We have just accepted a new audit client, Pathobio Inc. (PI), and we will be performing the audit for the upcoming September 30, 2021 year end. Incorporated in 2015, PI is a biotechnology company focused on developing effective anticancer drugs through clinical trials. Despite the personal wealth of the company's owner, Lucas Wagner, PI approached a bank for financing in October 2020 because the company is expected to operate at a loss in fiscal 2021 and Lucas does not want to invest additional funds in the company. The bank has requested audited financial statements for the year ended September 30, 2021 to receive financing in fiscal 2022. The bank requires that the financial statements be prepared in accordance with ASPE. However, when looking at last year's financial statements, we noticed that there was no cash flow statement. Please prepare one.

Here are the Balance Sheet and Income Statement.

After reviewing the financial statements, please also identify and discuss the operating risks facing this company. Thank you!

PATHOBIO INC. FINANCIAL STATEMENTS - EXCERPTS BALANCE SHEET As at September 30 (unaudited) 2020 2019 Assets $ $ Current Assets Cash and cash equivalents Short-term investments Prepaid expenses and other assets Accrued gain on lawsuit 1,374,000 990,000 826,000 2,500,000 5,690,000 1,652,000 1,784,000 721,000 4,157,000 Property and equipment 2,231,000 2,244,000 $ 7.921,000 $ 6,401.000 Liabilities and Shareholder's Deficiency Current Liabilities Accounts payable Accrued liabilities 299,000 1,131,000 1,430,000 923,000 1,194,000 2,117,000 Due to shareholder 8,041,000 5,750,000 Shareholder's Deficiency Common shares Deficit 3,000,000 (4,550,000) (1,550,000) 3,000,000 (4,466,000) (1,466,000) $ 7,921,000 $ 6,401,000 PATHOBIO INC. FINANCIAL STATEMENTS EXCERPTS INCOME STATEMENT For the year September 30 (unaudited) 2020 2019 Revenue: Licensing revenue Government Grant $ 400,000 300,000 700,000 Expenses: Research and development General and administrative Interest Depreciation of property and equipment 1,857,000 1,388,000 (150,000) 189,000 3,284,000 1,660,000 1,213,000 (190,000) 209,000 2,892,000 Loss from operations (2,584,000) (2,892,000) Contingent gain 2,500,000 Loss for the year $ (84,000) $ (2,892,000)