2. Restatements of Previously-Issued Financial Statements
On October 11, 2012, the Company filed a Form 12b-25, Notification of Late Filing, with the Securities and Exchange Commission with respect to its Quarterly Report on Form 10-Q for the quarter ended August 31, 2012, due to the time required to conduct an internal assessment of the Company’s accounting for customer incentive programs. In September 2012, the Audit Committee of the Board of Directors commenced an internal investigation principally related to the classification of certain customer marketing costs, the timing of revenue recognition and the level of reserves for product returns. In October 2012, the Audit Committee engaged a legal firm to lead an independent investigation into certain accounting practices. In turn, the independent legal firm engaged a forensic accounting firm to provide consulting services in connection with the independent investigation, and during the investigation, special counsel was hired to investigate compliance with the Foreign Corrupt Practices Act (“FCPA”). The scope of the independent investigation was determined by the Audit Committee and its legal and accounting advisors. On January 10, 2013, the Company filed a Form 12b-25, Notification of Late Filing, with the Securities and Exchange Commission with respect to its Quarterly Report on Form 10-Q for the quarter ended November 30, 2012, due to the additional time required to complete the internal assessment of the Company’s accounting for customer incentive programs. As a result of the internal assessment and the evaluation of the substance of information obtained during the independent investigation (collectively the “Investigation”), as discussed further below, the Company concluded that errors had been made in its previously-issued consolidated financial statements. Accordingly, based upon extensive reviews of forensic materials, interviews and analyses of subsequent accounting records, adjustments were made, and the Company’s consolidated financial statements as of and for the fiscal years ended February 28/29, 2012, and 2011, as well as the nine interim quarterly periods ended May 31, 2012 are being restated. These adjustments are described below:
| a) | The Company enters into programs with many of its customers, which allow them to receive a credit equal to one or more of the following: 1) reimbursement of certain marketing costs, such as ad placements in periodicals, select email distributions and internet-based advertising (“Market Development Funds”), that are negotiated individually or limited by a percentage of customer purchases of the Company’s products, 2) rebates, including performance-based incentives and consumer rebates, and 3) price protection credits if the sale price of products decreases in a future period, subject to limitations (collectively, customer incentive program (“CIP”) or “CIP Credits”). Accruals for these CIP Credits were historically recorded at the time of sale or time of commitment based on negotiated terms, historical experience and inventory levels of the Company’s customers. Market Development Funds are classified as an operating expense if they have both an identifiable benefit to the Company and an established fair value; otherwise, they are classified as a reduction of our revenue. In the second and third quarters of fiscal 2013, the Company received a significant increase in the number of requests from its customers for CIP Credits. In connection with the results of the Investigation, management and the Audit Committee concluded that many of these CIP Credits were the result of the circumvention of established internal controls and were not accounted for correctly. The Company identified the following issues in recording CIP Credits: |
| i. | Due to management and personnel turnover and a lack of documentary evidence to establish the nature of certain CIP Credits recorded beginning in the third quarter of fiscal 2012, the Company was not able to determine the financial periods in which those CIP Credits were originally committed to customers. Therefore, for each customer, beginning with the third quarter of fiscal 2012 through the third quarter of fiscal 2013, the Company allocated these CIP Credits ratably over the periods in which gross revenue was generated. |
| ii. | Historically, the Company had included in operating expense Market Development Funds reimbursed by it if such costs both had an identifiable benefit and for which the Company was able to determine fair value. However, in connection with the Investigation, the Company determined that in substance, a portion of the credits recorded as Market Development Funds represented incentive rebates, volume discounts and price protection adjustments, which had been incorrectly documented as marketing commitments to customers as a result of the circumvention of the established internal controls as discussed in (a) above, and which should have been recorded as a reduction of revenue. Consequently, as part of the restatements, the Company has reclassified all such credits from operating expenses to a reduction of revenue ratably over the period in which gross revenue was generated. |
Corrections and adjustments for these errors and irregularities accounted for reductions of revenue of $5.6 million, $17.5 million and $15.1 million in the years ended February 28/29, 2011 and 2012 and the first quarter of fiscal 2013, respectively, and reductions of operating expenses of $5.6 million, $12.2 million and $8.0 million in the years ended February 28/29, 2011 and 2012 and the first quarter of fiscal 2013, respectively.
