Note 2—RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

We restated our consolidated financial statements for the fiscal year ended September 30, 2012, and the interim fiscal quarters and year to date periods within the year ended September 30, 2012, included in the Company’s Annual Report on Form10-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 cumulative adjustments to correct the consolidated financial statements for all periods prior to October 1, 2011 were immaterial and are recorded as adjustments to cost of sales in the first quarter of fiscal 2012 and the fiscal year ended September 30, 2012. The cumulative effect of those adjustments increased previously reported cost of sales and decreased net income for the year ended September 30, 2012 by $0.25 million and $0.17 million, respectively.

The summary impacts of the restatement adjustments on the Company’s previously reported consolidated net income follows (in thousands):

	Year Ended
	September 30,
	2012

Net Income - Previously reported	$	7,760
Work-in-process inventory adjustments, net of tax		(1,066)
Net Income - Restated	$	6,694

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 Sheet as of September 30, 2012 and our Consolidated Statement of Income and Consolidated Statement of Cash Flows for the fiscal year then ended is as 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						Year ended
	September 30, 2012						September 30, 2012
	As reported		Adjustment		Restated		As reported		Adjustment		Restated
	(in thousands)

Net sales	$	37,062	$	-	$	37,062	$	144,963	$	-	$	144,963
Cost of sales		30,263		625		30,888		117,007		1,650		118,657
Gross profit		6,799		(625)		6,174		27,956		(1,650)		26,306
Selling and administrative expenses		3,579		-		3,579		15,765		-		15,765
Operating profit		3,220		(625)		2,595		12,191		(1,650)		10,541

Interest and financing expense		297		-		297		1,227		-		1,227
Other (income)/expense		1		-		1		(1,050)		-		(1,050)
Income before provision for income taxes		2,922		(625)		2,297		12,014		(1,650)		10,364

Provision for income taxes		921		(210)		711		4,254		(584)		3,670
Net income	$	2,001	$	(415)	$	1,586	$	7,760	$	(1,066)	$	6,694

Net income per common and common equivalent share:
Basic	$	0.21	$	(0.05)	$	0.16	$	0.80	$	(0.11)	$	0.69
Diluted		0.20		(0.04)		0.16		0.78		(0.11)		0.67
Weighted average number of common and common equivalent shares outstanding:
Basic		9,660,253				9,660,253		9,663,865				9,663,865
Diluted		9,982,368				9,982,368		9,969,071				9,969,071

	Consolidated Statement of Cash Flow
	Year ended
	September 30, 2012
	As reported		Adjustment		Restated
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,760	$	(1,066)	$	6,694
Non-cash adjustments:
Stock-based compensation		595		-		595
Depreciation and amortization		4,297		-		4,297
Change in contingent consideration		1,096		-		1,096
Directors' fees paid in stock		37		-		37
Loss on sale of fixed assets		14		-		14
Reserve for doubtful accounts		101		-		101
Deferred tax expense		3,833		(585)		3,248
Changes in current assets and liabilities:						-
Accounts receivable		(3,871)		-		(3,871)
Inventories		(3,255)		1,651		(1,604)
Other current assets		(77)		-		(77)
Accounts payable		2,947		-		2,947
Accrued expenses		(321)		-		(321)
Customer deposits		(186)		-		(186)
Net cash flows from operating activities		12,970		-		12,970

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets		(3,080)		-		(3,080)
Proceeds from (net cost of) disposal of fixed assets		46		-		46
Net cash flows from investing activities		(3,034)		-		(3,034)

CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from revolving credit facility		62,563		-		62,563
Repayments of revolving credit facility		(63,173)		-		(63,173)
Repayments under loan agreements and notes		(6,862)		-		(6,862)
Proceeds from exercise of stock options		134		-		134
Proceeds from employee stock plan purchases		64		-		64
Net cash flows from financing activities		(7,274)		-		(7,274)

Net cash flows for the period		2,662		-		2,662
Cash and cash equivalents, beginning of period		-		-		-
Cash and cash equivalents, end of period	$	2,662	$	-	$	2,662

Supplemental cash flow information:
Interest paid	$	1,106	$	-	$	1,106
Income taxes paid		326		-		326

After taking into account the restatement, the Company remained in compliance with the financial covenants contained in its Credit Agreement with M&T Bank, described in Note 8 – Credit Facilities, for each measurement period during fiscal 2012.