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Gold/Mining/Energy : Mainframe Entertainment (ReBoot/Beasties)
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To: Richard Lam who wrote (117)8/1/1997 1:55:00 PM
From: D.E. Shetland   of 459
 
They basically use FASB statement 53 which means you have to match your costs to your revenues. The key is we don't want to see fabricated net income by capitalizing all sorts of costs that should have been expensed. If you notice, the balance sheet has very little capitalized expenses not specifically identified as related to production in progress. There is some programing costs that are amortized against future revenue. I would assume it is that they are awaiting things like international sales etc... on which they estimated would be revenues against some of the costs of production.

The way I understand it, if they get a new 26 episode show, they will cost out each episode and in that, they include a "charge" for the use of the company's assets --it's software, hardware, production stuff, etc... If they have to go buy two new prod. suites for a show, they will cost that into it too. They are required to match identified costs to revenues so that over those 26 episodes, they have to expense these things, they can't capitalize them. It's the same software, prod suites etc... that they already charged to the other shows. So in their expenses, there is already a cost for the equip above and beyond regular depreciation. The effect is to lower net income which is why the cash flow numbers are more indicative of their growth pattern. As I said, this is my understanding although I'm not an accounting expert. I'll have to double check all this.

But imagine if they bought no more equipment. They certainly wouldn't charge the next TV show group anything less. They would still have an asset charge in there somewhere.
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