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Note 3 - Restatement of Previously Issued Consolidated Financial Statements | 9 Months Ended
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Sep. 30, 2023
Notes to Financial Statements |
Error Correction [Text Block] |
(3) | RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS
We have restated our consolidated financial statements as of and for the three and nine months ended September 30, 2023. Errors were discovered during the course of management’s review of our financial statements in the process of closing the year ended December 31, 2023 and in conjunction with the year-end audit. The errors were related to revenue recognized for the three and nine months ended September 30, 2023. The restatement reflects the reversal of revenue related to the sale of discontinued material/components purchased on behalf of customers where the associated materials/components were still physically located with us and the materials/components are expected to be applied to future product orders for these customers. These transactions were all fully paid for and legal title of the materials/components has transferred to the customer. However, these facts alone are not sufficient for revenue recognition under U.S. GAAP for such an arrangement. The restatement also reflects the reversal of the related costs of these material/components along with adjustments to commissions earned and income tax expense for the affected periods. Regarding our previously reported unaudited consolidated balance sheet as of September 30, 2023, the following table presents an increase to deferred revenue of $1,722, of which $689 was a current liability and $1,033 was a non-current liability, an increase to deferred costs of $835, of which $334 was a current asset and $591 was a non-current asset, a reduction of accrued sales commission of $72 and a reduction of domestic and foreign taxes payable of $126.
UNAUDITED CONSOLIDATED BALANCE SHEET (In thousands, except share and per share data)
|  | September 30, 2023 |
|  | As Previously Reported |  |  | Adjustments |  |  | As Restated |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 41,685 |  |  | $ | - |  |  | $ | 41,685 |
Restricted cash |  |  | - |  |  |  | - |  |  |  | - |
Trade accounts receivable, net of allowance for credit losses of $499 and $496, respectively |  |  | 20,710 |  |  |  | - |  |  |  | 20,710 |
Inventories |  |  | 22,156 |  |  |  | - |  |  |  | 22,156 |
Prepaid expenses and other current assets |  |  | 1,672 |  |  |  | 334 |  |  |  | 2,006 |
Total current assets |  |  | 86,223 |  |  |  | 334 |  |  |  | 86,557 |
Property and equipment: |  |  |  |  |  |  |  |  |  |  |  |
Machinery and equipment |  |  | 6,829 |  |  |  | - |  |  |  | 6,829 |
Leasehold improvements |  |  | 3,581 |  |  |  | - |  |  |  | 3,581 |
Gross property and equipment |  |  | 10,410 |  |  |  | - |  |  |  | 10,410 |
Less: accumulated depreciation |  |  | (7,267 | ) |  |  | - |  |  |  | (7,267 | )
Net property and equipment |  |  | 3,143 |  |  |  | - |  |  |  | 3,143 |
Right-of-use assets, net |  |  | 4,755 |  |  |  | - |  |  |  | 4,755 |
Goodwill |  |  | 21,578 |  |  |  | - |  |  |  | 21,578 |
Intangible assets, net |  |  | 16,959 |  |  |  | - |  |  |  | 16,959 |
Deferred tax assets |  |  | 1,381 |  |  |  | - |  |  |  | 1,381 |
Restricted certificates of deposit |  |  | 100 |  |  |  | - |  |  |  | 100 |
Other assets |  |  | 444 |  |  |  | 501 |  |  |  | 945 |
Total assets |  | $ | 134,583 |  |  | $ | 835 |  |  | $ | 135,418 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Current portion of Term Note |  | $ | 4,100 |  |  | $ | - |  |  | $ | 4,100 |
Current portion of operating lease liabilities |  |  | 1,730 |  |  |  | - |  |  |  | 1,730 |
Accounts payable |  |  | 7,296 |  |  |  | - |  |  |  | 7,296 |
Accrued wages and benefits |  |  | 4,030 |  |  |  | - |  |  |  | 4,030 |
Accrued professional fees |  |  | 1,188 |  |  |  | - |  |  |  | 1,188 |
Customer deposits and deferred revenue |  |  | 3,709 |  |  |  | 689 |  |  |  | 4,398 |
Accrued sales commissions |  |  | 1,248 |  |  |  | (72 | ) |  |  | 1,176 |
