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Original and Further Restatement of the Consolidated Financial Statements | 9 Months Ended
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Sep. 30, 2014
Accounting Changes and Error Corrections [Abstract] |
Original and Further Restatement of the Consolidated Financial Statements | 2. Original and Further Restatement of the Consolidated Financial Statements In connection with the Company’s preparation of its consolidated interim quarterly financial statements for the fiscal quarter ended June 30, 2014, the Company determined that certain entries with respect to the previously filed financial statements contained in the Original 2013 Form 10-K and the Original 2014 First Quarter Form 10-Q were not properly accounted for under U.S. generally accepted accounting principles (“U.S. GAAP”). As further described below, these additional errors affect the fiscal years ended December 31, 2013, 2012 and 2011, as well as the fiscal quarter ended March 31, 2014. Due to these errors, the Company determined in August 2014 to restate its consolidated financial statements for the fiscal years ended December 31, 2013, 2012 and 2011 (including the interim quarterly periods contained within the fiscal years ended December 31, 2013 and 2012) and the fiscal quarter ended March 31, 2014, and that the previously filed financial statements for these periods should no longer be relied upon. This Report contains restated consolidated interim financial statements for the fiscal quarter and year-to-date periods ended September 30, 2013. Contemporaneously with the filing of this Report, the Company is filing (i) an amendment to the Original 2013 Form 10-K (the “2013 Form 10-K/A”), which amendment contains restated consolidated financial statements for the fiscal years ended December 31, 2013, 2012 and 2011, and the quarterly reporting periods contained within the fiscal years ended December 31, 2013 and 2012, (ii) an amendment to the Original 2014 First Quarter Form 10-Q for the fiscal quarter ended March 31, 2014 (the “2014 First Quarter Form 10-Q/A”), which amendment contains restated consolidated interim financial statements for the fiscal quarters ended March 31, 2014 and 2013, and (iii) its delayed Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014 (the “2014 Second Quarter Form 10-Q”), which contains restated consolidated interim financial statements for the fiscal quarterly and year-to-date periods ended June 30, 2013. The corrections of the additional errors in the 2013 Form 10-K/A and the 2014 First Quarter Form 10-Q/A are referred to herein as the “Further Restatement.” The Original 2013 Form 10-K reflected a prior restatement of the Company’s consolidated financial statements for the fiscal years ended December 31, 2012 and 2011 and the fiscal quarter ended March 31, 2013, which we refer to herein as the “Original Restatement.” For additional information regarding the Original Restatement, see the 2013 Form 10-K/A. Background of Further Restatement During the second quarter of 2014, the Company’s management noted that the Company’s bad debt expense for its BioStim strategic business unit (“SBU”) during the first quarter of 2014 was higher than internally budgeted. As a result, the Company’s internal finance department reviewed bad debt expense entries in prior periods. In connection with this review, the Company also further considered its accounting methodology with respect to certain prior revenue adjustments related to uncollectible patient co-pay and self-pay amounts. As further described below, after performing this