Nasdaq has issued a formal notice of non-compliance to Inspired, a gaming technology company, after it failed to file its third-quarter financial report on time. Inspired had previously disclosed to the public that it needed additional time to finalize its financial documents for the period ending September 30, 2023. The company has been diligently working not only to prepare its Q3 report but also to rectify errors in previous financial statements.
The crux of the issue lies in Inspired’s violation of the Nasdaq Listing Rule 5250(c)(1), due to not filing its Form 10-Q for the third quarter—a document that would detail its financial performance during that period. Recognizing the gravity of the situation, Inspired has acknowledged the implications of the Nasdaq notification. However, it has also assured that its securities will remain listed on the exchange for the time being.
The notification has prompted a series of corrective measures from Inspired. In response, Nasdaq has provided Inspired with a 60-day deadline, which falls on January 22, 2024. Within this window, Inspired must either complete the overdue filing or submit a satisfactory plan to regain compliance with the Nasdaq Listing Rules. Should Inspired propose an adequate compliance plan and Nasdaq deems it acceptable, the company could be granted an extension of up to 180 calendar days from the original due date of their filing—or until May 7, 2024—to file the Form 10-Q.
Failure to comply, however, carries the risk of Nasdaq delisting Inspired’s common stock. Concerns arose after Inspired identified multiple accounting errors that affected compliance with U.S. Generally Accepted Accounting Principles (GAAP), specifically in how it capitalized software development costs. These discrepancies primarily pertain to how certain accounting standards have been applied to past projects.
Taking a closer look, the issues at hand have been found to originate from financial statements beginning January 1, 2021. Following this revelation, Inspired has stated that these financials, along with any associated press releases, earnings reports, and communications on its financial results, should not be relied upon. Moreover, the provider has withdrawn its trust from the reports of Marcum LLP, its previous accounting firm, for the 2021 and 2022 consolidated financial statements.
These errors have led to the discovery of what Inspired refers to as “material weaknesses” in its internal financial reporting controls. Consequent to these findings, the company has expressed its intention to adopt new measures to strengthen its financial reporting system. As a result, Inspired is gearing up to restate its consolidated financial statements for the periods affected, as it delineated in its filings with the US Securities and Exchange Commission on November 8.
In an effort to reassure shareholders and investors, Inspired has stated that despite the need for these corrections, they do not believe there will be any negative impact on the company’s cash position or business strategy. Nevertheless, the company has not provided a specific timeline for when the restated reports will be completed and filed.
Amidst these administrative remediations, Inspired released its last set of results in August, showing Q2 and the first half financial performance until June 30, 2023. Their Q2 revenue saw an increase of 12.3% to $80.1 million due to growth across its business sectors. While this increase in revenue was promising, a parallel rise in expenses led to an 85.4% decrease in net profit for the quarter, settling at $2.3 million. Adjusted EBITDA, however, showed a marginal increase.
As for the first half of the year, Inspired reported revenues amounting to $146.4 million, marking an 11.0% year-on-year increase. Yet, the spike in expenditures resulted in a 53.6% net profit decline, culminating in $3.9 million for the six-month period. This financial turbulence, and subsequent scrutiny from Nasdaq, presents a challenging road ahead for Inspired as it strives to recalibrate its financial reporting and regain full compliance with the Nasdaq Listing Rules.
