Estimating the size of the Inventory write-down.
From two data points given by the company, that they had $1.4 million in retail priced stock in the warehouse, and that the mix between standard mirror to wardrobe mirror was 75%/25%.
0.75x$899 + 0.25x$1099 = $949 per mirror retail blended value.
1,400,000 / 949 ~= 1475 mirrors.
Now, the first question you should be asking CAPC, is, Where did the rest of the 3200 mirrors go? Well, they did say 175 out of 200 mirrors that were air shipped were lost/broken in transit. Did the sea container loads also experience broken/lost mirrors? Only CAPC knows for sure.
But, back to the write-down calculation. The assumed 1475 mirrors in the warehouse had an inventory value of $1,035,196 as of March 31, 2022. I believe they booked 5 mirror sales in December 2021, leaving 1470 estimated mirrors total.
$1,035,196 / 1470 ~= $704 per mirror inventory carrying value.
Through 9/30/2022, they had sold roughly 50 mirrors, give or take. In December 2022, they gave away roughly 50 mirrors on Kelly Clarkson's show. So, figure 1370 mirrors left.
At $499/$699 current advertised pricing, blended inventory retail value:
0.75x$499 + 0.25x$699 = $549
$549 x 1370 mirrors = $752,130
Inventory on the books as of 9/30/2022: $995,852
Implying a write-down of about $243,000 is indicated.
Can they reasonably get $499/$699 for their mirror inventory, though? I get the feeling sales are still anemic, even at the lower pricing.
That would mean the accountant generating the 10K will have to go deeper than $243K on the inventory write-downs.
How much deeper? Let's say they decide to sell the whole inventory to a liquidator, to raise cash. What would a liquidator want to pay?
I could see these being sold on ebay for $400/$500 - that wouldn't be much different than today's $499/$699. But a liquidator would probably want a 100% margin, so he might want to pay $200/$250. That implies an inventory liquidation value of:
0.75x$200 + 0.25x$250 = $212.50 ; $212.50x1370 = $291,125
Or an inventory write-down of a bit over $700,000.
They'll have to negotiate with the note holders due about $1.1 million in April, though. They have a security interest in the Inventory. Of course, 2 of the note holders are insiders, so they're negotiating with themselves.
