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Restatement of Previously Issued Financial Statements
 12 Months Ended
Dec. 31, 2020
Prior Period Adjustment [Abstract]  
Restatement of Previously Issued Financial Statements

Restatement of Previously Issued Financial Statements. The financial statements for the years ended December 31, 2020 and 2019 have been restated to reflect the correction of misstatements. The Company also restated all amounts impacted within the notes to the financial statements. A description of the adjustments and their impact on the previously issued financial statements are included below.

 

Description of Restatement Adjustments. Commencing in the second quarter of 2021, the Company conducted a review of its sales tax positions, and related accounting, with the assistance of outside consultants. As a result of the review, it was determined that certain non-POPs services/products sales were subject to sales tax and that the Company had not assessed sales tax on sales of those services/products to customers. Company management then undertook a process to obtain documentation from significant customers to determine if each was exempt from sales tax assessments during the applicable periods. Based on responses received from these customers, the Company determined that it did not properly accrue sales tax and accrued the estimated sales tax. The misstatements in the previously issued financial statements are considered material and are described below.

 

In light of the foregoing, the Company in accordance with ASC 250, Accounting Changes and Error Corrections is restating the previously issued financial statements for the years ended December 31, 2020 and 2019 to reflect the effects of misstatements, and to make certain corresponding disclosures. The balance sheets, statements of operations, shareholders’ equity and cash flows, and Notes 1, 4, 9 and 11, were updated to reflect the restatement.

 

A summary of the impact of the misstatements is as follows:

 

    December 31, 2020   December 31, 2019
Year Ended   As previously reported Restated   As previously reported Restated
Net Sales    $ 17,669,000    $ 17,482,000    $ 21,954,000    $ 21,528,000
Operating Loss          (4,601,000)          (4,839,000)          (5,629,000)          (6,106,000)
Net Loss          (4,300,000)          (4,615,000)          (5,021,000)          (5,577,000)

 

    December 31, 2020   December 31, 2019
As of   As previously reported Restated   As previously reported Restated
Shareholders' equity    $ 7,694,000    $ 6,668,000    $ 11,794,000    $ 11,083,000
                 

 

The restated interim financial information for the relevant unaudited interim financial statements for the quarterly periods ended September 30, 2020 and 2019, June 30, 2020 and 2019, and March 31, 2020 and 2019, is also included below.

    

The categories of restatement adjustments and their impact on previously reported financial statements are described below:

 

(a)Sales Tax and Related Misstatements – Sales tax on sales to customers who were subject to sales tax that was not previously accrued by the Company is corrected by an increase to accrued liabilities on the balance sheets and a reduction of net sales on the statements of operations. The Company also determined on which past sales the Company would bill for sales tax and corrected by increasing accounts receivable, net of an allowance for doubtful collectability, on the balance sheets and increasing net sales on the statements of operations. Estimated penalties on the related sales tax are corrected by an increase to accrued liabilities on the balance sheets and an increase to general and administrative expenses on the statements of operations. Estimated interest on the related sales tax is corrected by an increase to accrued liabilities on the balance sheets and an increase to interest expense within other income on the statements of operations.

 

(b)Related Income Tax Impact - Any impact on income tax benefit from the impact on loss before taxes due to the correction in (a) above is reflected as a change in deferred tax asset or liability on the balance sheet and a change in income tax benefit on the statements of operations.

 

The following is a summary of the impact of the correction of the sales tax error for the periods previously reported during the years ended December 31, 2020 and 2019, and during the quarters in the years ended December 31, 2020 and 2019.

 

Annual Financial Statements

 

The following table sets forth the corrections in each of the individual line items affected in the statements of operations:

 

    December 31, December 31,
Year Ended   2020   2019
Reduction of net sales    $ 187,000    $ 426,000
Increase in general and administrative expense for penalities 51,000   51,000
Decrease in other income for interest expense   77,000   37,000
Decrease in income tax benefit   -   42,000
Total increase in net loss due to restatement items    $ 315,000    $ 556,000

 

 

 

    December 31, 2020   December 31, 2019
Year Ended   As previously reported Restated   As previously reported Restated
Services revenues    $ 17,091,000    $ 16,904,000    $ 20,229,000    $ 19,803,000
Products revenues                  578,000                  578,000               1,725,000               1,725,000
Total Net Sales             17,669,000             17,482,000             21,954,000             21,528,000
                 
