Real Good Food Company, Inc. (NASDAQ:RGF) announced on Monday (NASDAQ:MNDY) that it will restate its financial statements for 2022 and the quarterly periods of 2023 due to errors in revenue recognition. The decision, made by the company's audit committee and board of directors, was disclosed in an 8-K filing with the Securities and Exchange Commission (SEC).
The restatement pertains to the incorrect accounting treatment of a specific sales agreement during the mentioned periods. As a result, previously reported revenues, costs of sales, and accounts receivable for all periods in 2022 will be reduced, while these financial statement items for all quarterly periods in 2023 will be increased. The company also noted an increase in inventory balances for the same periods, but this will be offset by a correction of a separate previously disclosed inventory error, ultimately leading to a net decrease in reported inventory.
Real Good Food Company emphasized that the adjustments will not materially impact the total revenue recognized from the sales agreement, nor will it affect the company's cash position, cash flows, or liquidity. The restatement is solely a correction of the timing of revenue recognition.
Investors and other stakeholders have been advised to no longer rely on the company's financial statements for the affected periods, as well as any earnings releases and other communications related to these financials. The company has also withdrawn any previously provided financial guidance.
The comprehensive review of the financial impact of these errors is still ongoing, and the company plans to file amended annual and quarterly reports as soon as practicable. The audit committee has discussed these issues with the independent accounting firm Grant Thornton LLP.
This announcement contains forward-looking statements, and the company has cautioned that these are subject to risks and uncertainties. These include the risk of further delays in filing the amended reports and the discovery of additional information related to the errors.
The Real Good Food Company, which operates in the food and kindred products sector and is headquartered in Cherry Hill, New Jersey, is working to resolve these accounting issues and fulfill its reporting obligations. This news is based on the company's recent SEC filing.
In other recent news, The Real Good Food Company is facing potential delisting from the Nasdaq Global Market. The company has received notifications indicating non-compliance with the exchange's listing rules, primarily concerning the minimum bid price and market value of publicly held shares. In response, the company has requested a hearing with an independent Hearings Panel to seek an extension to regain compliance.
On a positive note, Real Good Food has increased its borrowing capacity by amending its credit agreement with PMC Financial Services Group. The amendment raises the revolving credit facility from $42 million to $46 million, providing the company with increased financial flexibility.
Furthermore, the company has expanded its distribution in 4,000 Walmart (NYSE:WMT) stores nationwide, introducing its new Seasoned Chicken Breast Chunks. This is part of a broader strategy to grow its Frozen Proteins portfolio. However, the company is also dealing with a compliance issue for not filing its Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, in a timely manner. Despite these challenges, Real Good Food continues to focus on its operational and strategic initiatives.
InvestingPro Insights
The recent announcement by Real Good Food Company (RGF) regarding the restatement of its financial statements aligns with several InvestingPro metrics and tips that paint a challenging picture for the company.
According to InvestingPro data, RGF's stock has taken a significant hit, with a 1-year price total return of -81.54% and a year-to-date return of -79.84%. This poor performance is reflected in the stock price, which currently stands at $0.31, just 14.7% of its 52-week high.
InvestingPro Tips highlight that RGF suffers from weak gross profit margins and is not expected to be profitable this year. These factors may be contributing to the company's financial reporting challenges and the need for restatement.
The company's market capitalization stands at a modest $10.32 million, reflecting the significant decline in investor confidence. With an operating income margin of -25.27% for the last twelve months as of Q3 2023, RGF's profitability concerns are evident.
These insights from InvestingPro provide additional context to the company's current situation and the potential impact of the financial restatement. Investors seeking a more comprehensive analysis can access 11 additional tips on InvestingPro, offering a deeper understanding of RGF's financial health and market position.
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