2.	Impact on Previously Issued Financial Statements for the Correction of an Error

Revision of Prior Period Financial Statements

During the quarter ended September 30, 2018, the Company identified and corrected immaterial errors that affected previously issued consolidated financial statements. These errors primarily related to historical misapplication of GAAP related to the timing of recognizing certain expenses incurred in connection with allowances paid for core inventory purchase obligations at the start of a new business relationship. The Company previously recorded the difference between the acquisition price of Remanufactured Cores purchased from customers generally in connection with new business, and the related inventory cost as a sales allowance reducing revenue when the purchases were made. These sales allowances are now recorded as an asset and recognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered (as further described under the caption “Contract Assets” in Note 4). The Company also corrected errors resulting from differences between the original cost estimate and the actual cost of the Remanufactured Cores held at customers’ locations.

The Company also corrected other immaterial errors, which primarily relate to bonus accruals and core inventory, and recorded certain adjustments to income taxes, including reflecting the tax effect of the aforementioned adjustments. In addition, the Company reclassified certain customer contract related prepayments from prepaid expenses and other current assets and other assets to contract assets related to the adoption of ASC 606 on April 1, 2018 (see Note 4).

In order to correctly present the errors noted above, previously issued comparative financial statements, which were revised during the quarter ended September 30, 2018, are presented as “As Revised” in the tables presented in the following footnotes. In addition, upon the adoption of ASC 606 on April 1, 2018, the Company adjusted its revised consolidated financial statements and related footnotes for the year ended March 31, 2018 and applicable interim periods within the fiscal year ended March 31, 2018. These consolidated financial statements and tables are presented as “As Adjusted”.

The effect of the above corrections on the consolidated statement of operations for the fiscal year ended March 31, 2018 is as follows:

	Year Ended March 31, 2018
Revised Consolidated Statement of Operations Amounts:	As Previously Reported		Adjustment			As Revised

Net sales	$	428,072,000	$	(1,081,000	)	$	426,991,000
Cost of goods sold		322,199,000		(1,750,000	)		320,449,000
Gross profit		105,873,000		669,000			106,542,000
Operating expenses:
General and administrative		35,527,000		(50,000	)		35,477,000
Sales and marketing		15,030,000		-			15,030,000
Research and development		5,692,000		-			5,692,000
Total operating expenses		56,249,000		(50,000	)		56,199,000
Operating income		49,624,000		719,000			50,343,000
Interest expense, net		15,445,000		-			15,445,000
Income before income tax expense (benefit)		34,179,000		719,000			34,898,000
Income tax expense (benefit)		17,863,000		(1,791,000	)		16,072,000
Net income	$	16,316,000	$	2,510,000		$	18,826,000
Basic net income per share	$	0.87	$	0.13		$	1.00
Diluted net income per share	$	0.84	$	0.13		$	0.96

The effect of the above corrections on the consolidated statement of comprehensive income for the fiscal year ended March 31, 2018 is as follows:

	Year Ended March 31, 2018
Revised Consolidated Statement of Comprehensive Income Amounts:	As Previously Reported		Adjustment		As Revised

Net income	$	16,316,000	$	2,510,000	$	18,826,000
Comprehensive income	$	18,329,000	$	2,510,000	$	20,839,000

The effect of the above corrections on the consolidated balance sheet at March 31, 2018 is as follows:

	March 31, 2018
Revised Consolidated Balance Sheet Amounts:	As Previously Reported		Adjustment			As Revised
ASSETS
Income tax receivable	$	7,796,000	$	176,000		$	7,972,000
Prepaid expenses and other current assets		11,491,000		3,613,000			15,104,000
Long-term core inventory — net		301,656,000		(3,362,000	)		298,294,000
Long-term deferred income taxes		10,556,000		(3,619,000	)		6,937,000
Other assets		7,392,000		14,603,000			21,995,000
TOTAL ASSETS	$	494,497,000	$	11,411,000		$	505,908,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accrued liabilities	$	11,799,000	$	249,000		$	12,048,000
TOTAL LIABILITIES	$	219,521,000	$	249,000		$	219,770,000
Retained earnings	$	66,606,000	$	11,162,000		$	77,768,000
TOTAL SHAREHOLDERS’ EQUITY	$	274,976,000	$	11,162,000		$	286,138,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	494,497,000	$	11,411,000		$	505,908,000

The effect of the above corrections on the consolidated statement of shareholders’ equity for the fiscal year ended March 31, 2018 is as follows:

	Year Ended March 31, 2018
Revised Consolidated Statement of Shareholders’ Equity Amounts:	As Previously Reported		Adjustment		As Revised