Cost of services             13,934,000             13,934,000             15,756,000             15,756,000
Cost of goods sold                  533,000                  533,000               1,437,000               1,437,000
Impairment loss                  159,000                  159,000    —    —
Total Cost of Sales             14,626,000             14,626,000             17,193,000             17,193,000
Gross Profit               3,043,000               2,856,000               4,761,000               4,335,000
                 
Operating Expenses:                
Selling               2,877,000               2,877,000               2,658,000               2,658,000
Marketing               1,015,000               1,015,000               2,394,000               2,394,000
General and administrative               3,947,000               3,998,000               3,324,000               3,375,000
Gain on sale of business                 (195,000)                 (195,000)    —    —
Impairment loss    —    —               2,014,000               2,014,000
Total Operating Expenses               7,644,000               7,695,000             10,390,000             10,441,000
Operating Loss              (4,601,000)              (4,839,000)              (5,629,000)              (6,106,000)
                 
Other income                  110,000                    33,000                  142,000                  105,000
Loss Before Taxes              (4,491,000)              (4,806,000)              (5,487,000)              (6,001,000)
                 
Income tax benefit                 (191,000)                 (191,000)                 (466,000)                 (424,000)
Net Loss    $ (4,300,000)    $ (4,615,000)    $ (5,021,000)    $ (5,577,000)
                 
Net loss per share:                
Basic    $ (2.48)    $ (2.66)    $ (2.94)    $ (3.27)
Diluted    $ (2.48)    $ (2.66)    $ (2.94)    $ (3.27)
                 

Shares used in calculation of net

 loss per share:

            
Basic               1,734,000               1,734,000               1,706,000               1,706,000
Diluted               1,734,000               1,734,000               1,706,000               1,706,000

 

The following table sets forth the corrections in each of the individual line items affected in the balance sheets:

 

    December 31, 2020       December 31, 2019    
    As previously reported Error correction   Restated   As previously reported Error correction Restated
Accounts receivable, net    $ 5,628,000    $ 229,000    $ 5,857,000    $ 7,559,000    $ -    $ 7,559,000
Accrued liabilities - sales tax    $ -    $ 1,011,000    $ 1,011,000    $ -    $ 594,000    $ 594,000
Accrued liabilities - other    $ 827,000    $ 244,000    $ 1,071,000    $ 570,000    $ 117,000    $ 687,000
Accumulated deficit    $ 8,561,000    $ 1,026,000    $ 9,587,000    $ 4,261,000    $ 711,000    $ 4,972,000

 

The following table sets forth the corrections to retained earnings (accumulated deficit) and total shareholders’ equity in the statements of shareholders’ equity.

 

SHAREHOLDERS' EQUITY        
         
    Retained Earnings (Accumulated Deficit) Total Shareholders' Equity
January 1, 2019        
As reported    $ 760,000    $ 16,320,000
Adjustment due to error correction prior to 2019              (155,000)               (155,000)
As restated    $ 605,000    $ 16,165,000
         
December 31, 2019        
As reported    $ (4,261,000)    $ 11,794,000
Adjustment due to cumulative error correction              (711,000)               (711,000)
As restated    $ (4,972,000)    $ 11,083,000
         
December 31, 2020        
As reported    $ (8,561,000)    $ 7,694,000
Adjustment due to cumulative error correction           (1,026,000)            (1,026,000)
As restated    $ (9,587,000)    $ 6,668,000

 

 

Quarterly Financial Statements (Unaudited)

 

The following table sets forth the corrections in each of the individual line items affected in the statements of operations:

 

    March 31,   June 30,   September 30, December 31,
Three Months Ended   2020   2020   2020   2020
Reduction of net sales    $ 36,000    $ 41,000    $ 56,000    $ 54,000
Increase in general and administrative expense for penalities                 11,000                 12,000                 15,000                 13,000
Decrease in other income for interest expense                 15,000                 18,000                 21,000                 23,000
Change in income tax benefit    -    -    -    -
Total increase in net loss due to restatement items    $ 62,000    $ 71,000    $ 92,000    $ 90,000

 

 

 

 

