101,554(71,859)(203,929)142,354(31,059)(163,129)658,76749,6703452,558Approved on behalf of the Boardsigned "Margaret Steele"signed "Terry Pallier"PresidentCEO    A+ Child Development (Canada) Ltd.Statement of Loss12 Months Ended December 31
2004        Restated (Unaudited)12 Months Ended December 31      2005            Restated9 Months Ended    September 30                        2006                    (Unaudited)Sales4,744,5513,562,0332,416,225Cost of sales(Schedule 1)1,159,456863,792518,837Gross margin3,585,0952,698,2411,897,388ExpensesAdvertising and promotion2,13629,25112,155Amortization8,2077,2224,132Bad debts41,9044,0886,055Business taxes and licenses6,6277,6777,101Computer2,2232,604736Courier and delivery8,4547,7055,779Credit card fees21,87217,37512,040Equipment rentals6,3506,5504,444Insurance1,0325,2703,043Interest and bank charges69,65565,21275,665Management fees243,000225,000189,000Office178,898108,22581,771Professional fees26,10120,23621,137Rental169,746165,286130,179Salaries, wages and benefits253,385211,132135,706Selling2,036,7571,602,3121,153,340Supplies4,619121,4483,867Sub-contracts415,181111,71193,759Telephone, fax and internet107,446129,46190,117Travel92,38380,90253,247Utilities2,0201,597739Worker's compensation2,5973,1842,0473,710,5932,933,4482,086,059Loss from Operations(125,498)(235,207)(188,671)Provision of income taxes(Note 9)Current expense (recovery)(12,362)564-Future recovery(20,842)(62,358)(56,601)(33,204)(61,794)(56,601)Net loss(92,294)(173,413)(132,070)     A+ Child Development (Canada) Ltd.Statement of Retained Earnings (Deficit)12 Months Ended        2004      (Unaudited)12 Months Ended     20059 Months Ended          2006      (Unaudited)Retained earnings, beginning of year, as previously stated330,263277,514325,725Correction of errors(Note 10)(136,415)(175,960)(397,584)Retained earnings (deficit), beginning of year, as restated193,848101,554(71,859)Net loss(92,294)(173,413)(132,070)Retained earnings (deficit), end of year101,554(71,859)(203,929)     A+ Child Development (Canada) Ltd.Statement of Cash Flows12 Months Ended December 31
2004        Restated
(Unaudited)12 Months Ended December 31
2005          Restated9 Months Ended    September 30            2006           (Unaudited)Cash provided by (used for) the following activitiesOperatingNet loss(92,294)(173,413)(132,070)Amortization8,2077,2224,132Receivable from shareholders expensed with management fees--45,000Security deposits recognized13,6341,428-Future income taxes(20,842)(70,563)(56,601)(91,295)(235,326)(139,539)Changes in working capital accountsAccounts receivable65,50151,7625,635Income taxes payable(12,362)11,887-Inventory65,436236,21033,954Prepaid expenses and deposits51,237(14,373)12,735Accounts payable and accruals(94,057)22,56624,997(15,450)72,726(62,218)FinancingOperating loan advances120,000-30,000Operating loan repayments-(20,000)-120,000(20,000)30,000InvestingPurchases of property and equipment(6,301)(375)(710)Advances to shareholders(45,000)--Expenditures on product development(31,100)(61,135)-(82,401)(61,510)(710)Increase (decrease) in cash resources22,059(8,784)(32,928)Cash resources, beginning of year(46,604)(24,545)(33,329)Cash resources, end of year(Note 6)(24,545)(33,329)(66,257)Supplementary cash flow informationInterest paid17,05916,47818,910     A+ Child Development (Canada) Ltd. Notes to Financials Statements For the nine months ended September 30, 2006 For the year ended December 31, 2005    1. Incorporation and operations  A+ Child Development (Canada) Ltd. (the Company) was incorporated under the Business Corporation Act of the Province of Alberta on February 12, 1999. The Company is primarily involved in the sale and support of educational products to families across Canada.   2. Significant accounting policies  The financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include the following significant accounting policies:  Inventory  Inventory is valued at the lower of cost and net realizable value. Cost is determined by the weighted average method.  Property and equipment  Property and equipment are initially recorded at cost. Amortization is provided using methods outlined below at rates intended to amortize the cost of assets over their estimated useful lives.   MethodRateComputer Equipmentdeclining balance25%Equipmentdeclining balance20%Furniture and fixturesdeclining balance20%Leasehold improvementsstraight-line5 years   Product development costs  Research costs are expensed as incurred. Product development costs are deferred once costs meet the criteria under Canadian generally accepted accounting principles for deferral and amortization. Such deferred costs are amortized, commencing when the product is commercially released over the estimated period of economic viability.  The recoverability of any unamortized product development costs is reviewed on an ongoing basis. The accumulated development costs of any product not considered to be economically viable are considered unrecoverable and included in the current years earnings.  Long-lived assets  Long-lived assets consist of property and equipment and product development costs. Long-lived assets held for use are measure and amortized as described in the applicable accounting policies.  