Friday, July 25, 2008 7:40:00 AM
A balance sheet needs to balance hence the name.
Total Assets = Total Liabilities + Net worth
So if you add the $5MM of debt to Total Liabilites you must add $5MM of assets:
3/31/08 Total Assets + $5MM Goodwill/Marketing = Total Liabilities + $5MM CES debt + Net worth
PYCT now is obligated to pay $5MM to CES over a period of time, with annual payments. GAAP requires that intangibles (i.e. value of CES rights) amortize over the usefull life of the asset.
In this case, the $5MM in intangible assets should be decreased by the annual payment upon payment of the annual payment.
I forget the exact amount of the annual payment, but the debt should be broken up into Current portion of long term debt ($1.25MM) listed as a current liability and $3.75MM listed as long term debt.
There has been no cash infusion, just valuation of the marketing agreement ($5MM) at the amount paid or to be paid ($5MM).
The fact is, the company is overdrawn at the bank. In reality, IMO, these financial statements are not an accurate reflection of the company's financial position.
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