XML 44 R24.htm IDEA: XBRL DOCUMENT

RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

12 Months Ended

Dec. 31, 2019

Accounting Changes and Error Corrections [Abstract]

RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

18.

RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

On February 14, 2020, the Company filed a Form 8-K disclosing that the Audit & Finance Committee of the Company’s Board of Directors, determined, based on the recommendation of management, that the Company’s consolidated financial statements which were included in its annual report on Form 10-K for the year ended December 31, 2018, quarterly reports on Forms 10-Q for the quarters ended March 31, 2018, June 30, 2018, and September 30, 2018 and quarterly reports on Forms 10-Q for the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019 and related financial information should no longer be relied upon, and determined that the consolidated financial statements will be restated. The errors were uncovered as part of the preparation of the Company’s consolidated financial statements for the fiscal year ended December 31, 2019.

As a result, the Company restated the 2018 consolidated financial statements, which is referred to as the “Restatement.” The Restatement corrects errors which are discussed in detail within this footnote.

The errors primarily related to the timing of recognition of revenue from contracts with customers.

Restatement

The following is a discussion of the restatement adjustments that were made to the Company’s previously issued consolidated financial statements:

(a) Revenue recognition

The Company recognizes revenues and profits for contracts with customers using the cost-to-cost percentage of completion method of accounting. Historically, for long-term programs, the Company applied the cost-to-cost percentage of completion method at the program level, that is, for the entire duration of expected production activity on a particular program. The Company estimated its revenue recognition utilizing the life of the program to both measure progress and estimate profit margin. Under this approach, the Company estimated the total expected customer purchases over the life of the program, which included unexercised and non-binding customer purchase options, which resulted in the recognition of $100.9 million of misstated contract assets, contract liabilities and loss reserves.

The Company has now concluded that its life of the program accounting was not an appropriate application of ASC Topic 606. Under ASC Topic 606, the performance obligation is the appropriate unit of accounting. The Company identifies performance obligations to customers once a contract is established in accordance with ASC Topic 606. For the Company, the contract under ASC Topic 606 is typically established upon execution of a purchase order either in accordance with a long-term customer agreement or on a standalone basis. The transaction price is also determined at the contract level and excludes amounts related to unexercised customer options. Similarly, the Company’s cost-to-cost input method to measure progress must consider only the costs incurred relative to the total expected costs of satisfying the performance obligations identified in the contract, exclusive of unexercised customer options.

To correct these errors, the related revenue was reversed in the period in which the accounting errors took place and recognized in subsequent periods as control of the goods or services in the contract passed to the customer over time based on a cost-to-cost input method measure of progress. Additionally, certain adjustments to contract assets and contract liabilities were made to the consolidated balance sheet at the end of the period in which the accounting errors occurred.

(b) Other

The Company corrected other immaterial misstatements relating to previously unrecorded audit adjustments.

The Company has recorded tax adjustments related to the impact of the restatement.

Impact on Consolidated Statements of Operations

The effect of the Restatement described above on the accompanying consolidated statements of operations for the fiscal year ended December 31, 2018 is as follows:


	For the Year Ended December 31, 2018
	As Previously Reported			Revenue Recognition			Other			Income Taxes			As Restated
Revenue	$	83,929,270		$	(13,563,254	)	$	—		$	—		$	70,366,016
Cost of sales		65,765,007			671,122			(280,143	)		—			66,155,986
Gross profit		18,164,263			(14,234,376	)		280,143			—			4,210,030
Selling, general and administrative expenses		9,528,883			—			251,144			—			9,780,027
Income (loss) from operations		8,635,380			(14,234,376	)		28,999			—			(5,569,997	)
Other expense:
Other income		28,709			—			—			—			28,709
Interest expense		(1,989,417	)		—			—			—			(1,989,417	)
Total other expense, net		(1,960,708	)		—			—			—			(1,960,708	)
Income (loss) before provision for income taxes		6,674,672			(14,234,376	)		28,999			—			(7,530,705	)
Provision for income taxes		4,463,109			—			—			(4,447,061	)		16,048
Net income (loss)		2,211,563			(14,234,376	)		28,999			4,447,061			(7,546,753	)
Other comprehensive income net of tax – change
Change in unrealized loss-interest rate swap		14,800												14,800
Comprehensive income (loss)	$	2,226,363		$	(14,234,376	)	$	28,999		$	4,447,061		$	(7,531,953	)

