I posted this in the daily, but doing this for visibility. Here's Napco's explanation for their accounting errors:
Matthew Pfau: Hey, great. Thanks for taking my questions. Wanted to first start on the restatement, and I was just hoping you could better explain to us what happened here from an accounting perspective. It seems a little bit counterintuitive that both inventory and would be overstated while COGS were understated. So what happened that drove that? And then on the cash component, how did that sort of tie out when the accounting was wrong on the other side of the financial statements.
Kevin Buchel: So Matt, the inventory for the quarters that succeeded the June 30, 2022 physical inventory audited statements, the quarters that followed it, which was the September quarter the December quarter and the March quarter of fiscal 2023. The inventory was valued using values from the 6/30/22 audited numbers. What that means is take as an example, if a component was valued at $50 at June 30, 2022. That same $50 was used to value the inventory for the first quarter, and let’s say, the second quarter and let’s say, the third quarter. The cost of that component was coming down, no longer $50, $5 using this one example. You value the inventory at $50, you’re overstating your inventory when you put a valuation on your balance sheet.
If you’re overstating your inventory and your balance sheet, that means the other side of the equation is you’re understating your cost of goods sold. It has nothing to do with cash. This is all book entries Cash is unaffected. Cash flow unaffected cash from ops, none of that is affected. This is strictly overstated your inventory – it means you understated your cost of goods sold. If you understated, your cost of goods sold, that means you overstated your net income. And that’s what it is now. we’re going to fix this, and we’ve begun the process of fixing it. You can’t use the prior year’s physical inventory valuation going forward. normal conditions, it could use it, but in fluctuating pricing times and who knows what the times are going to be going forward times seem to be better now, the fluctuations seem to be gone.
But we’re going to have a system where we measure every fluctuation during the quarters and we utilize that new price if there is a new price to value the inventory in each quarter. We’ll do it at the beginning the first day after the quarter end, so on October 1, let’s say, for the upcoming end of the quarter, we’ll measure every fluctuation that exists up or down and we’ll make sure that the inventory valuation for the quarter utilizes the correct price. And that’s the best way I could explain it, Matt. It’s nothing to do with cash for those that took accounting in school, it’s – you’ve got to credit your inventory, lower your inventory, you’ve got to debit your cost of goods sold, and that reduces profits. That’s what it was.
Matthew Pfau: Got it. And then with the stock down significantly from the highs, are you considering repurchasing any stock or is management team considering any personal purchases themselves?
Kevin Buchel: That’s all on the table. And it’s possible we will do that. The first things first, let’s get the Qs, the restated Qs filed. We expect to do that this week. Let’s get the K filed. We expect to do that next week. And then we could look at buybacks and personal buying all this it’s all on the table. Let’s get this – our house in order with our filings and we go from there.
And here's the whole transcript:
https://finance.yahoo.com/news/napco-security-technologies-inc-nasdaq-121929737.html
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