review, the Company determined that errors existed relating to the accounting for uncollectible patient co-pay and self-pay amounts, and that certain bad debt reserves originally recorded in fiscal years 2011 and 2012 were reversed in incorrect periods in the Original Restatement in connection with the change to sell-through accounting for certain distributors. After analyzing these errors, the Company determined to further restate its financial statements as described in the 2013 Form 10-K/A, the 2014 First Quarter Form 10-Q/A and herein. In addition to these matters, certain other adjustments identified by management, including revisions to inventory reserves, intercompany profit adjustments and accounts receivable reserves, were made to the consolidated financial statements in connection with the Further Restatement, as discussed below. Co-Pay and Self-Pay Revenue Adjustments A majority of revenue from the Company’s BioStim SBU is derived from third parties, which is subject to change due to contractual adjustments related to commercial insurance carriers, and may include certain patient co-pay amounts. In addition, certain patient purchasers are without insurance, with revenue derived from “self-pay” arrangements. In previously issued financial statements, the Company recorded these co-pay and self-pay amounts as revenue with estimated uncollectible portions being recognized as bad debt expense. Upon further analysis, it was determined that because collectability of co-pay and self-pay amounts was not reasonably assured, the conditions for revenue recognition had not been met and revenue for those amounts should not have been recognized until collected. Adjustments to correct the foregoing reduce equally both the Company’s historical net sales and its sales and marketing expense by approximately $1.2 million and $3.0 million for the fiscal quarter ended September 30, 2013 and the nine months ended September 30, 2013, respectively. These adjustments have no effect on net income from continuing operations, net income or total assets in any period. Bad Debt Timing Adjustments In connection with the foregoing, the Company determined to review bad debt expense trends more broadly across all of its business units. As a result of this process, the Company determined that certain bad debt reserves originally recorded in fiscal years 2011 and 2012 were reversed in incorrect periods in the Original Restatement in connection with the change to sell-through accounting for certain distributors. Because the Original Restatement transferred these transactions to sell-through accounting (as opposed to sell-in accounting, which had been used when the original bad debt reserves were recorded), the bad debt reserve was reversed as part of the Original Restatement, as the receivable that was being reserved for was no longer recognized. Adjustments to correct this error result in an increase of sales and marketing expense of $1.5 million for the nine months ended September 30, 2013. There were no adjustments to the fiscal quarter ended September 30, 2013. These adjustments resulted in no impact to the accounts receivable balance as of December 31, 2013. Accounts Receivable Reserve Adjustments As part of analyzing collections experience on accounts receivable, the Company identified that it had incorrectly considered certain deferred revenue amounts included in gross accounts receivable when calculating estimated reserves. Specifically, the computation of the contractual allowances and bad debt allowances, which serves to adjust accounts receivable to the estimated collectible amount, incorrectly