For context, need to see balance sheet.
First thing they teach in Accounting 101: ASSETS = LIABILITIES + CAPITAL.
Obviously a reduction in liabilities can be accounted for by making changes in the debits or credits; ie, increase Capital or decrease Assets.
In a simple world, this would be simple, if there were no liabilities then the market value of your financial assets would equal your capital. But, it ain't easy. Intangibles such as "good will" are counted as an asset; in the opinion of many, undermining the concept of both asset and capital. And then there is the matter of whom determines value.
Cyclone assets largely consist of intellectual properties (patents), engine components, and three vehicles without engines (two boats and an LSR car).
It's an open question as to how the assets are valued. The patent value has been based on the cost of obtaining the patents (and gradual depreciation). A patent is not a machine tool, however. A $500,000 mill-turn is worth just that. A patent is only worth what value it can deliver. The latest Cyclone video shows an engine that is most pointedly NOT using many of the existing patents. We can assume they found the technology impractical; if so, the value of the patent is questionable regardless what they paid. If the patentee finds it has no utility, it likely has no value.
The same situation applies to engine components. This category has been on the books since before they redesigned the engine. How much of this inventory is no longer reflected in their current design? If it can't be used in an engine, it has little more value than its scrap metal sale...no matter how much they paid to have it lovingly machined.
All of this begs the question, "What is the status of Cyclone assets in the courts?" Last we heard, the courts had assigned the patents, fixtures, funds, and so on to Cyclone creditors. Just what DOES Cyclone possess?
I find it interesting that they chose to credit the Capital account rather than debit the Asset. I also wonder what an impartial auditor would do; they would have the option of increasing or decreasing the values of both the Asset and Capital accounts. Has anyone outside the company done a survey of their actual worth?
These forgiven liabilities were mostly owed to the company management, who also hold controlling interest in the company. It was THEIR management that resulted in a situation where the company put them in Accounts Payable; we know things are dire since they stiffed themselves in an effort to clean up the books. Obviously they are trying to protect the company. The question is, have they valued the capital correctly in their desire to protect.
