Item
4.02. Non-Reliance on Previously Issued Financial Statements or a
Related Audit Report or Completed Interim Review.
On
March 8, 2019, the Audit Committee of the Board of Directors (the
“Audit Committee”) of MusclePharm Corporation (the
“Company”) concluded that the Company’s
previously issued unaudited condensed consolidated financial
statements for the three and nine months ended September 30, 2018
(the “Restated Periods”) should no longer be relied
upon because of errors. Additionally, the Company’s earnings
and press releases and similar communications to the extent that
they relate to our financial statements for the Restated Periods
should no longer be relied upon.
Specifically,
during the preparation of the 2018 annual consolidated financial
statements, the Company determined that the systems, processes and
controls related to sales cut off were not sufficient to accurately
record revenue in the correct reporting period. As a result, the
Company identified errors, relating to revenue, cost of revenue,
inventory and accounts receivable, which resulted in the
overstatement of revenue and expenses for the Restated Periods as
well as corresponding balance sheet accounts as of September 30,
2018. The errors described above were material to the Restated
Periods and will be corrected in the restatement of our financial
statements for the Restated Periods.
The
Company plans to restate its unaudited condensed consolidated
financial statements for the Restated Periods by filing an amended
Form 10-Q for the period ended September 30, 2018 (the
“Amended Form 10-Q”). It was determined that similar
errors existed in the quarter ended June 30, 2018, but the impact
was not deemed material to that period. We expect that certain
amounts in the condensed consolidated financial statements for the
Restated Periods, which will be included in the Amended Form 10-Q,
will differ from the amounts reported in the original filing.
Revenue, net, as restated, for the nine-month period ended
September 30, 2018 is expected to be in a range of approximately
$74 million to $76 million. Cost of revenue, as restated, for the
nine-month period ended September 30, 2018 is expected to be in a
range of approximately $51 million to $53 million. Net loss, as
restated, for the nine-month period ended September 30, 2018 is
expected to be in a range of approximately $6 million to $8
million. The restatement effects discussed herein are preliminary
and subject to further assessment prior to the filing of the
Amended Form 10-Q. Accordingly, actual amounts may not be within
the ranges indicated above and any such differences could be
material.
In
addition, as a result of the foregoing errors, the Company has
determined that there was a material weakness in internal control
over financial reporting related to its sales cut off
procedures.
Our
management has re-evaluated its assessment of our disclosure
controls and procedures and internal control over financial
reporting as of September 30, 2018 and concluded that each was
ineffective as of that date due to the existence of the foregoing
material weakness. As part of our Amended Form 10-Q, we will update
and reflect the change in management’s conclusion regarding
the effectiveness of our disclosure controls and procedures and
internal control over financial reporting as of September 30, 2018.
As a result, we will not file our Form 10-K for the year ended
December 31, 2018 (the “Form 10-K”) until after the
filing of the Amended Form 10-Q. We currently expect to file our
Form 10-K on a timely basis; however, there can be no assurance
that we will be able to do so.
The
Audit Committee has discussed these matters with
Plante & Moran PLLC,
its independent
registered public accounting firm.
Caution Re
g
ardin
g
Forward-Lookin
g
Statements
This
Current Report on Form 8-K includes information that constitutes
forward-looking statements. Forward-looking statements often
address our expected future business and financial performance, and
often contain words such as “believe,”
“expect,” “anticipate,”
“intend,” “plan,” or “will.” By
their nature, forward-looking statements address matters that are
subject to risks and uncertainties. Any such forward-looking
statements may involve risk and uncertainties that could cause
actual results to differ materially from any future results
encompassed within the forward-looking statements. Examples of such
forward-looking statements include, but are not limited to,
statements regarding our plans to restate our financial statements
for the Restated Periods and file an amended Form 10-Q, our plans
to correct errors in our financial statements for prior periods,
and our expectations with regard to changes in revenue, costs of
goods sold and net loss with respect to the Restated Periods.
Factors that could cause or contribute to such differences include:
the review of the Company’s accounting, accounting policies
and internal control over financial reporting; the preparation of
and the audit or review, as applicable, of the Amended Form 10-Q or
the Form 10-K; and the subsequent discovery of additional
adjustments to the Company’s previously issued financial
statements. Actual events or results may differ materially from the
Company’s expectations. In addition, our financial results
and stock price may suffer as a result of this review and any
subsequent determinations from this process or any actions taken by
governmental or other regulatory bodies as a result of this
process. We do not undertake to update our forward-looking
statements, except as required by applicable securities
laws.