Retained earnings at March 31, 2017	$	50,290,000	$	8,652,000	$	58,942,000
Net income		16,316,000		2,510,000		18,826,000
Retained earnings at March 31, 2018	$	66,606,000	$	11,162,000	$	77,768,000

The effect of the above corrections on the consolidated statement of cash flows for the fiscal year ended March 31, 2018 is as follows:

	Year Ended March 31, 2018
Revised Consolidated Statement of Cash Flow from Operating Activities Amounts:	As Previously Reported			Adjustment			As Revised
Net income	$	16,316,000		$	2,510,000		$	18,826,000
Deferred income taxes		3,055,000			(1,560,000	)		1,495,000
Income tax receivable		(6,081,000	)		(231,000	)		(6,312,000	)
Prepaid expenses and other current assets		(2,507,000	)		(318,000	)		(2,825,000	)
Other assets		(384,000	)		788,000			404,000
Accounts payable and accrued liabilities		(11,621,000	)		(50,000	)		(11,671,000	)
Long-term core inventory		(45,839,000	)		(1,139,000	)		(46,978,000	)
Net cash used in operating activities	$	(13,944,000	)	$	-		$	(13,944,000	)

The effect of the above corrections on the consolidated statements of operations for the three and nine months ended December 31, 2017 is as follows:

	Three Months Ended December 31, 2017									Nine Months Ended December 31, 2017
Revised Consolidated Statement of Operations Amounts:	As Previously Reported			Adjustment			As Revised			As Previously Reported		Adjustment			As Revised

Net sales	$	100,127,000		$	1,586,000		$	101,713,000		$	306,964,000	$	(159,000	)	$	306,805,000
Cost of goods sold		77,583,000			(1,750,000	)		75,833,000			231,419,000		(1,750,000	)		229,669,000
Gross profit		22,544,000			3,336,000			25,880,000			75,545,000		1,591,000			77,136,000
Operating expenses:
General and administrative		11,915,000			-			11,915,000			26,717,000		(299,000	)		26,418,000
Sales and marketing		4,048,000			-			4,048,000			10,899,000		-			10,899,000
Research and development		1,678,000			-			1,678,000			3,920,000		-			3,920,000
Total operating expenses		17,641,000			-			17,641,000			41,536,000		(299,000	)		41,237,000
Operating income		4,903,000			3,336,000			8,239,000			34,009,000		1,890,000			35,899,000
Interest expense, net		3,953,000			-			3,953,000			10,789,000		-			10,789,000
Income before income tax expense (benefit)		950,000			3,336,000			4,286,000			23,220,000		1,890,000			25,110,000
Income tax expense (benefit)		7,756,000			(820,000	)		6,936,000			16,099,000		(1,357,000	)		14,742,000
Net (loss) income	$	(6,806,000	)	$	4,156,000		$	(2,650,000	)	$	7,121,000	$	3,247,000		$	10,368,000
Basic net (loss) income per share	$	(0.36	)	$	0.22		$	(0.14	)	$	0.38	$	0.17		$	0.55
Diluted net (loss) income per share	$	(0.36	)	$	0.22		$	(0.14	)	$	0.37	$	0.17		$	0.53

The effect of the above corrections on the consolidated statements of comprehensive (loss) income for the three and nine months ended December 31, 2017 is as follows:

	Three Months Ended December 31, 2017								Nine Months Ended December 31, 2017
Revised Consolidated Statement of Comprehensive (Loss) Income Amounts:	As Previously Reported			Adjustment		As Revised			As Previously Reported		Adjustment		As Revised

Net (loss) income	$	(6,806,000	)	$	4,156,000	$	(2,650,000	)	$	7,121,000	$	3,247,000	$	10,368,000
Comprehensive (loss) income	$	(6,476,000	)	$	4,156,000	$	(2,320,000	)	$	8,404,000	$	3,247,000	$	11,651,000

The effect of the above corrections on the consolidated statements of cash flows for the nine months ended December 31, 2017 is as follows:

	Nine Months Ended December 31, 2017
Revised Consolidated Statement of Cash Flow from Operating Activities Amounts:	As Previously Reported			Adjustment			As Revised
Net income	$	7,121,000		$	3,247,000		$	10,368,000
Deferred income taxes		(909,000	)		(1,805,000	)		(2,714,000	)
Prepaid expenses and other current assets		(2,093,000	)		448,000			(1,645,000	)
Other assets		289,000			(452,000	)		(163,000	)
Accounts payable and accrued liabilities		(15,647,000	)		(299,000	)		(15,946,000	)
Long-term core inventory		(37,222,000	)		(1,139,000	)		(38,361,000	)
Net cash used in operating activities	$	(9,803,000	)	$	-		$	(9,803,000	)