Domestic and foreign income taxes payable |  |  | 1,245 |  |  |  | (126 | ) |  |  | 1,119 |
Other current liabilities |  |  | 1,557 |  |  |  | - |  |  |  | 1,557 |
Total current liabilities |  |  | 26,103 |  |  |  | 491 |  |  |  | 26,594 |
Operating lease liabilities, net of current portion |  |  | 3,501 |  |  |  | - |  |  |  | 3,501 |
Term Note, net of current portion |  |  | 8,967 |  |  |  | - |  |  |  | 8,967 |
Contingent consideration |  |  | 1,002 |  |  |  | - |  |  |  | 1,002 |
Deferred revenue, net of current portion |  |  | - |  |  |  | 1,033 |  |  |  | 1,033 |
Other liabilities |  |  | 397 |  |  |  | - |  |  |  | 397 |
Total liabilities |  |  | 39,970 |  |  |  | 1,524 |  |  |  | 41,494 |
Commitments and Contingencies |  |  |  |  |  |  |  |  |  |  |  |
Stockholders' equity: |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued or outstanding |  |  | - |  |  |  | - |  |  |  | - |
Common stock, $0.01 par value; 20,000,000 shares authorized; 12,237,070 and 11,063,271 shares issued, respectively |  |  | 122 |  |  |  | - |  |  |  | 122 |
Additional paid-in capital |  |  | 53,960 |  |  |  | - |  |  |  | 53,960 |
Retained earnings |  |  | 41,430 |  |  |  | (689 | ) |  |  | 40,741 |
Accumulated other comprehensive earnings |  |  | 2 |  |  |  | - |  |  |  | 2 |
Treasury stock, at cost; 75,758 and 34,308 shares, respectively |  |  | (901 | ) |  |  | - |  |  |  | (901 | )
Total stockholders' equity |  |  | 94,613 |  |  |  | (689 | ) |  |  | 93,924 |
Total liabilities and stockholders' equity |  | $ | 134,583 |  |  | $ | 835 |  |  | $ | 135,418 |
Regarding our previously reported unaudited consolidated statements of operations for the three and nine months ended September 30, 2023, the following table presents a decrease in revenue of $1,722, a decrease in cost of revenue of $835, a decrease in sales commission expense of $72 and a reduction in income tax expense of $126.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except share and per share data)
|  | Three Months Ended September 30, 2023 |  |  | Nine Months Ended September 30, 2023 |
|  | As Previously Reported |  |  | Adjustments |  |  | As Restated |  |  | As Previously Reported |  |  | Adjustments |  |  | As Restated |
Revenue |  | $ | 32,663 |  |  | $ | (1,722 | ) |  | $ | 30,941 |  |  | $ | 97,140 |  |  | $ | (1,722 | ) |  | $ | 95,418 |
Cost of revenue |  |  | 17,329 |  |  |  | (835 | ) |  |  | 16,494 |  |  |  | 51,724 |  |  |  | (835 | ) |  |  | 50,889 |
Gross profit |  |  | 15,334 |  |  |  | (887 | ) |  |  | 14,447 |  |  |  | 45,416 |  |  |  | (887 | ) |  |  | 44,529 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling expense |  |  | 4,367 |  |  |  | (72 | ) |  |  | 4,295 |  |  |  | 13,483 |  |  |  | (72 | ) |  |  | 13,411 |
Engineering and product development expense |  |  | 1,802 |  |  |  | - |  |  |  | 1,802 |  |  |  | 5,689 |  |  |  | - |  |  |  | 5,689 |
General and administrative expense |  |  | 5,882 |  |  |  | - |  |  |  | 5,882 |  |  |  | 16,099 |  |  |  | - |  |  |  | 16,099 |
Total operating expenses |  |  | 12,051 |  |  |  | (72 | ) |  |  | 11,979 |  |  |  | 35,271 |  |  |  | (72 | ) |  |  | 35,199 |
Operating income |  |  | 3,283 |  |  |  | (815 | ) |  |  | 2,468 |  |  |  | 10,145 |  |  |  | (815 | ) |  |  | 9,330 |
Interest expense |  |  | (168 | ) |  |  | - |  |  |  | (168 | ) |  |  | (526 | ) |  |  | - |  |  |  | (526 | )
Other income |  |  | 423 |  |  |  | - |  |  |  | 423 |  |  |  | 678 |  |  |  | - |  |  |  | 678 |
Earnings before income tax expense |  |  | 3,538 |  |  |  | (815 | ) |  |  | 2,723 |  |  |  | 10,297 |  |  |  | (815 | ) |  |  | 9,482 |
Income tax expense |  |  | 572 |  |  |  | (126 | ) |  |  | 446 |  |  |  | 1,721 |  |  |  | (126 | ) |  |  | 1,595 |
Net earnings |  | $ | 2,966 |  |  | $ | (689 | ) |  | $ | 2,277 |  |  | $ | 8,576 |  |  | $ | (689 | ) |  | $ | 7,887 |
Earnings per common share - basic |  | $ | 0.25 |  |  | $ | (0.06 | ) |  | $ | 0.19 |  |  | $ | 0.76 |  |  | $ | (0.06 | ) |  | $ | 0.70 |
Weighted average common shares outstanding - basic |  |  | 11,886,005 |  |  |  |  |  |  |  | 11,886,005 |  |  |  | 11,294,306 |  |  |  |  |  |  |  | 11,294,306 |
Earnings per common share - diluted |  | $ | 0.24 |  |  | $ | (0.05 | ) |  | $ | 0.19 |  |  | $ | 0.74 |  |  | $ | (0.06 | ) |  | $ | 0.68 |