assumed that some percentage of the deferred amounts would be collected, rather than fully deferring these amounts. Adjustments to correct this error resulted in a net increase in operating income of $0.2 million and $0.3 million for the fiscal quarter and nine months ended September 30, 2013, respectively. This adjustment resulted in a decrease in accounts receivable, net (due to an increase in reserves) as of December 31, 2013 by $4.2 million. Intercompany Profit Adjustments The Company has two manufacturing facilities which support the inventory needs of other subsidiaries through intercompany sales transactions. These intercompany sales include a profit margin for the selling subsidiary (“intercompany profit”) that is eliminated by the Company as part of its consolidated financial reporting process. The elimination of intercompany profit requires determining the affected net inventory amounts and their related intercompany profit margin to eliminate all intercompany profit, resulting in all inventories being carried at historical cost in the Company’s consolidated financial statements. As part of the Original Restatement the Company made certain corrections to prior period excess and obsolete inventory reserves. The effect of these corrections was not properly considered when determining the adjustments needed to eliminate intercompany profits from inventories in the Original Restatement. Adjustments to correct this error resulted in an increase to cost of sales of $0.8 million and $1.0 million for the fiscal quarter ended September 30, 2013 and the nine months ended September 30, 2013, respectively. This adjustment resulted in a decrease in inventory as of December 31, 2013 by $2.6 million. Inventory Inventory Existence As part of the remediation activities that followed the Original Restatement, the Company expanded its procedures in the second quarter of 2014 to validate the existence of field inventory held by independent sales representatives and noted that, in many cases, this inventory had higher rates of missing inventory (“shrinkage”) than previously estimated. To determine whether these higher error rates were pervasive across its field inventory, the Company counted approximately 90% of its field inventory during the third and fourth fiscal quarters of 2014. These counts resulted in the identification of errors relating to previous estimates of shrinkage. Adjustments in the Further Restatement to correct these errors, net of the related effect on previously recorded excess and obsolete inventory reserves, resulted in an increase to cost of sales of $0.2 million and $0.3 million for the fiscal quarter and nine months ended September 30, 2013, respectively. These adjustments resulted in a decrease in inventory as of December 31, 2013 by $1.0 million. Inventory Reserves In connection with its remediation efforts associated with the material weakness noted in the Original Restatement related to inventory reserves, the Company concluded that it was not appropriately calculating inventory reserves, including its consideration of demand assumptions for “kits”, which contain a variety of “piece part” components to be used during surgery that have various demand considerations, as well as inventory held by third parties under inventory purchase obligations. Adjustments to correct these errors resulted in an increase to cost of sales of $1.1 million and $3.1 million for the fiscal quarter ended September 30, 2013 and the nine months ended September 30, 2013, respectively. These adjustments resulted in a decrease to inventory (due to an increase in reserves) as