    March 31, 2020     June 30, 2020  
Three Months Ended   As previously reported Restated   As previously reported Restated
Services revenues    $ 4,436,000    $ 4,400,000    $ 3,174,000    $ 3,133,000
Products revenues                      246,000                  246,000                      214,000                  214,000
Total Net Sales                   4,682,000               4,646,000                   3,388,000               3,347,000
                 
Cost of services                   3,382,000               3,382,000                   2,807,000               2,807,000
Cost of goods sold                      172,000                  172,000                      208,000                  208,000
Impairment loss                      159,000                  159,000    —    —
Total Cost of Sales                   3,713,000               3,713,000                   3,015,000               3,015,000
Gross Profit                      969,000                  933,000                      373,000                  332,000
                 
Operating Expenses:                
Selling                      720,000                  720,000                      927,000                  927,000
Marketing                      365,000                  365,000                      243,000                  243,000
General and administrative                      993,000               1,004,000                      980,000                  992,000
Gain on sale of business    —    —    —    —
Total Operating Expenses                   2,078,000               2,089,000                   2,150,000               2,162,000
Operating Loss                 (1,109,000)              (1,156,000)                 (1,777,000)              (1,830,000)
                 
Other income (expense)                        24,000                      9,000                        16,000                     (2,000)
Loss Before Taxes                 (1,085,000)              (1,147,000)                 (1,761,000)              (1,832,000)
                 
Income tax expense (benefit)                    (222,000)                 (222,000)                        11,000                    11,000
Net Loss    $ (863,000)    $ (925,000)    $ (1,772,000)    $ (1,843,000)
                 
Net loss per share:                
Basic    $ (0.50)    $ (0.53)    $ (1.03)    $ (1.07)
Diluted    $ (0.50)    $ (0.53)    $ (1.03)    $ (1.07)
                 

Shares used in calculation of net

 loss per share:

            
Basic                   1,724,000               1,724,000                   1,725,000               1,725,000
Diluted                   1,724,000               1,724,000                   1,725,000               1,725,000

 

 

 

    September 30, 2020   December 31, 2020
Three Months Ended   As previously reported Restated   As previously reported Restated
Services revenues    $ 4,373,000    $ 4,317,000    $ 5,108,000    $ 5,054,000
Products revenues                        118,000                    118,000    —    —
Total Net Sales                    4,491,000                4,435,000                    5,108,000                5,054,000
                 
Cost of services                    3,764,000                3,764,000                    3,981,000                3,981,000
Cost of goods sold                        112,000                    112,000                          41,000                      41,000
Impairment loss    —    —    —    —
Total Cost of Sales                    3,876,000                3,876,000                    4,022,000                4,022,000
Gross Profit                        615,000                    559,000                    1,086,000                1,032,000
                 
Operating Expenses:                
Selling                        585,000                    585,000                        645,000                    645,000
Marketing                        192,000                    192,000                        215,000                    215,000
General and administrative                        825,000                    840,000                    1,149,000                1,162,000
Gain on sale of business                      (195,000)                  (195,000)    —    —
Total Operating Expenses                    1,407,000                1,422,000                    2,009,000                2,022,000
Operating Loss                      (792,000)                  (863,000)                      (923,000)                  (990,000)
                 
Other income (expense)                             6,000                    (15,000)                          64,000                      41,000
Loss Before Taxes                      (786,000)                  (878,000)                      (859,000)                  (949,000)
                 
Income tax expense                             8,000                         8,000                          12,000                      12,000
Net Loss    $ (794,000)    $ (886,000)    $ (871,000)    $ (961,000)
                 
Net loss per share:                
Basic    $ (0.46)    $ (0.51)    $ (0.49)    $ (0.55)
Diluted    $ (0.46)    $ (0.51)    $ (0.49)    $ (0.55)
                 

Shares used in calculation of net

 loss per share:

            
Basic                    1,740,000                1,740,000                    1,745,000                1,745,000
Diluted                    1,740,000                1,740,000                    1,745,000                1,745,000

 

 

