Chemalite, Inc. Essay

1204 Words Jul 12th, 2008 5 Pages
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?
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Statement of Cash Flows through June 30, 2003:

Operating Activities: Net Income (7,500) Increase in Inventory (75,000) TOTAL OPERATING ACTIVITIES (82,500)

Investing Activities: Capital Expenditures (62,500) TOTAL INVESTING ACTIVITIES (62,500)

Financing Activities: Sale of Common Stock 375,000 TOTAL FINANCING ACTIVITIES 375,000

Increase in cash and cash equivalents 230,000
Cash and cash equivalents at beginning of period 0 Cash and cash equivalents at end of period 230,000

IV. Summary of cash transactions from July 1, 2003 to December 31, 2003:

Research and Development Exp 23,750 Cash 23,750
Accounts Receivable

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