of December 31, 2013 by $14.4 million. Other Adjustments In addition to the adjustments described above, the Company is correcting certain other items. The impact of correcting these items results in a decrease to loss before income taxes of $3.4 million and $3.2 million for the fiscal quarter and nine months ended September 30, 2013, respectively. The tables below show the effects of the Further Restatement for the fiscal quarter ended September 30, 2013 and the nine months ended September 30, 2013. The tax effect of the adjustments is estimated based on the Company’s estimated tax rate.
|  | Three Months Ended September 30, 2013 |
|  |  |  |  | Further Restatement Adjustments by Category |  |  |  |
(U.S. Dollars, in thousands) |  | Originally Reported in 2013 Form 10-Q |  |  | Co-Pay and Self-Pay Revenue |  |  | Bad Debt Timing |  |  | Accounts Receivable Reserve |  |  | Intercompany Profit |  |  | Inventory |  |  | Other |  |  | Total Further Restatement Adjustments |  |  | Restated |
Net sales |  | $ | 92,738 |  |  | $ | (1,191 | ) |  | $ | — |  |  | $ | 240 |  |  | $ | — |  |  | $ | — |  |  | $ | 19 |  |  | $ | (932 | ) |  | $ | 91,806 |
Cost of sales |  |  | 23,920 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 770 |  |  |  | 1,320 |  |  |  | (946 | ) |  |  | 1,144 |  |  |  | 25,064 |
Gross profit |  |  | 68,818 |  |  |  | (1,191 | ) |  |  | — |  |  |  | 240 |  |  |  | (770 | ) |  |  | (1,320 | ) |  |  | 965 |  |  |  | (2,076 | ) |  |  | 66,742 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 42,382 |  |  |  | (1,191 | ) |  |  | — |  |  |  | 14 |  |  |  | — |  |  |  | — |  |  |  | (2,129 | ) |  |  | (3,306 | ) |  |  | 39,076 |
General and administrative |  |  | 13,202 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (269 | ) |  |  | (269 | ) |  |  | 12,933 |
Research and development |  |  | 6,361 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6,361 |
Amortization of intangible assets |  |  | 616 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 616 |
Costs related to the accounting review and restatement |  |  | 2,664 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,664 |
Impairment of goodwill |  |  | 19,193 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 19,193 |
|  |  | 84,418 |  |  |  | (1,191 | ) |  |  | — |  |  |  | 14 |  |  |  | — |  |  |  | — |  |  |  | (2,398 | ) |  |  | (3,575 | ) |  |  | 80,843 |
Operating (loss) income |  |  | (15,600 | ) |  |  | — |  |  |  | — |  |  |  | 226 |  |  |  | (770 | ) |  |  | (1,320 | ) |  |  | 3,363 |  |  |  | 1,499 |  |  |  | (14,101 | )
Other income and (expense) |  |  | (2,036 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 16 |  |  |  | 16 |  |  |  | (2,020 | )
Loss before income taxes |  |  | (17,636 | ) |  |  | — |  |  |  | — |  |  |  | 226 |  |  |  | (770 | ) |  |  | (1,320 | ) |  |  | 3,379 |  |  |  | 1,515 |  |  |  | (16,121 | )
Income tax expense |  |  | (448 | ) |  |  | — |  |  |  | — |  |  |  | (79 | ) |  |  | (270 | ) |  |  | 462 |  |  |  | (588 | ) |  |  | 65 |  |  |  | (383 | )
Net loss from continuing operations |  | $ | (18,084 | ) |  | $ | — |  |  | $ | — |  |  | $ | 147 |  |  | $ | (500 | ) |  | $ | (850 | ) |  | $ | 2,791 |  |  | $ | 1,580 |  |  | $ | (16,504 | )
|  | Nine Months Ended September 30, 2013 |
|  |  |  |  | Further Restatement Adjustments by Category |  |  |  |
(U.S. Dollars, in thousands) |  | Originally Reported in 2013 Form 10-Q |  |  | Co-Pay and Self-Pay Revenue |  |  | Bad Debt Timing |  |  | Accounts Receivable Reserve |  |  | Intercompany Profit |  |  | Inventory |  |  | Other |  |  | Total Further Restatement Adjustments |  |  | Restated |