| b) | The Company’s revenue recognition policy provides for revenue to be recognized upon shipment, provided certain criteria are met. In connection with the results of the Investigation, the Company determined that there were some sales that did not meet the criteria for revenue recognition in the period in which the sale had originally been recognized. These sales were primarily related to distributor customers who either were offered return rights, were not able to pay the Company until they were able to re-sell to their end customers or who required the Company to perform post-delivery obligations. Consequently, since the Company had originally recorded these sales as revenue upon shipment, it recorded adjustments to defer these sales, net of the corresponding cost of these sales as a deferred liability until the criteria for revenue recognition was met. This deferral of revenue accounted for a reduction of revenue of $12.6 million and $12.2 million in fiscal 2012 and the first quarter of fiscal 2013, respectively, and a reduction of cost of revenue of $9.8 million and $9.6 million in fiscal 2012 and the first quarter of fiscal 2013, respectively. |
| c) | The Company received a significant increase in product returns from its customers beginning in the second quarter of fiscal 2013. In connection with the results of the Investigation, management and the Audit Committee concluded that due to the amount and product mix of inventory the Company’s customers were holding, these sales had not met the criteria for revenue recognition as the fees were considered to not be fixed and determinable at the time of shipment. Consequently, as these sales had been accounted for as revenue in financial periods beginning in the third quarter of fiscal 2012 through the first quarter of fiscal 2013, the Company reversed the revenue in the period in which the sales had originally been recognized. These reversals accounted for a reduction of revenue and accounts receivable of $6.5 million and $5.3 million in fiscal 2012 and the first quarter of fiscal 2013, respectively, and a reduction in cost of revenue and increase in inventory of $4.9 million and $3.7 million in fiscal 2012 and the first quarter of fiscal 2013, respectively. |
| d) | In connection with the Investigation, the Company re-evaluated its original estimate of the allowance for product it expected to be returned, and consequently, increased its allowance for sales returns. This increased estimate for sales returns accounted for reductions of revenue and accounts receivable of $0.5 million, $8.9 million and $3.1 million in fiscal 2011, 2012 and the first quarter of fiscal 2013, respectively, and reductions in cost of revenue and increases in inventory of $0.4 million, $7.1 million and $2.2 million in the same periods, respectively. |
| e) | After recording the adjustments to revenue described above, the cost of revenue exceeded the net revenue recognized for certain sales transactions. In accordance with ASC 330-10-35-13, the Company evaluated whether this negative gross margin might indicate an impairment of existing inventory at each prior financial period. This analysis resulted in increases to cost of revenue and the corresponding inventory reserves of $3.7 million and $6.1 million in fiscal 2012 and the first quarter of fiscal 2013, respectively. |
| f) | Also in connection with the Investigation, the Company identified a $1.9 million sale to a customer, which was recorded as revenue in the third and fourth quarters of fiscal 2012, that did not meet the criteria for revenue recognition at the time of the original shipment since the Company did not have sufficient evidence of a persuasive arrangement and collectability was not reasonably assured. In connection with the $1.9 million original sale, $1.2 million and $0.7 million was subsequently recorded as a bad debt expense and an allowance for doubtful accounts in the fourth quarter of fiscal 2012. As part of the restatements, in the third quarter of 2012, the original $1.9 million sale was reversed, and in the fourth quarter of fiscal 2012, the related $1.2 million bad debt expense was reversed. |
In addition to the above errors, in the course of the Company’s restatement work, it identified additional errors that were corrected, including:
| a) | Certain manufacturing and freight costs that had been expensed should have been capitalized in inventory. In connection with the restatements, the Company reduced operating expenses of $6.0 million, $9.3 million and $3.0 million for the years ended February 28/29, 2011 and 2012 and for the three months ended May 31, 2012, respectively. Cost of revenue was increased by $5.8 million, $8.4 million and $2.7 million, and inventory was increased by $0.2 million, $0.9 million and $1.1 million, for the same periods, respectively. |