    March 31,   June 30,   September 30, December 31,
Three Months Ended   2019   2019   2019   2019
Reduction of net sales    $ 63,000    $ 115,000    $ 105,000    $ 143,000
Increase in general and administrative expense for penalities                8,000                14,000                13,000                16,000
Decrease in other income (expense) for interest expense                  5,000                  8,000                10,000                14,000
Reduction (increase) in income tax benefit                44,000                34,000                 (9,000)               (27,000)
Total increase in net loss due to restatement items    $ 120,000    $ 171,000    $ 119,000    $ 146,000

 

    March 31, 2019   June 30, 2019  
Three Months Ended   As previously reported Restated   As previously reported Restated
Services revenues    $ 4,639,000    $ 4,576,000    $ 5,435,000    $ 5,320,000
Products revenues                  501,000                  501,000                  407,000                  407,000
Total Net Sales               5,140,000               5,077,000               5,842,000               5,727,000
                 
Cost of services               3,974,000               3,974,000               4,044,000               4,044,000
Cost of goods sold                  392,000                  392,000                  333,000                  333,000
Total Cost of Sales               4,366,000               4,366,000               4,377,000               4,377,000
Gross Profit                  774,000                  711,000               1,465,000               1,350,000
                 
Operating Expenses:                
Selling                  738,000                  738,000                  693,000                  693,000
Marketing                  665,000                  665,000                  585,000                  585,000
General and administrative                  708,000                  716,000                  870,000                  884,000
Impairment loss    —    —    —    —
Total Operating Expenses               2,111,000               2,119,000               2,148,000               2,162,000
Operating Loss              (1,337,000)              (1,408,000)                 (683,000)                 (812,000)
                 
Other income                    37,000                    32,000                    30,000                    22,000
Loss Before Taxes              (1,300,000)              (1,376,000)                 (653,000)                 (790,000)
                 
Income tax benefit                 (204,000)                 (160,000)                 (165,000)                 (131,000)
Net Loss    $ (1,096,000)    $ (1,216,000)    $ (488,000)    $ (659,000)
                 
Net loss per share:                
Basic    $ (0.65)    $ (0.72)    $ (0.29)    $ (0.39)
Diluted    $ (0.65)    $ (0.72)    $ (0.29)    $ (0.39)
                 

Shares used in calculation of net

 loss per share:

            
Basic               1,694,000               1,694,000               1,698,000               1,698,000
Diluted               1,694,000               1,694,000               1,698,000               1,698,000

 

 

    September 30, 2019   December 31, 2019
Three Months Ended   As previously reported Restated   As previously reported Restated
Services revenues    $ 4,400,000    $ 4,295,000    $ 5,755,000    $ 5,612,000
Products revenues                   254,000                   254,000                   563,000                   563,000
Total Net Sales                4,654,000                4,549,000                6,318,000                6,175,000
                 
Cost of services                3,514,000                3,514,000                4,224,000                4,224,000
Cost of goods sold                   214,000                   214,000                   498,000                   498,000
Total Cost of Sales                3,728,000                3,728,000                4,722,000                4,722,000
Gross Profit                   926,000                   821,000                1,596,000                1,453,000
                 
Operating Expenses:                
Selling                   573,000                   573,000                   654,000                   654,000
Marketing                   559,000                   559,000                   585,000                   585,000
General and administrative                   865,000                   878,000                   881,000                   897,000
Impairment loss    —    —                2,014,000                2,014,000
Total Operating Expenses                1,997,000                2,010,000                4,134,000                4,150,000
Operating Loss              (1,071,000)              (1,189,000)              (2,538,000)              (2,697,000)
                 
Other income                      46,000                      36,000                      29,000                      15,000
Loss Before Taxes              (1,025,000)              (1,153,000)              (2,509,000)              (2,682,000)
                 
Income tax benefit                    (47,000)                    (56,000)                    (50,000)                    (77,000)
Net Loss    $ (978,000)    $ (1,097,000)    $ (2,459,000)    $ (2,605,000)
                 
Net loss per share:                
Basic    $ (0.57)    $ (0.64)    $ (1.43)    $ (1.52)
Diluted    $ (0.57)    $ (0.64)    $ (1.43)    $ (1.52)
                 

Shares used in calculation of net

 loss per share:

            
Basic                1,712,000                1,712,000                1,720,000                1,720,000
Diluted                1,712,000                1,712,000                1,720,000                1,720,000

  

The following table sets forth the corrections in each of the individual line items affected in the balance sheets:

 