Net sales |  | $ | 294,391 |  |  | $ | (2,980 | ) |  | $ | — |  |  | $ | 364 |  |  | $ | — |  |  | $ | — |  |  | $ | (50 | ) |  | $ | (2,666 | ) |  | $ | 291,725 |
Cost of sales |  |  | 69,783 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,012 |  |  |  | 3,399 |  |  |  | (1,405 | ) |  |  | 3,006 |  |  |  | 72,789 |
Gross profit |  |  | 224,608 |  |  |  | (2,980 | ) |  |  | — |  |  |  | 364 |  |  |  | (1,012 | ) |  |  | (3,399 | ) |  |  | 1,355 |  |  | $ | (5,672 | ) |  |  | 218,936 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 132,346 |  |  |  | (2,980 | ) |  |  | 1,455 |  |  |  | 54 |  |  |  | — |  |  |  | — |  |  |  | (1,416 | ) |  |  | (2,887 | ) |  |  | 129,459 |
General and administrative |  |  | 46,736 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (381 | ) |  |  | (381 | ) |  |  | 46,355 |
Research and development |  |  | 20,653 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 20,653 |
Amortization of intangible assets |  |  | 1,725 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,725 |
Costs related to accounting review and restatement |  |  | 2,664 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,664 |
Impairment of goodwill |  |  | 19,193 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 19,193 |
|  |  | 223,317 |  |  |  | (2,980 | ) |  |  | 1,455 |  |  |  | 54 |  |  |  | — |  |  |  | — |  |  |  | (1,797 | ) |  |  | (3,268 | ) |  |  | 220,049 |
Operating income |  |  | 1,291 |  |  |  | — |  |  |  | (1,455 | ) |  |  | 310 |  |  |  | (1,012 | ) |  |  | (3,399 | ) |  |  | 3,152 |  |  |  | (2,404 | ) |  |  | (1,113 | )
Other income and (expense) |  |  | 491 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 49 |  |  |  | 49 |  |  |  | 540 |
Loss before income taxes |  |  | 1,782 |  |  |  | — |  |  |  | (1,455 | ) |  |  | 310 |  |  |  | (1,012 | ) |  |  | (3,399 | ) |  |  | 3,201 |  |  |  | (2,355 | ) |  |  | (573 | )
Income tax expense |  |  | (8,126 | ) |  |  | — |  |  |  | 509 |  |  |  | (109 | ) |  |  | 354 |  |  |  | 1,190 |  |  |  | (1,811 | ) |  |  | 133 |  |  |  | (7,993 | )
Net loss from continuing operations |  | $ | (6,344 | ) |  | $ | — |  |  | $ | (964 | ) |  | $ | 201 |  |  | $ | (658 | ) |  | $ | (2,209 | ) |  | $ | 1,390 |  |  | $ | (2,222 | ) |  | $ | (8,566 | )
The effects of the Further Restatement on the condensed consolidated balance sheet as of December 31, 2013 are as follows:
|  | As of December 31, 2013 |
(Unaudited, U.S. Dollars, in thousands, except share data) |  | Originally Reported in 2013 Form 10-K |  |  | Further Restatement Adjustments |  |  | Restated |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 30,486 |  |  | $ | (1,562 | ) |  | $ | 28,924 |
Restricted cash |  |  | 23,761 |  |  |  | — |  |  |  | 23,761 |
Trade accounts receivable, less allowances of $9,111 at December 31, 2013 |  |  | 75,567 |  |  |  | (4,756 | ) |  |  | 70,811 |
Inventories |  |  | 90,577 |  |  |  | (17,899 | ) |  |  | 72,678 |
Deferred income taxes |  |  | 33,947 |  |  |  | 6,052 |  |  |  | 39,999 |
Prepaid expenses and other current assets |  |  | 25,906 |  |  |  | 3,027 |  |  |  | 28,933 |
Total current assets |  |  | 280,244 |  |  |  | (15,138 | ) |  |  | 265,106 |
Property, plant and equipment, net |  |  | 54,606 |  |  |  | (234 | ) |  |  | 54,372 |
Patents and other intangible assets, net |  |  | 9,046 |  |  |  | — |  |  |  | 9,046 |
Goodwill |  |  | 53,565 |  |  |  | — |  |  |  | 53,565 |
Deferred income taxes |  |  | 18,336 |  |  |  | 4,058 |  |  |  | 22,394 |
Other long-term assets |  |  | 7,385 |  |  |  | 107 |  |  |  | 7,492 |
Total assets |  | $ | 423,182 |  |  | $ | (11,207 | ) |  | $ | 411,975 |