| b) | Reserves for excess and obsolete inventory had incorrectly excluded reserves to reduce the carrying value of certain items that had been returned from customers. Further, we had not recognized costs on a timely basis related to inventories used for internal development purposes. Therefore, in connection with the restatements, the Company increased cost of revenue by $0.3 million, $16.6 million and $(1.6) million for the year ended February 28/29, 2011 and 2012 and the three months ended May 31, 2012, respectively. In addition, research and development expenses were increased by $0.7 million, $2.9 million and $0.1 million for the years ended February 28/29, 2011 and 2012 and the three months ended May 31, 2012, and inventory was reduced by $0.9 million, $24.1 million and $28.8 million as of the end of the same periods, respectively. |
| c) | Errors were noted in the Company’s calculation of accruals for estimated future warranty and repair obligations. The correction of these errors resulted in higher cost of revenue of $0.1 million, $2.9 million and $0.5 million for the years ended February 28/29, 2011 and 2012 and for the three months ended May 31, 2012, respectively. Further, revenue reductions of $1.9 million, $0.4 million and $0.3 million were recorded for the same periods, respectively, with corresponding adjustments to accrued warranty liabilities and net inventories. |
| d) | Revenue and related cost of revenue were incorrectly recognized upon shipment for certain sales transactions that were determined to be in-transit at the balance sheet date and for which title had not transferred to the customer. Revenue of $1.5 million, $7.0 million and $0.8 million was reversed for the years ended February 28/29, 2011 and 2012 and for the three months ended May 31, 2012, respectively, and cost of revenue of $1.2 million, $5.2 million and $(0.6) million were reduced (increased) for the same periods, respectively. |
| e) | Certain costs of revenue were incorrectly classified as operating expenses, which caused our gross margins to be overstated. In connection with the restatement, we reclassified $4.2 million and $6.6 million from research and development expenses to cost of revenue for the fiscal year ended February 29, 2012 and for the three months ended May 31, 2012, respectively. |
Further, as a result of the above entries, we reassessed the carrying amount of goodwill and determined that an impairment should be recorded as of February 29, 2012. We originally performed our annual impairment test of goodwill as of February 29, 2012, and determined that no impairment existed. However, based upon the errors and related control weaknesses discussed above, and the continued deterioration in its operating results and revenue forecasts, the Company reperformed the impairment test at February 29, 2012, and concluded that an impairment charge of $61.9 million should be recorded in the three months ended February 29, 2012, representing a write-off of the entire amount of previously-recorded goodwill. Also as a result of the above entries, the Company’s income tax provision was adjusted to reflect the tax impact of the restatement adjustments noted above and to record the appropriate tax provision for each jurisdiction in which the Company operates.
All notes to the consolidated financial statements affected by the restatements have been labeled as restated.
The following table includes a reconciliation of accumulated deficit at March 1, 2010 (in thousands):
|
Accumulated deficit at March 1, 2010 (as previously reported) |
$ | (25,462 | ) | |
|
Revenue recognition errors |
(734 | ) | ||
|
Increases to warranty accrual |
(2,280 | ) | ||
|
Capitalization of manufacturing and freight costs |
239 | |||
|
|
|
|||
|
Accumulated deficit at March 1, 2010 (as restated) |
$ | (28,239 | ) | |
|
|
|
The following table presents the impact of the restatement adjustments on the Company’s Consolidated Balance Sheet as of February 29, 2012:
| February 29, 2012 | ||||||||||||
| As Filed | Effect of Restatement (1) |
Restated | ||||||||||
| (in thousands) | ||||||||||||
|
ASSETS |
||||||||||||
|
Current assets: |
||||||||||||
|
Cash and cash equivalents |
$ | 92,339 | $ | (290 | ) | $ | 92,049 | |||||
|
Restricted cash |
62 | — | 62 | |||||||||
|
Accounts receivable, net of allowances |
72,543 | (27,957 | ) | 44,586 | ||||||||
|
Inventories, net |
108,664 | 3,469 | 112,133 | |||||||||
|
Prepaid expenses and other current assets |
10,661 | (1,837 | ) | 8,824 | ||||||||
|