    March 31, 2019   June 30, 2019    
    As previously reported Error correction Restated   As previously reported Error correction Restated
Accounts receivable, net    $ 6,360,000    $ -    $ 6,360,000    $ 6,248,000    $ -    $ 6,248,000
Accrued liabilities - sales tax    $ -    $ 232,000    $ 232,000    $ -    $ 347,000    $ 347,000
Accrued liabilities - other    $ 462,000    $ 41,000    $ 503,000    $ 374,000    $ 63,000    $ 437,000
Deferred tax liabilities    $ 290,000    $ 2,000    $ 292,000    $ 116,000    $ 36,000    $ 152,000
Accumulated deficit    $ 336,000    $ 275,000    $ 611,000    $ 824,000    $ 446,000    $ 1,270,000
                         
                         

 

    September 30, 2019   March 31, 2020    
    As previously reported Error correction Restated   As previously reported Error correction Restated
Accounts receivable, net    $ 6,438,000    $ -    $ 6,438,000    $ 6,199,000    $ 50,000    $ 6,249,000
Accrued liabilities - sales tax    $ -    $ 452,000    $ 452,000    $ -    $ 681,000    $ 681,000
Accrued liabilities - other    $ 413,000    $ 86,000    $ 499,000    $ 261,000    $ 142,000    $ 403,000
Deferred tax liabilities    $ 61,000    $ 27,000    $ 88,000    $ -    $ -    $ -
Accumulated deficit    $ 1,802,000    $ 565,000    $ 2,367,000    $ 5,124,000    $ 773,000    $ 5,897,000
                         

 

    June 30, 2020   September 30, 2020    
    As previously reported Error correction Restated   As previously reported Error correction Restated
Accounts receivable, net    $ 5,319,000    $ 102,000    $ 5,421,000    $ 5,538,000    $ 174,000    $ 5,712,000
Accrued liabilities - sales tax    $ -    $ 773,000    $ 773,000    $ -    $ 902,000    $ 902,000
Accrued liabilities - other    $ 597,000    $ 172,000    $ 769,000    $ 664,000    $ 208,000    $ 872,000
Accumulated deficit    $ 6,896,000    $ 844,000    $ 7,740,000    $ 7,690,000    $ 936,000    $ 8,626,000

 

The following table sets forth the corrections to the retained earnings (accumulated deficits) and total shareholders’ equity in the statements of shareholders’ equity.

 

SHAREHOLDERS' EQUITY        
         
    Accumulated Deficit Total Shareholders' Equity
March 31, 2019        
As reported    $ (336,000)    $ 15,470,000
Adjustment due to cumulative error correction of net loss to first quarter 2019              (275,000)               (275,000)
As restated    $ (611,000)    $ 15,195,000
         
June 30, 2019        
As reported    $ (824,000)    $ 15,112,000
Adjustment due to cumulative error correction of net loss in second quarter 2019              (446,000)               (446,000)
As restated    $ (1,270,000)    $ 14,666,000
         
September 30, 2019        
As reported    $ (1,802,000)    $ 14,209,000
Adjustment due to cumulative error correction of net loss in third quarter 2019              (565,000)               (565,000)
As restated    $ (2,367,000)    $ 13,644,000

 

 

SHAREHOLDERS' EQUITY        
         
    Accumulated Deficit Total Shareholders' Equity
March 31, 2020        
As reported    $ (5,124,000)    $ 11,000,000
Adjustment due to cumulative error correction of net loss to first quarter 2020              (773,000)               (773,000)
As restated    $ (5,897,000)    $ 10,227,000
         
June 30, 2020        
As reported    $ (6,896,000)    $ 9,287,000
Adjustment due to cumulative error correction of net loss in second quarter 2020              (843,000)               (843,000)
As restated    $ (7,739,000)    $ 8,444,000
         
September 30, 2020        
As reported    $ (7,690,000)    $ 8,538,000
Adjustment due to cumulative error correction of net loss in third quarter 2020              (936,000)               (936,000)
As restated    $ (8,626,000)    $ 7,602,000

 

 

The Company did not present tables for adjustments within the statement of cash flows, since all of the foregoing adjustments were within the operating activities section of the cash flows. These adjustments did not affect total cash flows from operating activities, financing activities or investing activities for any period presented.