Liabilities and shareholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Trade accounts payable |  | $ | 20,674 |  |  | $ | — |  |  | $ | 20,674 |
Other current liabilities |  |  | 46,146 |  |  |  | 3,530 |  |  |  | 49,676 |
Total current liabilities |  |  | 66,820 |  |  |  | 3,530 |  |  |  | 70,350 |
Long-term debt |  |  | 20,000 |  |  |  | — |  |  |  | 20,000 |
Deferred income taxes |  |  | 13,132 |  |  |  | (106 | ) |  |  | 13,026 |
Other long-term liabilities |  |  | 12,736 |  |  |  | — |  |  |  | 12,736 |
Total liabilities |  |  | 112,688 |  |  |  | 3,424 |  |  |  | 116,112 |
Contingencies (Note 16) |  |  |  |  |  |  |  |  |  |  |  |
Shareholders’ equity: |  |  |  |  |  |  |  |  |  |  |  |
Common shares $0.10 par value; 50,000,000 shares authorized; 18,102,335 issued and outstanding as of December 31, 2013 |  |  | 1,810 |  |  |  | — |  |  |  | 1,810 |
Additional paid-in capital |  |  | 216,653 |  |  |  | — |  |  |  | 216,653 |
Retained earnings |  |  | 89,332 |  |  |  | (15,435 | ) |  |  | 73,897 |
Accumulated other comprehensive income |  |  | 2,699 |  |  |  | 804 |  |  |  | 3,503 |
Total shareholders’ equity |  |  | 310,494 |  |  |  | (14,631 | ) |  |  | 295,863 |
Total liabilities and shareholders’ equity |  | $ | 423,182 |  |  | $ | (11,207 | ) |  | $ | 411,975 |
The effects of the Further Restatement on the condensed consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2013 are as follows:
|  | Three Months Ended September 30, 2013 |
(Unaudited, U.S. Dollars, in thousands, except share and per share data) |  | Originally Reported in 2013 Form 10-Q |  |  | Further Restatement Adjustments |  |  | Restated |
Product sales |  | $ | 81,061 |  |  | $ | (1,024 | ) |  | $ | 80,037 |
Marketing service fees |  |  | 11,677 |  |  |  | 92 |  |  |  | 11,769 |
Net sales |  |  | 92,738 |  |  |  | (932 | ) |  |  | 91,806 |
Cost of sales |  |  | 23,920 |  |  |  | 1,144 |  |  |  | 25,064 |
Gross profit |  |  | 68,818 |  |  |  | (2,076 | ) |  |  | 66,742 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 42,382 |  |  |  | (3,306 | ) |  |  | 39,076 |
General and administrative |  |  | 13,202 |  |  |  | (269 | ) |  |  | 12,933 |
Research and development |  |  | 6,361 |  |  |  | — |  |  |  | 6,361 |
Amortization of intangible assets |  |  | 616 |  |  |  | — |  |  |  | 616 |
Costs related to the accounting review and restatement |  |  | 2,664 |  |  |  | — |  |  |  | 2,664 |
Impairment of goodwill |  |  | 19,193 |  |  |  | — |  |  |  | 19,193 |
|  |  | 84,418 |  |  |  | (3,575 | ) |  |  | 80,843 |
Operating loss |  |  | (15,600 | ) |  |  | 1,499 |  |  |  | (14,101 | )
Other income and expense |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (555 | ) |  |  | 16 |  |  |  | (539 | )
Other expense |  |  | (1,481 | ) |  |  | — |  |  |  | (1,481 | )
|  |  | (2,036 | ) |  |  | 16 |  |  |  | (2,020 | )
Loss before income taxes |  |  | (17,636 | ) |  |  | 1,515 |  |  |  | (16,121 | )
Income tax expense |  |  | (448 | ) |  |  | 65 |  |  |  | (383 | )
Net loss from continuing operations |  |  | (18,084 | ) |  |  | 1,580 |  |  |  | (16,504 | )
Discontinued operations (Note 15) |  |  |  |  |  |  |  |  |  |  |  |
Loss from discontinued operations |  |  | (3,041 | ) |  |  | 666 |  |  |  | (2,375 | )
Income tax benefit |  |  | 1,303 |  |  |  | (1,260 | ) |  |  | 43 |
Net loss from discontinued operations, net of tax |  |  | (1,738 | ) |  |  | (594 | ) |  |  | (2,332 | )
Net loss |  | $ | (19,822 | ) |  | $ | 986 |  |  | $ | (18,836 | )
Net loss per common share-basic: |  |  |  |  |  |  |  |  |  |  |  |
Net loss from continuing operations, net of tax |  | $ | (1.00 | ) |  | $ | 0.09 |  |  | $ | (0.91 | )
