Generation Next Franchise Brands Inc. (fka VEND)

[Officiousintermeddle]

Let the accounting games begin with inventory.

So, it was a bit curious that the cost of sales for this quarter was so high. It turns out there's an explanation for that hidden in the text of today's press release. True to form, VEND makes you dig out the information rather than highlighting it.

Here's the phrase with the clue from the new CFO - he refers to "...recognizing an inventory adjustment during the quarter."

So, if you apply the fairly high cost of sales for the previous quarter (about 96%) for the current quarter, that suggests that VEND took a $1.7 million inventory charge.

So, here's the accounting game, and VEND is by no means alone in pulling this sort of stuff, although most companies would make it clear what happened rather than bury it in the COGS. If VEND takes an additional $1.7 million charge in the current lousy quarter, it can boost profitability in subsequent quarters. So, we can now expect the 4Q numbers to be boosted not only by an increase in deliveries and revenues, but a miraculous improvement in the gross profit margin. They won't get the full benefit of the $1.7 million bump in the next quarter, of course, but it will help then and in subsequent quarters.

Fun games!