|
|
|
|
|
|
|||||||
|
Total current assets |
284,269 | (26,615 | ) | 257,654 | ||||||||
|
Property and equipment, net |
4,998 | — | 4,998 | |||||||||
|
Intangible assets, net |
8,380 | 486 | 8,866 | |||||||||
|
Goodwill |
60,914 | (60,914 | )(2) | — | ||||||||
|
Non-current deferred tax assets |
— | 84 | 84 | |||||||||
|
Other assets |
142 | 289 | 431 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total assets |
$ | 358,703 | $ | (86,670 | ) | $ | 272,033 | |||||
|
|
|
|
|
|
|
|||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
|
Current liabilities: |
||||||||||||
|
Loans payable |
$ | — | $ | — | $ | — | ||||||
|
Accounts payable |
88,093 | 101 | 88,194 | |||||||||
|
Accrued and other liabilities |
12,749 | 23,511 | 36,260 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total current liabilities |
100,842 | 23,612 | 124,454 | |||||||||
|
Common stock warrant liability |
11,087 | — | 11,087 | |||||||||
|
Non-current deferred tax liabilities |
— | 494 | 494 | |||||||||
|
Other long-term liabilities |
272 | 817 | 1,089 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total liabilities |
112,201 | 24,923 | 137,124 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Commitments and contingencies |
||||||||||||
|
Stockholders’ equity: |
||||||||||||
|
Preferred stock, $0.0025 par value, 20,000,000 shares authorized; No shares issued or outstanding |
— | — | — | |||||||||
|
Common stock, $0.0025 par value; 120,000,000 shares authorized; 66,581,428 shares issued and outstanding |
166 | — | 166 | |||||||||
|
Additional paid-in capital |
320,095 | 127 | 320,222 | |||||||||
|
Accumulated deficit |
(73,157 | ) | (111,720 | ) | (184,877 | ) | ||||||
|
Accumulated other comprehensive loss |
(602 | ) | — | (602 | ) | |||||||
|
|
|
|
|
|
|
|||||||
|
Total stockholders’ equity |
246,502 | (111,593 | ) | 134,909 | ||||||||
|
|
|
|
|
|
|
|||||||
|
Total liabilities and stockholders’ equity |
$ | 358,703 | $ | (86,670 | ) | $ | 272,033 | |||||
|
|
|
|
|
|
|
|||||||
| (1) | See the components of the Effect of Restatements below. |
| (2) | During the restatement, the Company capitalized an additional goodwill of $938,000 as of February 29, 2012, which increased goodwill to $61,852,000, and an impairment charge was recorded to write off this entire goodwill balance. |
The following table presents the impact of the restatement adjustments on the Company’s Consolidated Statements of Operations for the years ended February 28/29, 2012 and 2011 (in thousands, except per share amounts):
| Year Ended February 29, 2012 | Year Ended February 28, 2011 | |||||||||||||||||||||||
| As filed | Effect of Restatement (1) |
Restated | As filed | Effect of Restatement (1) |
Restated | |||||||||||||||||||
|
Net revenue |
$ | 365,774 | $ | (55,614 | ) | $ | 310,160 | $ | 190,116 | $ | (9,488 | ) | $ | 180,628 | ||||||||||
|
Cost of revenue |
283,338 | 14,612 | 297,950 | 165,962 | 4,589 | 170,551 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Gross profit |
82,436 | (70,226 | ) | 12,210 | 24,154 | (14,077 | ) | 10,077 | ||||||||||||||||
|
Research and development |
32,116 | (481 | ) | 31,635 | 7,677 | (2,136 | ) | 5,541 | ||||||||||||||||
|
Sales and marketing |
28,490 | (7,719 | ) | 20,771 | 15,270 | (3,769 | ) | 11,501 | ||||||||||||||||
|
General and administrative |
27,946 | (13,679 | ) | 14,267 | 18,207 | (6,007 | ) | 12,200 | ||||||||||||||||
|
Impairment of goodwill and intangible assets |
38 | 61,852 | 61,890 | — | 994 | 994 | ||||||||||||||||||
|
Acquisition-related charges |
2,808 | — | 2,808 | — | — | — | ||||||||||||||||||
|
Special inventory charge |
2,975 | (2,975 | ) | — | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Total operating expenses |
94,373 | 36,998 | 131,371 | 41,154 | (10,918 | ) | 30,236 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Loss from operations |
(11,937 | ) | (107,224 | ) | (119,161 | ) | (17,000 | ) | (3,159 | ) | (20,159 | ) | ||||||||||||
|
Change in fair value of common stock warrants |
(4,290 | ) | — | (4,290 | ) | (7,924 | ) | — | (7,924 | ) | ||||||||||||||
|
Other expense, net |
(132 | ) | — | (132 | ) | (1,068 | ) | — | (1,068 | ) | ||||||||||||||
|
Interest and financing costs |
(1,308 | ) | 569 | (739 | ) | (3,174 | ) | — | (3,174 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Loss before income taxes |
(17,667 | ) | (106,655 | ) | (124,322 | ) | (29,166 | ) | (3,159 | ) | (32,325 | ) | ||||||||||||
|
Provision for (benefit from) income taxes |
— | (870 | ) | (870 | ) | 861 | — | 861 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net loss |
$ | (17,667 | ) | $ | (105,785 | ) | $ | (123,452 | ) | $ | (30,027 | ) | $ | (3,159 | ) | $ | (33,186 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net loss per share: |
