Michael I. Daszkal, CPA, P.A. 2401 N.W. Boca Raton Boulevard Jeffrey A. Bolton, CPA, P.A. Boca Raton, FL 33431 Timothy R. Devlin, CPA, P.A. t: 561.367.1040 Michael S. Kridel, CPA, P.A. f: 561.750.3236 Marjorie A. Horwin, CPA, P.A. www.daszkalbolton.com Patrick D. Heyn, CPA, P.A. Mr. John Q. Smith XYZ Corporation Street Address City, State Zip Dear Mr. Smith: As you have requested, we have performed an analysis of ABC Company, Inc. (the Company). The objective of this engagement was to assist you with your investigation and analysis of the Company for purposes of a possible purchase of an interest by XYZ Corporation. We performed inquiries and analyses based on information made available to us. Our assistance was directed to those business activities, operational areas, and financial information that you identified as being of concern to you. The sufficiency of the procedures is solely your responsibility. Our procedures were limited to those that you have determined will best meet your informational needs. These procedures may not necessarily disclose all significant errors, fraud or other illegal acts that may exist. In performing our services, we have relied on the sufficiency, accuracy and reliability of information provided by the Company and its representatives. The information presented is based on discussions with and information provided by the Companys owners and management. Our procedures do not constitute an audit, review or compilation of the information provided and, accordingly, we do not express a conclusion or provide any other form of assurance on the completeness or accuracy of the information. This report is suitable for use only by those who have participated in determining the procedures. Consequently, this report is restricted to your internal use only. Although inquiries have been made regarding certain prospective information, we have no responsibility to update this report for events and circumstances that occur after the date of its issuance. Daszkal Bolton LLP Member of American Institute of Certified Public Accountants SEC and Private Companies Practice Sections Member Affiliated Offices Worldwide DUE DILIGENCE ANALYSIS OF ABC Company, Inc.Scope of the Engagement ABC Company, Inc. Page 2 of 42 Scope of the Engagement We have read the Companys internally prepared financial statements for the year ended December 31, 1998 and the financial statements compiled by Jane Doe, CPA for the years ended December 31, 1999 through December 31, 2002. We have also read the interim financial statements prepared by the corporation for the nine-month periods ended September 30, 2002 and September 30, 2003. Per the terms of the engagement letter, our financial statement analysis is intended to focus on certain areas of the balance sheet and income statement. Cash Document the Companys polices and internal controls with regard to cash management and related accounting. Review account reconciliations as of the end of the most recent fiscal year and latest interim period. Trade Receivables Review significant customer contracts, documenting the terms and sales commitments. Analyze the trade receivables aging as of the most recent fiscal year-end and interim period, determine the reasons for significantly past due accounts, and assess their collectibility. Analyze the Companys allowance for doubtful accounts from January 1, 2001 through the most recent 2003 interim period, highlighting bad debt expense, accounts written off, accounts recovered and any other significant changes. Discuss with management and assess the reasonableness of the allowance for doubtful accounts. Analyze the amount of credit memos, discounts, and refunds provided to customers for the last two fiscal years and most recent interim period. Inventories Observe the Companys inventory procedures. Obtain detail of inventory on hand by category as of the most recent fiscal year-end and the most recent interim date and explain any unusual inventory movements. Analyze the aging of inventory as of the end of the most recent fiscal year-end and interim date to determine whether potentially excess or obsolete inventory exists and to assess managements plans for any such inventory and the adequacy of recorded inventory reserves. Revenue in Excess of Billings (WIP) and Billings in Excess of Revenue (BIE) Review the signed contracts, scan contract files and correspondence and inquire about the status of those contracts with significant billings or costs at the end of the most recent fiscal year-end and through the interim period. ABC Company, Inc. Page 3 of 42 Advances to Employees, Prepaid and Other Assets and Deposits Analyze significant current and long-term assets as of the end of the most recent fiscal year and latest interim period. Assess the potential for inappropriate deferrals and the recoverability of the recorded balances. Prope