Definitely still awake and appreciate your contribution. It was helpful.
DECN recorded what they called a "Loss on writedown of obsolete inventory" of $211k in Q2.
Since I wrote the post you responded to I found this in the Q2 Management Discussion:
"loss on write down of obsolete inventory (product directly associated with Shasta Technologies) of $211,459". On its face that's a clarification, but I don't understand it.
Let's back up a bit. From my earlier post:
"Since there was only $110K in inventory at the beginning of Q2 and they recorded a loss due to obsolescence of $211K in the quarter, at least $101K of the inventory that was declared obsolete was NEW inventory."
Were they building "product directly associated with Shasta Technologies" in the second quarter of 2016? Because, as noted, at least $101K of the inventory that was declared obsolete was NEW inventory acquired/manufactured in that quarter. Obviously the answer to that question (whether it's "yes" or "no") doesn't answer the question of why they were writing down new inventory, so that question remains open.
You describe two different considerations.
1. Waste created by production issues and exacerbated by the high speed nature of the process.
For the most part that is a normal cost and is treated as a Cost of Sales. It shouldn't be treated as Other Expense on the Income Statement as this $211K was. Even if there was some kind of extraordinary production event it wouldn't be properly described as a "loss on write down of obsolete inventory" in a financial statement.
2. "A single press and tool to produce a part like these strips can easily be $750k to 1Million."
I'm not sure if that comment was in response to my statement that "The company apparently spent a lot of money on inventory in Q2, $714K to be precise" (or something else?).
The $714K spent on inventory in the quarter would not include the full cost of production equipment as described. If such an acquisition was required it would be capitalized and depreciated over its useful life. Depending on the accounting treatment those expenses could be added to inventory and costs of sales but again, not to the extent of the full cost of the equipment all at once.
I'm pretty sure I followed your well crafted post...if anything in my response suggests otherwise please let me know so I can reconsider.
‘There are none so blind as those who will not see. The most deluded people are those who choose to ignore what they already know.’