||||||||||||||||||||||||
|
Basic and diluted |
$ | (0.35 | ) | $ | (2.08 | ) | $ | (2.43 | ) | $ | (1.05 | ) | $ | (0.11 | ) | $ | (1.16 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Shares used in net loss per share computation: |
||||||||||||||||||||||||
|
Basic and diluted |
50,855 | — | 50,855 | 28,689 | — | 28,689 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) | See the components of the Effect of Restatements below. |
The following table presents the impact of the restatement adjustments on the Company’s Consolidated Statements of Cash Flows for the years ended February 28/29, 2012 and 2011 (in thousands):
| Year Ended February 29, 2012 | Year Ended February 28, 2011 | |||||||||||||||||||||||
| Effect of | Effect of | |||||||||||||||||||||||
| As filed | Restatement (1) | Restated | As filed | Restatement (1) | Restated | |||||||||||||||||||
|
Cash flows from operating activities: |
||||||||||||||||||||||||
|
Net loss |
$ | (17,667 | ) | $ | (105,785 | ) | $ | (123,452 | ) | $ | (30,027 | ) | $ | (3,159 | ) | $ | (33,186 | ) | ||||||
|
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
||||||||||||||||||||||||
|
Depreciation of property and equipment |
1,708 | — | 1,708 | 1,116 | — | 1,116 | ||||||||||||||||||
|
Amortization of intangible assets |
589 | (1 | ) | 588 | 70 | — | 70 | |||||||||||||||||
|
Impairment of goodwill and intangible assets |
38 | 61,852 | 61,890 | — | 994 | 994 | ||||||||||||||||||
|
Provisions for accounts receivable allowances |
6,008 | 30,705 | 36,713 | 1,260 | 17,273 | 18,533 | ||||||||||||||||||
|
Stock-based compensation |
3,581 | — | 3,581 | 1,028 | — | 1,028 | ||||||||||||||||||
|
Change in fair value of common stock warrants |
4,290 | — | 4,290 | 7,924 | — | 7,924 | ||||||||||||||||||
|
Deferred income taxes |
— | 92 | 92 | 836 | — | 836 | ||||||||||||||||||
|
Provision for inventory write-downs |
6,702 | 16,697 | 23,399 | 2,381 | 802 | 3,183 | ||||||||||||||||||
|
Net loss on disposal of property and equipment |
755 | — | 755 | 644 | (644 | ) | — | |||||||||||||||||
|
Loss (gain) on disposition of product line |
— | — | — | 1,043 | (1,043 | ) | — | |||||||||||||||||
|
Changes in operating assets and liabilities, net of effect of acquisitions: |
||||||||||||||||||||||||
|
Accounts receivable |
(46,786 | ) | (10,575 | ) | (57,361 | ) | (12,567 | ) | (13,750 | ) | (26,317 | ) | ||||||||||||
|
Inventories |
(92,473 | ) | (16,120 | ) | (108,593 | ) | (15,333 | ) | (564 | ) | (15,897 | ) | ||||||||||||
|
Prepaid expenses and other assets |
(7,680 | ) | 1,867 | (5,813 | ) | (1,064 | ) | — | (1,064 | ) | ||||||||||||||
|
Accounts payable |
46,923 | — | 46,923 | 14,327 | — | 14,327 | ||||||||||||||||||
|
Accrued and other liabilities |
3,886 | 20,861 | 24,747 | 1,749 | 441 | 2,190 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net cash (used in) provided by operating activities |
(90,126 | ) | (407 | ) | (90,533 | ) | (26,613 | ) | 350 | (26,263 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Cash flows from investing activities: |
||||||||||||||||||||||||
|
Property and equipment purchases |
(3,462 | ) | — | (3,462 | ) | (1,533 | ) | — | (1,533 | ) | ||||||||||||||
|
Purchased intangible assets |
(2,490 | ) | — | (2,490 | ) | — | — | — | ||||||||||||||||
|
Acquisitions, net of cash acquired |
(1,483 | ) | — | (1,483 | ) | — | (350 | ) | (350 | ) | ||||||||||||||
|
Restricted cash for letters of credit |
1,238 | — | 1,238 | (1,300 | ) | — | (1,300 | ) | ||||||||||||||||
|
Decrease in deposits |
— | — | — | (4 | ) | — | (4 | ) | ||||||||||||||||
|
Asset acquisition earn out payments |
— | — | — | (35 | ) | — | (35 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net cash used in investing activities |
(6,197 | ) | — | (6,197 | ) | (2,872 | ) | (350 | ) | (3,222 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Cash flows from financing activities: |
||||||||||||||||||||||||
|
Proceeds from issuance of common stock, net |
194,189 | 117 | 194,306 | 34,749 | — | 34,749 | ||||||||||||||||||
|
Proceeds from employee stock programs, net |
1,680 | — | 1,680 | 1,013 | — | 1,013 | ||||||||||||||||||
|
Proceeds from exercise of warrants for common shares |
233 | — | 233 | 981 | — | 981 | ||||||||||||||||||
|
(Repayments) proceeds of bank loan, net |
(24,934 | ) | — | (24,934 | ) | 9,656 | — | 9,656 | ||||||||||||||||
|
Repayment of shareholder loan |
— | — | — | (500 | ) | — | (500 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net cash provided by financing activities |
171,168 | 117 | 171,285 | 45,899 | — | 45,899 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Effect of foreign exchange rate changes on cash and cash equivalents |