Income (loss) per common share – basic	$	0.23											$	(0.80	)
Income (loss) per common share – diluted	$	0.23											$	(0.80	)

Shares used in computing earnings per common share:
Basic		9,480,948												9,480,948
Diluted		9,489,630												9,480,948

Impact on Consolidated Statement of Comprehensive Income (Loss)

The only change to the consolidated statement of comprehensive income (loss) for the fiscal year ended December 31, 2018 as a result of the Restatement is due to the change in net income (loss).

Impact on Consolidated Balance Sheet

The effect of the Restatement described above on the accompanying consolidated balance sheet as of December 31, 2018 is as follows:

	As of December 31, 2018
	As Previously Reported		Revenue Recognition			Other			Income Taxes			As Restated
ASSETS
Current Assets:
Cash	$	4,128,142	$	—		$	—		$	—		$	4,128,142
Restricted cash		2,000,000		—			—			—			2,000,000
Accounts receivable, net		8,623,329		—			99,242			—			8,722,571
Contract assets		113,333,491		(95,744,625	)		—			—			17,588,866
Inventory		9,711,997		—			(350,386	)		—			9,361,611
Refundable income taxes		435,000		—			—			(97	)		434,903
Prepaid expenses and other current assets		1,972,630		—			—			—			1,972,630
Total Current Assets		140,204,589		(95,744,625	)		(251,144	)		(97	)		44,208,723

Property and equipment, net		2,545,192		—			—			—			2,545,192
Refundable income taxes		435,000		—			—			(97	)		434,903
Deferred income taxes		279,318		—			—			(279,318	)		—
Other assets		249,575		—			—			—			249,575
Total Assets	$	143,713,674	$	(95,744,625	)	$	(251,144	)	$	(279,512	)	$	47,438,393

Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable	$	9,902,481	$	—		$	—		$	—		$	9,902,481
Accrued expenses		1,558,160		—			—			—			1,558,160
Contract liabilities		3,588,500		1,664,079			—			—			5,252,579
Loss reserve		216,606		3,446,952			—			—			3,663,558
Current portion of long-term debt		2,434,981		—			—			—			2,434,981
Income taxes payable		115,000		—			—			(1,008	)		113,992
Total Current Liabilities		17,815,728		5,111,031			—			(1,008	)		22,925,751

Line of credit		24,038,685		—			—			—			24,038,685
Long-term debt, net of current portion		3,876,238		—			—			—			3,876,238
Deferred income taxes		4,028,553		—			—			(4,028,553	)		—
Other liabilities		531,124		—			—			—			531,124
Total Liabilities		50,290,328		5,111,031			—			(4,029,561	)		51,371,798

Shareholders’ Equity (Deficit):
Common stock		11,718		—			—			—			11,718
Additional paid-in capital		70,651,413		—			—			—			70,651,413
Retained earnings (accumulated deficit)		22,760,215		(100,855,656	)		(251,144	)		3,750,049			(74,596,536	)
Total Shareholders’ Equity (Deficit)		93,423,346		(100,855,656	)		(251,144	)		3,750,049			(3,933,405	)
Total Liabilities and Shareholders’ Equity (Deficit)	$	143,713,674	$	(95,744,625	)	$	(251,144	)	$	(279,512	)	$	47,438,393

Cumulative Effect of Prior Period Adjustments

The following table presents the impact of the Restatement on the Company’s shareholders’ equity (deficit) as of January 1, 2018:

	Common Stock		Additional Paid-in Capital		Retained Earnings (accumulated deficit)			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity (Deficit)
Balance, January 1, 2018 (As previously reported)	$	8,864	$	53,770,617	$	20,548,652		$	(14,800	)	$	74,313,333
Adjustments:
Revenue recognition		—		—		(86,621,280	)		—			(86,621,280	)
Other		—		—		(280,143	)		—			(280,143	)
Income taxes		—		—		(697,012	)		—			(697,012	)
Cumulative restatement adjustments		—		—		(87,598,435	)		—			(87,598,435	)
Balance, January 1, 2018 (As Restated)	$	8,864	$	53,770,617	$	(67,049,783	)	$	(14,800	)	$	(13,285,102	)

Impact on Consolidated Statement of Cash Flows

The effect of the Restatement described above on the accompanying consolidated statement of cash flows for the fiscal year ended December 31, 2018 is as follows:

	For the Year Ended December 31, 2018
	As Previously Reported			Restatement Adjustments			As Restated
Cash flows from operating activities:
Net income (loss)	$	2,211,563		$	(9,758,316	)	$	(7,546,753	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		710,197			—			710,197
Amortization of debt issuance cost		95,942			(436	)		95,506
Deferred rent		(70,764	)		—			(70,764	)
Stock-based compensation expense		671,620			—			671,620
Common stock issues as employee compensation		45,913			—			45,913
Deferred income taxes		5,337,053			(5,337,053	)		—
Adjustment for maturity of interest rate swap		20,600			(5,800	)		14,800
Bad debt expense		125,000			(99,242	)		25,758
Changes in operating assets and liabilities, net of effects of acquisition:
Increase in accounts receivable		(1,796,225	)		(50,283	)		(1,846,508	)
(Increase) decrease in contract assets		(2,174,941	)		12,629,627			10,454,686
(Increase) decrease in inventory		(57,272	)		350,038			292,766
(Increase) decrease in prepaid expenses and other current assets		5,702			(27,957	)		(22,255	)
Increase in refundable income taxes		(870,000	)		870,000			—
Decrease in accounts payable and accrued expenses		(7,696,024	)		(230,771	)		(7,926,795	)
Increase in contract liabilities		866,968			1,563,954			2,430,922
Increase (decrease) in loss reserve		44,933			(59,329	)		(14,396	)
Decrease in other liabilities		(10,976	)		5,801			(5,175	)
Increase in income taxes payable		5,673			(1,008	)		4,665
Net cash used in operating activities		(2,535,038	)		(150,775	)		(2,685,813	)
Cash flows from investing activities:
Purchase of property and equipment		(559,037	)		—			(559,037	)
Purchase of WMI		(6,050,906	)		98,906			(5,952,000	)
Net cash used in investing activities		(6,609,943	)		98,906			(6,511,037	)
Cash flows from financing activities:
Net proceeds from sale of common stock		16,166,117			—			16,166,117
Payment of line of credit		(6,500,000	)		—			(6,500,000	)
Proceeds from line of credit		7,700,000			—			7,700,000
Payment of long-term debt		(3,314,789	)		—			(3,314,789	)
Debt issuance costs		(209,082	)		51,869			(157,213	)
Net cash provided by financing activities		13,842,246			51,869			13,894,115
Net increase in cash and restricted cash		4,697,265			—			4,697,265
Cash and restricted cash at beginning of year		1,430,877			—			1,430,877
Cash and restricted cash at end of year	$	6,128,142		$	—		$	6,128,142
Supplemental schedule of noncash investing and financing activities:
Equipment acquired under capital leases	$	649,410		$	—		$	649,410
Supplemental schedule of cash flow information:
Cash paid during the year for interest	$	2,134,574		$	—		$	2,134,574
Cash paid for income taxes	$	10,947		$	—		$	10,947