3. Reclassifications and Restatements

3 Months Ended

Dec. 31, 2016

Accounting Changes and Error Corrections [Abstract]

Reclassifications and Restatements

Our previously issued consolidated financial statements for quarter ended December 31, 2016 and September 30, 2016 have been reclassified and restated.

Classification of Marquis and Vintage Stock lines of credit with both a subjective acceleration clause and lock box arrangement were not properly classified as current liabilities according to ASC 470. The Company determined that $14,278,689 of long-term debt should have been classified as a current liability in the condensed consolidated balance sheet.

Characterization of deposits (advance payments) on the purchase of Marquis carpet manufacturing equipment and the related cash flow presentation (operating vs. investing) in the statement of cash flows was an error and not presented correctly. The Company determined that cash from operations was overstated and cash used in investing were overstated by $1,816,855 in the condensed consolidated statement of cash flows.

Conversion features on convertible notes and related warrants issued in 2012, 2013 and 2014 required bifurcation and derivative liability accounting due to the down round protection features included within the agreements in accordance with ASC 815. On December 22, 2014, the Company executed an amendment to remove the down round provisions for the convertible notes and warrants. As a result of these errors, the Company determined that accumulated deficit and additional paid-in capital were understated by $6,238,516 of the condensed consolidated balance sheet.

We reclassified $10,738 from Series E Preferred Stock to additional paid in capital.

Other receivables of $764,763 have been reclassified to prepaid expenses and other current assets.

Seller financing provided by the Sellers of Vintage Stock was corrected to be a non-cash source of financing.

	Fiscal Quarter Ended December 31, 2016
	As
	Previously
	Reported			Change			(Restated)
Consolidated balance sheet as of December 31, 2016
Trade receivables, net	$	8,351,502		$	(764,763	)	$	7,586,739
Prepaid expenses and other current assets		3,930,027			764,763			4,694,790
Total assets		120,337,967						120,337,967
Current portion of long-term debt		6,226,454			14,278,689			20,505,143
Long-term debt, net of current portion		67,287,070			(14,278,689	)		53,008,381
Total liabilities		91,328,118						91,328,118
Paid in capital		56,705,679			6,249,254			62,954,933
Accumulated deficit		(27,408,969	)		(6,238,516	)		(33,647,485	)
Series E convertible preferred stock		10,866			(10,738	)		128
Total shareholders' equity		29,009,849			–			29,009,849
Consolidated statement of cash flows for the three months ended December 31, 2016
Change in accounts receivable		96,733			32,726			129,459
Change in prepaid expenses and other current liabilities		1,990,407			(1,849,581	)		140,826
Net cash provided by operations		4,994,685			(1,816,855	)		3,177,830
Acquisition of business, net of cash acquired		(57,310,900	)		10,000,000			(47,310,900	)
Purchases of property and equipment		(4,869,153	)		1,816,855			(3,052,298	)
Net cash used in investing activities		(62,180,053	)		11,816,855			(50,363,198	)
Proceeds from issuance of notes payable		45,889,321			(10,000,000	)		35,889,321
Net cash provided by financing activities		58,001,226			(10,000,000	)		48,001,226