(20 | ) | — | (20 | ) | (124 | ) | — | (124 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Net increase (decrease) in cash and cash equivalents |
74,825 | (290 | ) | 74,535 | 16,290 | — | 16,290 | |||||||||||||||||
|
Cash and cash equivalents at beginning of period |
17,514 | — | 17,514 | 1,224 | — | 1,224 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Cash and cash equivalents at end of period |
$ | 92,339 | $ | (290 | ) | $ | 92,049 | $ | 17,514 | $ | — | $ | 17,514 | |||||||||||
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Supplemental disclosures: |
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Interest paid |
$ | 434 | $ | — | $ | 434 | $ | 1,286 | $ | — | $ | 1,286 | ||||||||||||
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Income taxes paid |
— | — | — | 25 | 25 | |||||||||||||||||||
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Non-cash investing and financing activities: |
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Issuance of common stock for Indilinx acquisition |
32,204 | — | 32,204 | — | — | — | ||||||||||||||||||
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Issuance of common stock for Sanrad acquisition |
16,917 | — | 16,917 | — | — | — | ||||||||||||||||||
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Extinguishment of common stock warrant liability upon exercise |
2,620 | — | 2,620 | 588 | — | 588 | ||||||||||||||||||
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Issuance of common stock for Solid Data Systems acquisition |
— | — | — | 644 | — | 644 | ||||||||||||||||||
| (1) | See the components of the Effect of Restatements below. |
The following table sets forth the significant components of the adjustments made to the above annual financial statements (in thousands):
Consolidated Balance Sheet as of February 29, 2012
| Manufact- | Goodwill | |||||||||||||||||||||||||||||||||||||||
| Revenue | CIP | uring and | and | Inventory | Income | Reclass- | Total | |||||||||||||||||||||||||||||||||
| Recognition | Credits | Freight | Intangibles | Reserves | Accruals | Taxes | ifications | Other | Adjustments | |||||||||||||||||||||||||||||||
| (in thousands) | (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | ||||||||||||||||||||||||||||||||
|
Cash and cash equivalents |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (290 | ) | $ | — | $ | (290 | ) | ||||||||||||||||||
|
Accounts receivable, net of allowances |
(25,384 | ) | (5,346 | ) | — | — | — | 4,629 | — | (1,778 | ) | (78 | )(9) | (27,957 | ) | |||||||||||||||||||||||||
|
Inventories, net |
28,830 | — | 1,311 | — | (24,133 | ) | (2,539 | ) | — | — | — | 3,469 | ||||||||||||||||||||||||||||
|
Prepaid expenses and other current asset |
— | — | — | — | — | — | 318 | (44 | ) | (2,111 | )(10) | (1,837 | ) | |||||||||||||||||||||||||||
|
Intangible assets, net |
— | — | — | 486 | — | — | — | — | — | 486 | ||||||||||||||||||||||||||||||
|
Goodwill |
— | — | — | (62,338 | ) | — | — | 1,424 | — | — | (60,914 | ) | ||||||||||||||||||||||||||||
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Non-current deferred tax assets |
— | — | — | — | — | — | 84 | — | — | 84 | ||||||||||||||||||||||||||||||
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Other assets |
— | — | — | — | — | — | — | 289 | — | 289 | ||||||||||||||||||||||||||||||
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Accounts payable |
— | — | — | — | — | — | — | 101 | — | 101 | ||||||||||||||||||||||||||||||
|
Accrued and other liabilities |
16,268 | — | — | — | — | 9,650 | — | (2,409 | ) | — | 23,511 | |||||||||||||||||||||||||||||
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Non-current deferred tax liabilities |
— | — | — | — | — | — | 494 | — | — | 494 | ||||||||||||||||||||||||||||||
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Other long-term liabilities |
— | — | — | — | — | — | 449 | 368 | — | 817 | ||||||||||||||||||||||||||||||
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Additional paid-in capital |
— | — | — | — | — | — | 10 | 117 | — | 127 | ||||||||||||||||||||||||||||||
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Accumulated deficit |
(12,822 | ) | (5,346 | ) | 1,311 | (61,852 | ) | (24,133 | ) | (7,560 | ) | 870 | — | (2,188 | )(9) | (111,720 | ) | |||||||||||||||||||||||
Consolidated Statements of Operations for the years ended February 28/29, 2012 and 2011
| Manufact- | Goodwill | |||||||||||||||||||||||||||||||||||||||
| Revenue | CIP | uring and | and | Inventory | Income | Reclass- | Total | |||||||||||||||||||||||||||||||||