The Company performs impairment testing on long-lived assets held for use whenever events or changes in circumstances indicate that the carrying value of an asset, or group of assets, may not be recoverable. Impairment losses are recognized when undiscounted future cash flows from its use and disposal are less than the assets carrying amount. Impairment is measured as the amount by which the assets carrying value exceeds its fair value. Any impairment is included in earnings, loss for the year.  Prices for similar items and discounted cash flows are used to measure fair value of long-lived assets.  Revenue recognition  Revenues from the sale of educational products are recognized at the time of delivery.  Future income taxes  The Company follows the asset and liability method of accounting for future income taxes. Under this method, future income tax assets and liabilities are recorded based on temporary differences between the carrying amount of balance sheet items and their corresponding tax bases. In addition, the future benefits of income tax assets, including unused tax losses, are recognized, subject to a valuation allowance, to the extent that it is more likely than not that such future benefits will ultimately be realized. Future income tax assets and liabilities are measured using enacted tax rates and laws expected to apply when the tax liabilities or assets are to be either settled or realized.  Foreign currency translation  Transaction amounts denominated in foreign currencies are translated into their Canadian dollar equivalents at exchange rates prevailing at the transaction date. Carrying values of monetary assets and liabilities reflect the exchange rates at the balance sheet date. Gains and losses on translation or settlement are included in the determination of net income for the current period.  Measurement uncertainty  The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accounts receivable are stated after evaluation as to their collectibility and an appropriate obsolete inventory. Amortization is based on the estimated useful lives of property and equipment. Product development costs are stated after evaluation its economic viability.  These estimates and assumptions are reviews periodically and, as adjustments become necessary they are reported in earnings in the periods in which they become know.  3. Receivables from shareholders  Advances to the shareholders are non-secured, non-interest bearing, and have no set repayment terms.  4. Product development costs  Product developments costs represents costs incurred in developing a new educational product. During the nine month period ended September 30, 2006 nil (year ended December 31, 2005 - $61,135; December 31, 2004 - $31,100) of expenditures relating to product development were deferred.  As the product under development has not yet reached the stage of commercial production no amortization of costs has occurred.  Included in product development costs are $81,800 of costs paid to a party related through common control. The transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.  5. Property and equipment  September 302006(Unaudited)AccumulatedNet bookCostamortizationvalueComputer equipment31,08924,7136,376Equipment16,51312,6553,858Furniture and fixtures40,44531,5418,904Leasehold inprovements14,21513,509706102,26282,41819,844December 312005RestatedAccumulatedNet bookCostamortizationvalueComputer equipment30,38023,3427,038Equipment16,51311,9424,571Furniture and fixtures40,44529,96410,481Leasehold inprovements14,21513,0391,176101,55378,28723,266  December 312004RestatedAccumulatedNet bookCostamortizationvalueComputer equipment30,00521,0588,947Equipment16,51310,7995,714Furniture and fixtures40,44527,34413,101Leasehold inprovements14,21511,8642,351101,17871,06530,113  6. Bank indebtedness  Bank indebtedness is comprised of the following:   12 Months ended12 Months ended9 Months endedDecember 31December 31September 30200420052006(Unaudited)(Unaudited)Balances with banks17,2808,088842Cheques issued in excess of bank balance(41,825)(41,417)(67,099)Cash resources, end of year(24,545)(33,329)(66,257)Operating loan(320,000)(300,000)(330,000)(344,545)(333,329)(396,257)   Bank indebtedness includes an operating loan with maximum available credit of $500,000 (December 31, 2005 - $500,000, December 31, 2004 - $ 600,000) bearing interest at prime plus 1% (December 31, 2005 and 2004  prime plus 2%). Assets pledged as collateral are all present and after acquired personal property, all accounts, all inventory and all proceeds. As at September 30, 2006 $330,000(December 31, 2005 - $300,000, December 31. 2004 - $320,000) was drawn.  The terms of the operating loan require that certain measurable covenants be meet. As at September 30, 2006 (December 31, 2005 and 2004), the Company was in violation of certain covenants. As the operating loan is currently presented as current liability no additional adjustments are required.  7. Credit facility  In addition to the operating loan, the Company also has available a corporate credit card with maximum available credit of $10,000 (December 31, 2005 and 2004 - $10,000), bearing interest at prime plus 2% (December 31, 2005 and 2004  prime plus 2%). As at September 30, 2006 $9,641 has been drawn on this corporate credit card (December 31, 2005 - $9,794, December 31, 2004 - $4,951) and this amount has been included in accounts payable and accruals.  