Weighted average common shares and common share equivalents outstanding - diluted |  |  | 12,212,317 |  |  |  |  |  |  |  | 12,212,317 |  |  |  | 11,665,850 |  |  |  |  |  |  |  | 11,665,850 |
The following table presents the impact of the adjustments discussed above on the unaudited consolidated cash flow statement for the nine months ending September 30, 2023:
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands)
|  | Nine Months Ended September 30, 2023 |
|  | As Previously Reported |  |  | Adjustments |  |  | As Restated |
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |  |  |  |  |  |  |  |  |  |
Net earnings |  | $ | 8,576 |  |  | $ | (689 | ) |  | $ | 7,887 |
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 3,515 |  |  |  | - |  |  |  | 3,515 |
Provision for excess and obsolete inventory |  |  | 385 |  |  |  | - |  |  |  | 385 |
Foreign exchange loss |  |  | 17 |  |  |  | - |  |  |  | 17 |
Amortization of deferred compensation related to stock-based awards |  |  | 1,623 |  |  |  | - |  |  |  | 1,623 |
Discount on shares sold under Employee Stock Purchase Plan |  |  | 21 |  |  |  | - |  |  |  | 21 |
Loss on disposal of property and equipment |  |  | 164 |  |  |  | - |  |  |  | 164 |
Deferred income tax benefit |  |  | (1,101 | ) |  |  | - |  |  |  | (1,101 | )
Adjustment to contingent consideration liability |  |  | (358 | ) |  |  | - |  |  |  | (358 | )
Changes in assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Trade accounts receivable |  |  | 480 |  |  |  | - |  |  |  | 480 |
Inventories |  |  | (9 | ) |  |  | - |  |  |  | (9 | )
Prepaid expenses and other current assets |  |  | 21 |  |  |  | (334 | ) |  |  | (313 | )
Other assets |  |  | 9 |  |  |  | (501 | ) |  |  | (492 | )
Operating lease liabilities |  |  | (1,275 | ) |  |  | - |  |  |  | (1,275 | )
Accounts payable |  |  | (100 | ) |  |  | - |  |  |  | (100 | )
Accrued wages and benefits |  |  | 125 |  |  |  | - |  |  |  | 125 |
Accrued professional fees |  |  | 305 |  |  |  | - |  |  |  | 305 |
Customer deposits and deferred revenue |  |  | (794 | ) |  |  | 689 |  |  |  | (105 | )
Accrued sales commissions |  |  | (220 | ) |  |  | (72 | ) |  |  | (292 | )
Domestic and foreign income taxes payable |  |  | (166 | ) |  |  | (126 | ) |  |  | (292 | )
Other current liabilities |  |  | 320 |  |  |  | - |  |  |  | 320 |
Deferred revenue, net of current portion |  |  | - |  |  |  | 1,033 |  |  |  | 1,033 |
Other liabilities |  |  | (17 | ) |  |  | - |  |  |  | (17 | )
Net cash provided by (used in) operating activities |  |  | 11,521 |  |  |  | - |  |  |  | 11,521 |
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |  |  |  |  |  |  |  |  |  |
Refund of final working capital adjustment related to Acculogic |  |  | - |  |  |  | - |  |  |  | - |
Purchase of property and equipment |  |  | (983 | ) |  |  | - |  |  |  | (983 | )
Purchase of short-term investments |  |  | - |  |  |  | - |  |  |  | - |
Net cash used in investing activities |  |  | (983 | ) |  |  | - |  |  |  | (983 | )
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |  |  |  |  |  |  |  |  |  |
Net proceeds from public offering of common stock |  |  | 19,244 |  |  |  | - |  |  |  | 19,244 |
Repayments of Term Note |  |  | (3,075 | ) |  |  | - |  |  |  | (3,075 | )
Proceeds from shares sold under Employee Stock Purchase Plan |  |  | 118 |  |  |  | - |  |  |  | 118 |
Proceeds from stock options exercised |  |  | 978 |  |  |  | - |  |  |  | 978 |
Settlement of employee tax liabilities in connection with treasury stock transaction |  |  | (687 | ) |  |  | - |  |  |  | (687 | )
Net cash provided by (used in) financing activities |  |  | 16,578 |  |  |  | - |  |  |  | 16,578 |
Effects of exchange rates on cash |  |  | (7 | ) |  |  | - |  |  |  | (7 | )
Net cash provided by (used in) all activities |  |  | 27,109 |  |  |  | - |  |  |  | 27,109 |
Cash, cash equivalents and restricted cash at beginning of period |  |  | 14,576 |  |  |  | - |  |  |  | 14,576 |
Cash and cash equivalents at end of period |  | $ | 41,685 |  |  | $ | - |  |  | $ | 41,685 |

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