Note 3 - Restatement of Previously Issued Consolidated Financial Statements

9 Months Ended

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