Net loss from discontinued operations, net of tax |  |  | (0.10 | ) |  |  | (0.03 | ) |  |  | (0.13 | )
Net loss per common share-basic |  | $ | (1.10 | ) |  | $ | 0.06 |  |  | $ | (1.04 | )
Net loss per common share-diluted: |  |  |  |  |  |  |  |  |  |  |  |
Net loss from continuing operations, net of tax |  | $ | (1.00 | ) |  | $ | 0.09 |  |  | $ | (0.91 | )
Net loss from discontinued operations, net of tax |  |  | (0.10 | ) |  |  | (0.03 | ) |  |  | (0.13 | )
Net loss per common share-diluted |  | $ | (1.10 | ) |  | $ | 0.06 |  |  | $ | (1.04 | )
Weighted average number of common shares: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 18,142,935 |  |  |  | — |  |  |  | 18,142,935 |
Diluted |  |  | 18,142,935 |  |  |  | — |  |  |  | 18,142,935 |
Comprehensive loss |  | $ | (16,064 | ) |  | $ | 1,017 |  |  | $ | (15,047 | )
|  | Nine Months Ended September 30, 2013 |
(Unaudited, U.S. Dollars, in thousands, except share and per share data) |  | Originally Reported in 2013 Form 10-Q |  |  | Further Restatement Adjustments |  |  | Restated |
Product sales |  | $ | 259,030 |  |  | $ | (2,823 | ) |  | $ | 256,207 |
Marketing service fees |  |  | 35,361 |  |  |  | 157 |  |  |  | 35,518 |
Net sales |  |  | 294,391 |  |  |  | (2,666 | ) |  |  | 291,725 |
Cost of sales |  |  | 69,783 |  |  |  | 3,006 |  |  |  | 72,789 |
Gross profit |  |  | 224,608 |  |  |  | (5,672 | ) |  |  | 218,936 |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  |  | 132,346 |  |  |  | (2,887 | ) |  |  | 129,459 |
General and administrative |  |  | 46,736 |  |  |  | (381 | ) |  |  | 46,355 |
Research and development |  |  | 20,653 |  |  |  | — |  |  |  | 20,653 |
Amortization of intangible assets |  |  | 1,725 |  |  |  | — |  |  |  | 1,725 |
Costs related to the accounting review and restatement |  |  | 2,664 |  |  |  | — |  |  |  | 2,664 |
Impairment of goodwill |  |  | 19,193 |  |  |  | — |  |  |  | 19,193 |
|  |  | 223,317 |  |  |  | (3,268 | ) |  |  | 220,049 |
Operating income (loss) |  |  | 1,291 |  |  |  | (2,404 | ) |  |  | (1,113 | )
Other income and expense |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (1,585 | ) |  |  | 49 |  |  |  | (1,536 | )
Other income |  |  | 2,076 |  |  |  | — |  |  |  | 2,076 |
|  |  | 491 |  |  |  | 49 |  |  |  | 540 |
Income (loss) before income taxes |  |  | 1,782 |  |  |  | (2,355 | ) |  |  | (573 | )
Income tax expense |  |  | (8,126 | ) |  |  | 133 |  |  |  | (7,993 | )
Net loss from continuing operations |  |  | (6,344 | ) |  |  | (2,222 | ) |  |  | (8,566 | )
Discontinued operations (Note 15) |  |  |  |  |  |  |  |  |  |  |  |
Loss from discontinued operations |  |  | (16,629 | ) |  |  | 2,202 |  |  |  | (14,427 | )
Income tax benefit |  |  | 5,334 |  |  |  | (741 | ) |  |  | 4,593 |
Net loss from discontinued operations |  |  | (11,295 | ) |  |  | 1,461 |  |  |  | (9,834 | )
Net loss |  | $ | (17,639 | ) |  | $ | (761 | ) |  | $ | (18,400 | )
Net loss per common share-basic: |  |  |  |  |  |  |  |  |  |  |  |
Net loss from continuing operations |  | $ | (0.34 | ) |  | $ | (0.11 | ) |  | $ | (0.45 | )
Net loss from discontinued operations |  |  | (0.60 | ) |  |  | 0.08 |  |  |  | (0.52 | )
Net loss per common share-basic |  | $ | (0.94 | ) |  | $ | (0.03 | ) |  | $ | (0.97 | )
Net loss per common share-diluted: |  |  |  |  |  |  |  |  |  |  |  |
Net loss from continuing operations |  | $ | (0.34 | ) |  | $ | (0.11 | ) |  | $ | (0.45 | )
Net loss from discontinued operations |  |  | (0.60 | ) |  |  | 0.08 |  |  |  | (0.52 | )
Net loss per common share-diluted |  | $ | (0.94 | ) |  | $ | (0.03 | ) |  | $ | (0.97 | )
