Note 2 — Revision to Previously Issued Consolidated Financial Statements

The Company revised its consolidated financial statements for the year ended December 31, 2011. The revised financial information included in this 2012 Form 10-K has been identified as “restated.” Concurrent with the filing of this Form 10-K, the Company is also filing amended quarterly reports on Form 10-Q/A for each of the first, second and third quarters of 2012 to restate its consolidated financial statements therein and its consolidated financial statements for the second and third quarters, and related year to date periods of 2011, and the effects of such restatements are reflected in the items revised herein.

The restatements relate to accounting errors originating with the Company’s subsidiary in China, NovaMed, which was acquired on April 18, 2011. The accounting errors relate primarily to the following:

• The timing of revenue recognition for certain Pfizer products sold by one of the distributors of the Company’s subsidiary NovaMed. The Company’s policy is that all customers’ obligations to pay for product are final once product is delivered. However, the Company determined that there were various factors, including the override of certain controls, indicating that sales under NovaMed’s distribution arrangement for Pfizer products with such distributor from the date of acquisition of NovaMed through the third quarter of 2012 (the “Relevant Periods”) allowed for contingent payment terms dependent upon when that distributor sold the products. As a result of its review and evaluation of the matter, the Company believes that instead of recording revenue at the time of sale to that distributor (“sell-in” method), as previously reflected in the financial statements for the Relevant Periods, revenue under the arrangements in effect at the Company’s subsidiary NovaMed should have been recognized when the Company received payment for the products (“sell-through” or “cash receipts” method). Effective as of the fourth quarter of 2012, the Company entered into a new agreement with that distributor which clarified the “sell-in” method of revenue recognition to provide consistency with the Company’s policy regarding revenue recognition on a prospective basis. As of December 31, 2012, the Company had received payment for all revenues recognized under the “sell-through” method.

• The recognition of previously unrecognized product return reserves for sales of Aggrastat sold by the Company’s subsidiary NovaMed prior to the date of acquisition. The Company has concluded a liability for expired product existed at the time of the NovaMed acquisition, related to pre-acquisition sales.

The revisions had the impact of increasing the Company’s revenues by $3.0 million for the nine-months ended September 30, 2012, and increasing the Company’s net income by $2.0 million for the same period. Basic and diluted earnings per share increased by $0.04 and $0.03, respectively, for the nine-months ended September 30, 2012. As of September 30, 2012, accounts receivable decreased by $1.5 million, inventory increased by $1.3 million and goodwill related to the acquisition of NovaMed increased by $1.9 million. The revisions for the year ended December 31, 2011 had an impact of decreasing the Company’s revenues by $1.1 million and decreasing the Company’s net income by $0.3 million. Basic and diluted earnings per share decreased by $0.01. As of December 31, 2011, accounts receivable decreased by $3.8 million, inventory increased by $2.3 million and goodwill related to the acquisition of NovaMed increased by $1.9 million.

The revisions to the consolidated statements of cash flows did not have a material impact on any amounts previously reported for net cash from operating activities, investing activities, or financing activities and as a result, there was no net impact to net change in cash and equivalents for any previously reported periods.

The following table presents the impact of the revisions on the Company’s previously issued consolidated balance sheet as of December 31, 2011 (in thousands):


	December 31, 2011
	As Reported		As Restated
ASSETS
Accounts receivable, net	$	42,226	$	38,465	(1)
Inventories		8,813		11,141	(1)
Deferred tax assets		1,732		1,788
Total current assets		121,071		119,694
Goodwill		31,973		33,868	(2)
Total assets		200,326		200,844

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accrued and other current liabilities	$	17,192	$	18,357	(2)
Total current liabilities		25,284		26,449
Deferred tax liabilities		8,715		8,407
Accumulated other comprehensive income		2,341		2,344
Accumulated deficit		(118,854)		(119,196)
Total stockholders’ equity		150,458		150,119
Total liabilities and stockholders’ equity		200,326		200,844

(1)	Accounts receivable decreased $3.8 million and inventory increased $2.3 million related to the Company changing from the “sell-in” method to the “sell-through” method of revenue recognition for certain Pfizer products sold by the Company.

(2)

Goodwill increased $1.0 million and accrued and other current liabilities increased $1.0 million related to the Company recording a liability for expired product that existed at the time of the NovaMed acquisition, related to pre-acquisition Aggrastat product sales. Goodwill also increased $0.9 million related to the Company changing from the “sell-in” method to the “sell-through” method of revenue recognition for certain Pfizer products sold by the Company.

The following table presents the impact of the revisions on the Company’s previously issued consolidated statement of income for the year ended December 31, 2011 (in thousands):


	For the Year Ended
	December 31, 2011
	As Reported		As Restated
Net Revenues:
Product sales, net	$	113,027	$	111,951	(3)
Promotion services		20,614		20,614
Total net revenues		133,641		132,565

Operating expenses:
Cost of product sales		20,013		19,409	(3)
Sales and marketing		48,855		48,853	(4)
Amortization of acquired intangible assets,
related to sales and marketing		2,465		2,465
Research and development		12,346		12,346
General and administrative		24,032		24,032
Contingent consideration		(3,495)		(3,495)
Total operating expenses		104,216		103,610

Income from operations		29,425		28,955

Non-operating income (expense):
Interest and investment income		71		71
Interest and investment expense		(213)		(213)
Other (expense) income, net		(21)		(21)
Income before provision for income tax		29,262		28,792
Provision for income tax		798		670
Net income	$	28,464	$	28,122

Comprehensive income	$	30,738	$	30,399

Basic net income per share	$	0.52	$	0.51
Diluted net income per share	$	0.50	$	0.49

Basic shares outstanding		55,110		55,110
Diluted shares outstanding		57,387		57,387

(3)	Revenue decreased $1.1 million and cost of product sales decreased $0.6 million mainly related to the Company changing from the “sell-in” method to the “sell-through” method of revenue recognition for certain Pfizer products sold by the Company’s NovaMed subsidiary.

(4)	Sales and marketing expense decreased $0.3 million related to the payment of the liability for expired Aggrastat product, offset by a liability for sales commissions.

The following table presents the impact of the revisions on the Company’s previously issued consolidated statement of cash flows for the year ended December 31, 2011 (in thousands). The restatement had no effect on net cash provided by operating activities, net cash used in investing activities, net cash (used in) provided by financing activities or on the net increase in cash and cash equivalents.


	For the Year Ended
	December 31, 2011
	As Reported		As Restated
Cash Flows From Operating activities:
Net income	$	28,464	$	28,122
Deferred taxes, net		(1,241)		(1,602)
Accounts receivable, net		(3,907)		(2,730)	(5)
Inventories		(1,665)		(2,269)	(5)
Accrued and other current liabilities		3,550		3,680

(5) Changes to net cash used in accounts receivable and inventory mainly related to the Company changing from the “sell-in” method to the “sell-through” method of revenue recognition for certain Pfizer products sold by the Company.