8. Share capital  Authorized Common shares  Unlimited number of class A common shares, voting Unlimited number of class B common shares, voting Unlimited number of class C common shares, non-voting Unlimited number of class D common shares, non-voting Unlimited number of class E common shares, non-voting Unlimited number of class F common shares, non-voting  Preferred shares  Unlimited number of class G preferred shares, non-cumulative, redeemable  12 Months ended12 Months ended9 Months endedDecember 31December 31September 30200420052006(Unaudited)(Unaudited)Issued831 Class A common shares, voting40,80040,80040,800   9. Income taxes  The components of the future income tax asset are as follow:  12 Months ended12 Months ended9 Months endedDecember 31December 31September 30200420052006(Unaudited)(Unaudited)Property and equipment(1,214)(941)(790)Product development costs(9,330)(27,671)(27,671)Non-capital loss carry-forward25,826114,457170,90715,28285,845142,446   The income tax provision differs from the amount that would be expected by applying the current tax rates for the following reasons:  12 Months ended12 Months ended9 Months endedDecember 31December 31September 30200420052006(Unaudited)(Unaudited)Net loss before taxes(125,498)(235,207)(188,671)Expected tax recovery at 17.5%(21,962)(41,161)(33,017)Increase (decrease) in come taxes resulting from:Effect of difference between current and future tax rates(11,919)(20,633)(23,584)Non-deductible items and other677--Provision for income taxes(33,204)(61,794)(56,601)   9. Correction of errors  The Company has determined that the amounts previously reported for certain accounts were incorrect due to the mis-application of generally accepted accounting principles. The retroactive application of the correction of errors had the following impact on the results of operations and financial position of the Company:  As at and for theAs at and for the12 Months ended12 Months endedDecember 31December 3120042005Changes in financial position are as follows:Accounts receivable  decrease(106,125)(372,116)Income taxes recoverable  decrease(5,238)-Prepaid expenses  decrease(93,433)(122,501)Inventory  increase (decrease)13,750(2,930)Organization costs  decrease(11,511)(6,842)Product development costs  increase3,11010,655Future income tax asset  increase23,48785,845Changes in operations are as follows:Sales - decrease (increase)(75,212)250,580Cost of sales  increase12,07810,820Expenses  increase121,75732,265Current income tax expense  increase (decrease)5,238(9,683)Future income tax recovery  increase(24,316)(62,358)Net decrease in earnings39,545221,624Cumulative decrease in opening retained earnings136,415175,960   11. Commitments  The Company has entered into various premises lease agreements with estimated minimum annual payments as follows:  2007170,9402008144,195200953,710   12. Financial instruments  The Company, as part of its operations, carries a number of financial instruments. It is managements opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments except as otherwise disclosed.  Fair value of financial instruments  Fair value estimates are subjective in nature and involved uncertainties and matters of significant judgment. Changes in the following assumptions could significantly affect the estimates:  The carrying values of accounts receivable, bank indebtedness and accounts payable and accruals approximate their fair values, due to the short-term nature of these instruments.  It is not practicable within the constraints of timeliness or cost to determine the fair value of amounts receivable from shareholders because these instruments are not traded in an organized financial market. The terms and conditions of the receivable from shareholders is disclosed in Note 3.  13. Contingencies  The Company has been named as defendant in a lawsuit seeking to recover damages allegedly sustained by the plaintiff as a result of breach of contract. The complaint with respect to this action alleges the plaintiff carried out telemarketing services in accordance with an agreement for which they have not yet been paid.  The Company has been named as defendant in another lawsuit filed by a formed employee of the Company, seeking to recover damages allegedly sustained as a result of constructive dismissal. The complaint with respect to this action alleges the employee was unfairly demoted.  These lawsuits remain at an early stage and, as litigation is subject to many uncertainties, it is not possible to predict the ultimate outcome of these lawsuits or to estimate the loss, if any, which may result.  In the normal conduct of operations, there are other pending claims against the Company. Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. In the opinion of management final determination of these other litigations will not materially affect the Companys financial position or results of operations.  14. Subsequent event  Subsequent to the date of the financial statements, an intent to purchase 62.33% of the outstanding shares of the Company was filed with the TSX Venture Exchange and is pending regulatory approval.  15. Comparative figures  Certain comparative figures have been reclassified to conform with current year presentation.   12 Months ended12 Months ended9 Months endedDecember 31December 31September 30200420052006(Unaudited)(Restated)(Unaudited)(Restated)Cost of salesFreight136,422104,16878,526Purchases967,421716,219415,514Warehouse55,61343,40524,7971,159,456863,792518,837   Endnotes The accompanying notes are an integral part of these financial statements  The accompanying notes are an integral part of these financial statements  The accompanying notes are an integral part of these financial statements  The accompanying notes are an integral part of these financial statements