Weighted average number of common shares: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 18,897,887 |  |  |  | — |  |  |  | 18,897,887 |
Diluted |  |  | 18,897,887 |  |  |  | — |  |  |  | 18,897,887 |
Comprehensive loss |  | $ | (17,426 | ) |  | $ | (671 | ) |  | $ | (18,097 | )
The effects of the Further Restatement on the condensed consolidated statement of cash flows for the nine months ended September 30, 2013 are as follows:
|  | Nine Months Ended September 30, 2013 |
(Unaudited, U.S. Dollars, in thousands) |  | Originally Reported in 2013 Form 10-Q |  |  | Further Restatement Adjustments |  |  | Restated |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  | $ | (17,639 | ) |  | $ | (761 | ) |  | $ | (18,400 | )
Adjustments to reconcile net loss to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 15,459 |  |  |  | 126 |  |  |  | 15,585 |
Amortization of debt costs |  |  | 540 |  |  |  | — |  |  |  | 540 |
Amortization of exclusivity agreements |  |  | — |  |  |  | 1,069 |  |  |  | 1,069 |
Provision for doubtful accounts |  |  | 4,225 |  |  |  | (1,471 | ) |  |  | 2,754 |
Deferred income taxes |  |  | (223 | ) |  |  | — |  |  |  | (223 | )
Share-based compensation |  |  | 4,714 |  |  |  | — |  |  |  | 4,714 |
Impairment of goodwill |  |  | 19,193 |  |  |  | — |  |  |  | 19,193 |
Excess income tax benefit on employee stock-based awards |  |  | (82 | ) |  |  | — |  |  |  | (82 | )
Other |  |  | (520 | ) |  |  | (645 | ) |  |  | (1,165 | )
Change in operating assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Trade accounts receivable |  |  | 27,758 |  |  |  | 2,616 |  |  |  | 30,374 |
Inventories |  |  | (11,596 | ) |  |  | 2,819 |  |  |  | (8,777 | )
Prepaid expenses and other current assets |  |  | 5,541 |  |  |  | 864 |  |  |  | 6,405 |
Trade accounts payable |  |  | (8,028 | ) |  |  | — |  |  |  | (8,028 | )
Other current liabilities |  |  | 13,040 |  |  |  | (3,555 | ) |  |  | 9,485 |
Long-term assets |  |  | 482 |  |  |  | (1,907 | ) |  |  | (1,425 | )
Long-term liabilities |  |  | (912 | ) |  |  | 796 |  |  |  | (116 | )
Net cash provided by operating activities |  |  | 51,952 |  |  |  | (49 | ) |  |  | 51,903 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures for property, plant and equipment |  |  | (19,427 | ) |  |  | — |  |  |  | (19,427 | )
Capital expenditures for intangible assets |  |  | (4,525 | ) |  |  | — |  |  |  | (4,525 | )
Purchase of other investments |  |  | — |  |  |  | (1,232 | ) |  |  | (1,232 | )
Net cash used in investing activities |  |  | (23,952 | ) |  |  | (1,232 | ) |  |  | (25,184 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Net proceeds from issuance of common shares |  |  | 3,431 |  |  |  | — |  |  |  | 3,431 |
(Repayment of) proceeds from bank borrowings, net |  |  | (16 | ) |  |  | — |  |  |  | (16 | )
Changes in restricted cash |  |  | (1,371 | ) |  |  | — |  |  |  | (1,371 | )
Repurchase of treasury shares |  |  | (39,494 | ) |  |  | — |  |  |  | (39,494 | )
Excess income tax benefit on employee stock-based awards |  |  | 82 |  |  |  | — |  |  |  | 82 |
Net cash used in financing activities |  |  | (37,368 | ) |  |  | — |  |  |  | (37,368 | )
Effect of exchange rate changes on cash |  |  | 532 |  |  |  | 79 |  |  |  | 611 |
Net decrease in cash and cash equivalents |  |  | (8,836 | ) |  |  | (1,202 | ) |  |  | (10,038 | )
Cash and cash equivalents at the beginning of the period |  |  | 31,055 |  |  |  | (288 | ) |  |  | 30,767 |
Cash and cash equivalents at the end of the period |  | $ | 22,219 |  |  |  | (1,490 | ) |  | $ | 20,729 |

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