Chemalite Financials

Chemalite, Inc. had a promising first year and managed to develop solid groundwork to the start of its company. This memo provides the Board of Directors with supporting financial information from Chemalite’s first year of business.

Key Coverage Points:

• Asset Purchases

• No Liabilities at December 31, 2003

• Startup Costs Incurred in 2003

• Net Income $39,375

• Negative Operating Cash Flow

• Negative Investing Cash Flow

• Future of Company

• Lifetime of Patent

Chemalite Inc., currently holds $559,167 in assets with $113,000 being cash and $69,500 in account receivables (refer to exhibit 6). Other assets included are: $55,000 inventory, $212,500 in equipment less $10,625 in depreciation, $23,750 in prototypes less $3,958 in depreciation, and $125,000 patent less $25,000 for the five year amortization of its life. The company is free of financial obligations as of December 31, 2003 and has been able to finance 100% of its startup costs through cash provided by its initial investors. During the first year Chemalite borrowed $50,000 to fund its working capital, but was able to repay the loan by year-end. Since the company does not hold any debt, its investors hold the only claim on its assets.

Chemalite incurred preoperational expenses along with investments in assets which are essential to produce its product. To be able to begin business, the company spent $7,500 in legal fees, chartered costs, and printing expenses. The company also purchased $545,000 in material and manufacturing expenses. The upfront cost of material and equipment indicates an investing loss; however, many of these assets have useful lives beyond their current fiscal period. In addition, Chemalite purchased a twenty year patent for $125,000 to protect its product. The acquisition of this patent is 25% of corporate ownership ($125,000/$500,000).

Even though the company had initial costs and did not begin providing sales until the second half of its year, it still had...