| Recognition | Credits | Freight | Intangibles | Reserves | Accruals | Taxes | ifications | Other | Adjustments | |||||||||||||||||||||||||||||||
| (in thousands) | (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | ||||||||||||||||||||||||||||||||
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Year ended February 28, 2011 |
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Net revenue |
$ | (1,995 | ) | $ | (5,631 | ) | $ | — | $ | — | $ | — | $ | (1,862 | ) | $ | — | $ | — | $ | — | $ | (9,488 | ) | ||||||||||||||||
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Cost of revenue |
(1,570 | ) | — | 5,782 | — | 269 | 108 | — | — | — | 4,589 | |||||||||||||||||||||||||||||
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Research and development |
— | — | — | — | 665 | — | — | (2,801 | ) | — | (2,136 | ) | ||||||||||||||||||||||||||||
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Sales and marketing |
— | (5,631 | ) | — | — | — | — | — | 1,862 | — | (3,769 | ) | ||||||||||||||||||||||||||||
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General and administrative |
— | — | (5,952 | ) | — | — | — | — | (55 | ) | — | (6,007 | ) | |||||||||||||||||||||||||||
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Impairment of goodwill and intangible assets |
— | — | — | — | — | — | — | 994 | — | 994 | ||||||||||||||||||||||||||||||
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Year ended February 29, 2012 |
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Net revenue |
$ | (37,112 | ) | $ | (17,529 | ) | $ | — | $ | — | $ | — | $ | (403 | ) | $ | — | $ | (570 | ) | $ | — | $ | (55,614 | ) | |||||||||||||||
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Cost of revenue |
(24,259 | ) | — | 8,426 | — | 20,337 | 2,907 | — | 7,201 | — | 14,612 | |||||||||||||||||||||||||||||
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Research and development |
— | — | — | — | 2,862 | — | — | (5,454 | ) | 2,111 | (10) | (481 | ) | |||||||||||||||||||||||||||
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Sales and marketing |
— | (12,183 | ) | — | — | — | — | — | 4,464 | — | (7,719 | ) | ||||||||||||||||||||||||||||
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General and administrative |
(1,192 | ) | — | (9,328 | ) | — | — | — | — | (3,237 | ) | 78 | (9) | (13,679 | ) | |||||||||||||||||||||||||
|
Impairment of goodwill and intangible assets |
— | — | — | 61,852 | — | — | — | — | — | 61,852 | ||||||||||||||||||||||||||||||
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Special inventory charge |
— | — | — | — | — | — | — | (2,975 | ) | — | (2,975 | ) | ||||||||||||||||||||||||||||
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Interest and financing costs |
— | — | — | — | — | — | — | 569 | — | 569 | ||||||||||||||||||||||||||||||
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Provision for (benefit from) income taxes |
— | — | — | — | — | — | (870 | ) | — | — | (870 | ) | ||||||||||||||||||||||||||||
Consolidated Statements of Cash Flows for the years ended February 28/29, 2012 and 2011
| Manufact- | Goodwill | |||||||||||||||||||||||||||||||||||||||
| Revenue | CIP | uring and | and | Inventory | Income | Reclass- | Total | |||||||||||||||||||||||||||||||||
| Recognition | Credits | Freight | Intangibles | Reserves | Accruals | Taxes | ifications | Other | Adjustments | |||||||||||||||||||||||||||||||
| (in thousands) | (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | ||||||||||||||||||||||||||||||||
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Year Ended February 28, 2011 |
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Net loss |
$ | (425 | ) | $ | — | $ | 170 | $ | — | $ | (934 | ) | $ | (1,970 | ) | $ | — | $ | — | $ | — | $ | (3,159 | ) | ||||||||||||||||
|
Impairment of goodwill and intangible assets |
— | — | — | — | — | — | — | 994 | — | 994 | ||||||||||||||||||||||||||||||
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Provisions for accounts receivable allowances |
488 | — | — | — | — | (1 | ) | — | 16,786 | — | 17,273 | |||||||||||||||||||||||||||||
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Non-cash asset acquisition |
— | — | — | — | — | — | — | (644 | ) | — | (644 | ) | ||||||||||||||||||||||||||||
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Provision for inventory write-downs |
— | — | — | — | 934 | — | — | (132 | ) | — | 802 | |||||||||||||||||||||||||||||
|
Gain on disposition of product line |
— | — | — | — | — | — | — | (1,043 | ) | — | (1,043 | ) | ||||||||||||||||||||||||||||
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Change in accounts receivable |
1,507 | — | — | — | — | — | — | (15,257 | ) | — | (13,750 | ) | ||||||||||||||||||||||||||||
