NOTE 2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

We restated our consolidated financial statements for the fiscal year ended September 30, 2012, the interim fiscal quarter and year to date periods within the year ended September 30,2012, as reported in the FY2012 10-K/A and the fiscal quarter ended December 28, 2012, as reported in the Company’s Quarterly Report on Form 10-Q/A for that fiscal quarter.

The summary impact of the restatement adjustments on the Company’s previously reported unaudited consolidated net income for the three months and nine months ended June 29, 2012 follows:

	Three months ended		Nine months ended
	June 29,		June 29,
	2012		2012
Net Income - Previously reported	$	2,203	$	5,759
Work-in-process inventory adjustments, net of tax		(360)		(651)
Net Income - Restated	$	1,843	$	5,108

The Company identified an error in accounting for work-in-process inventory at SCB, one of its wholly owned subsidiaries. During the quarter ended March 29, 2013 the Company began to analyze the cost structure of SCB including labor, overhead and selling and administrative expenses. Throughout the second half of fiscal 2012 and the first half of fiscal 2013 SCB’s expenses incurred increased each period. Over the same period, the labor and overhead capitalized into work-in-process inventory also increased. The Company initially believed the increase in capitalized work-in-process labor and overhead resulted from unfavorable variances due to increased expenses in relation to revenue during those periods. Upon further review, it was determined the Company overcapitalized labor and overhead costs in SCB’s work-in-process inventory. The overcapitalization was a result of failure to accurately factor in the stage of completion for the work-in-process inventory.

The impact of the restatement on the previously issued Consolidated Balance Sheets and Consolidated Statements of Income and Cash Flows for the three months and nine months ended follows:

	Consolidated Balance Sheet
	September 30, 2012
	As reported		Adjustment		Restated
	(in thousands)
ASSETS
Current assets:
Cash	$	2,662	$	-	$	2,662
Accounts receivable, net of allowance		23,193		-		23,193
Inventories, net		19,348		(1,651)		17,697
Deferred income taxes		1,365		-		1,365
Other current assets		401		-		401
Total current assets		46,969		(1,651)		45,318

Fixed assets, net		17,120		-		17,120
Intangible assets, net		5,511		-		5,511
Goodwill		13,810		-		13,810
Deferred income taxes		5,433		585		6,018
Other assets		121		-		121
Total assets	$	88,964	$	(1,066)	$	87,898

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	6,533	$	-	$	6,533
Accounts payable		15,697		-		15,697
Accrued payroll and related expenses		2,676		-		2,676
Other accrued expenses		946		-		946
Customer deposits		146		-		146
Total current liabilities		25,998		-		25,998

Long-term debt		21,104		-		21,104
Total liabilities		47,102		-		47,102

STOCKHOLDERS' EQUITY
500,000 shares authorized; none issued or outstanding		-		-		-
Common stock, $0.01 par value:
Authorized: 50,000,000 shares
Issued: 10,943,185 shares
Outstanding: 9,927,727 shares		109		-		109
Additional paid-in capital		43,075		-		43,075
Accumulated income (deficit)		113		(1,066)		(953)
Treasury stock, at cost: 1,015,458 shares		(1,435)		-		(1,435)
Total stockholders' equity		41,862		(1,066)		40,796
Total liabilities and stockholders' equity	$	88,964	$	(1,066)	$	87,898

	Consolidated Income Statements
	Three months ended						Nine months ended
	June 29, 2012						June 29, 2012
	As reported		Adjustment		Restated		As reported		Adjustment		Restated
	(in thousands)

Net sales	$	36,022	$	-	$	36,022	$	107,900	$	-	$	107,900
Cost of sales		28,607		563		29,170		86,743		1,024		87,767
Gross profit		7,415		(563)		6,852		21,157		(1,024)		20,133
Selling and administrative expenses		3,879		-		3,879		12,185		-		12,185
Operating profit		3,536		(563)		2,973		8,972		(1,024)		7,948

Interest and financing expense		285		-		285		930		-		930
Other (income)/expense		(201)		-		(201)		(1,050)		-		(1,050)
Income before provision for income taxes		3,452		(563)		2,889		9,092		(1,024)		8,068

Provision for income taxes		1,249		(203)		1,046		3,333		(373)		2,960
Net income	$	2,203	$	(360)	$	1,843	$	5,759	$	(651)	$	5,108

Net income per common and common equivalent share:
Basic	$	0.23	$	(0.04)	$	0.19	$	0.60	$	(0.07)	$	0.53
Diluted		0.22		(0.04)		0.18		0.58		(0.07)		0.51
Weighted average number of common and common equivalent shares outstanding:
Basic		9,682,423				9,682,423		9,665,095				9,665,095
Diluted		10,008,393				10,008,393		9,931,172				9,931,172

	Consolidated Statement of Cash Flow
	Nine months ended
	June 29, 2012
	As reported		Adjustment		Restated
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,759	$	(651)	$	5,108
Non-cash adjustments:
Stock-based compensation		372		-		372
Depreciation and amortization		3,178		-		3,178
Change in contingent consideration		1,096		-		1,096
Directors' fees paid in stock		32		-		32
(Gain)/loss on sale of fixed assets		14		-		14
Reserve for doubtful accounts		133		-		133
Deferred tax expense		3,333		(374)		2,959
Changes in current assets and liabilities:
Accounts receivable		(3,388)		-		(3,388)
Inventories		(3,473)		1,025		(2,448)
Other current assets		(235)		-		(235)
Accounts payable		721		-		721
Accrued expenses		(487)		-		(487)
Customer deposits		(132)		-		(132)
Net cash flows from operating activities		6,923		-		6,923

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets		(2,492)		-		(2,492)
Proceeds from (net cost of) disposal of fixed assets		46		-		46
Net cash flows from investing activities		(2,446)		-		(2,446)

CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from revolving credit facility		48,488		-		48,488
Repayments of revolving credit facility		(47,915)		-		(47,915)
Borrowings under other loan agreements		-		-		-
Repayments under loan agreements and notes		(5,160)		-		(5,160)
Proceeds from exercise of stock options		46		-		46
Proceeds from employee stock plan purchases		64		-		64
Net cash flows from financing activities		(4,477)		-		(4,477)

Net cash flows for the period		-		-		-
Cash and cash equivalents, beginning of period		-		-		-
Cash and cash equivalents, end of period	$	-	$	-	$	-

Supplemental cash flow information:
Interest paid	$	859	$	-	$	859
Income taxes paid		229		-		229