Chemalite, Inc.

Bennett Alexander has invented a glow light using a series of chemicals into a contraption he calls
Chemalites. He starts up his business by getting $500,000 from investors and he tries to put his
invention on the market. But by the end of 2003, with operations in full swing for a good six
months, Chemalite, Inc. is seeing its cash balance drop tremendously, which Alexander and his
investors view as a negative. Even though they thought their business was doing well, the numbers
they are reading indicate otherwise. We have to determine how these numbers reflect the true
nature of the company.
Issues
1. Should they continue with business in 2004 and beyond?
2. Do they have a positive cash flow?
3. Are they profitable?
Decisions
I do believe that Chemalite, Inc. should continue on because they were both profitable and had a
positive cash flow. And there are all three answers to the issues in one sentence. Plus, the
prototype value will soon increase and the Olympic Games Athens 2004 just placed a huge order
with the company, which will both bring in a big profit and help promote the product. The future is
looking bright for this company, at least in the short run. Alexander and the investors have to
examine the true nature of the company and not simply its increase or decrease in cash from year
to year.

Analysis
Chemalite, Inc. is true profitable. Even with the balance being $230,000 at the end of June 2003,
this is a positive cash flow due to all of the investment activities the company has put in; refer to
Sample III. Things are looking way up for this young company. Their income statement at the end
of 2003, Sample VI, shows a 28% gross profit and a 5.2% increase in net income. This proves the
stability and profi ...

Cash is King Accountants

Memo
To: Stockholders of Chemalite, Inc.
From: Jon Smart
CC: Tim Mofit
Date: 4/12/2008
Re: Financial Performance of Chemalite, Inc.
The purpose of this memo is to present the financial performance of Chemalite, Inc. to the
stockholders of the company.

Analysis
Chemalite, Inc. is a new company that is performing very well and additionally has a very bright
future. The following topics will explain:
• Assets
• Cash Flow
• Income
• Future
Assets: Current assets total $439,375.00 with $113,000.00 of that being liquid cash. The company
has no liabilities, meaning that it owes no money.
Cash Flow: A big concern for all of the stockholders was the negative cash flows that they observed.
All of the negative cash flows for the period are attributed to investing and the sale/purchase of
inventory which should in turn result in additional positive cash flow. In addition, there was a
positive change in cash for the total period of $113,000.00.
Income: The Company has a positive net income of $39,375.00 which is approximately five percent
of net sales.
Future: The future looks bright for Chemalite, Inc. as there is a guaranteed $90,000.00 purchase to
get the next year started. In addition, with no liabilities, the company can look to invest much
further into the production of their product.
Conclusion
Chemalite, Inc. is performing extremely well given the immaturity of its growth. They have no
liabilities and all cash expenses were spent on the betterment of the company and its growth. There
is a positive income coming to the company coupled with the fact that they are already receiving
commitments for sales into the next year. If it could improve on one thing, as all compani ...

Bennett Alexander, a consulting engineer, has invented a chemical light and has obtained a
patent on the invention. Relatives and friends commit $375,000 and Alexander contributes his
patent to found a new company called Chemalite, Inc. Shares are issued and pre-operating
events take place during a six-month period from January through June 30, 1991. Events during
the first six months of operations are summarized, and further information describes adjustments
that are required before preparing financial statements for the first year of operations.

Summarizing the events described in the case, and thinking about how to measure and present
them in financial statements focuses attention on the accounting equation, the accounting
framework, and interpreting and using financial statements for strategic purposes. (Source:
William J. Burns, "Chemalite, Inc. Teaching Note," Harvard College, 1991.)