|
Change in inventories |
(1,570 | ) | — | (170 | ) | — | — | — | — | 1,176 | — | (564 | ) | |||||||||||||||||||||||||||
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Change in accrued and other liabilities |
— | — | — | — | — | 1,971 | — | (1,530 | ) | — | 441 | |||||||||||||||||||||||||||||
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Acquisition of Sanrad, net of cash received |
— | — | — | — | — | — | — | (350 | ) | — | (350 | ) | ||||||||||||||||||||||||||||
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Year Ended February 29, 2012 |
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Net loss |
$ | (11,529 | ) | $ | (5,479 | ) | $ | 902 | $ | (61,852 | ) | $ | (23,199 | ) | $ | (3,310 | ) | $ | 870 | $ | — | $ | (2,188 | )(11) | $ | (105,785 | ) | |||||||||||||
|
Impairment of goodwill and intangible assets |
— | — | — | 61,852 | — | — | (925 | ) | 925 | — | 61,852 | |||||||||||||||||||||||||||||
|
Provisions for accounts receivable allowances |
7,687 | 4,066 | — | — | — | (4,627 | ) | — | 23,502 | 77 | (9) | 30,705 | ||||||||||||||||||||||||||||
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Deferred income taxes |
— | — | — | — | — | — | 315 | (223 | ) | — | 92 | |||||||||||||||||||||||||||||
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Provision for inventory write-downs |
2,513 | — | — | — | 23,199 | (999 | ) | — | (8,016 | ) | — | 16,697 | ||||||||||||||||||||||||||||
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Change in accounts receivable |
13,246 | — | — | — | — | — | — | (23,821 | ) | — | (10,575 | ) | ||||||||||||||||||||||||||||
|
Change in inventories |
(26,772 | ) | — | (902 | ) | — | — | 3,538 | — | 8,016 | — | (16,120 | ) | |||||||||||||||||||||||||||
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Change in prepaid expenses and other assets |
— | — | — | — | — | — | (318 | ) | 74 | 2,111 | (10) | 1,867 | ||||||||||||||||||||||||||||
|
Change in accrued and other liabilities |
16,268 | — | — | — | — | 5,398 | 450 | (1,255 | ) | — | 20,861 | |||||||||||||||||||||||||||||
|
Acquisition of Indilinx, net of cash received |
— | — | — | — | — | — | (393 | ) | 393 | — | — | |||||||||||||||||||||||||||||
|
Proceeds from issuance of common stock, net |
— | — | — | — | — | — | — | 117 | — | 117 | ||||||||||||||||||||||||||||||
| (1) | “Revenue Recognition” represents various transactions that were recognized prior to meeting the revenue recognition criteria. Adjustments were recorded to reverse the original revenue recorded, defer the original revenue recorded or provide reserves against net revenue for future product returns. Also included are adjustments to recognize the reversal of the product cost, which are recorded as reductions of cost of revenue and increases to either inventory or deferred product cost. |
| (2) | “CIP Credits” represent Market Development Funds, rebates and price protection credits. These adjustments were made to record CIP Credits in the correct accounting period and to classify them correctly in our consolidated statements of operations. |
| (3) | “Manufacturing and Freight” represents manufacturing and freight costs that should have been capitalized as a component of product costs but were incorrectly expensed as incurred. Adjustments were made to reduce operating expenses and increase inventory (for products on hand) and cost of revenue (for products shipped). |
| (4) | “Goodwill and Intangibles” represents a write-off of goodwill related to prior acquisitions due to a revision to our estimated enterprise value and a revision to the estimated value of certain intangible assets. |
| (5) | “Inventory Reserves” represents adjustments to reduce the carrying value of certain inventory items that had generally either had been returned from customers or were being used for internal development purposes. |
| (6) | “Accruals” represents accruals for future costs to be incurred primarily for warranty and repair obligations. |
| (7) | “Income Taxes” represents adjustments to reflect the tax impact of the restatement adjustments noted above and to record the appropriate tax provision for each jurisdiction in which the Company operates. |
| (8) | “Reclassifications” represents the impact of reclassifications on prior period financial statements in order to conform to the current year presentation. |
| (9) | Includes changes in allowance for bad debts. |
| (10) | Includes the expensing of certain prepaid assets to research and development of $2.1 million. |
| (11) | Includes the expensing of certain prepaid assets to research and development of $2.1 million and changes in allowances for bad debts of $78,000. |