Item 4.02. Non-Reliance on Previously Issued
Financial Statements or a Related Audit Report or Completed Interim Review.
On July 21, 2021, the Board,
following discussions with management, determined that its audited financial statements for the year ended December 31, 2020 as included
in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2021 (the “Original
10-K”) and its unaudited condensed consolidated financial statements for the quarter ended September 30, 2020 filed with the SEC
on November 16, 2020 (the “Original 10-Q”) require restatement to correct the classification of its outstanding
debt as current. Given this need for restatement, the Original 10-K and Original 10-Q should no longer be relied upon.
Similarly, CohnReznick’s
report on the effectiveness of internal control over financial reporting for the year ended December 31, 2020, management’s reports
on the effectiveness of internal control over financial reporting, related press releases, earnings releases and investor communications
describing the Company’s financial statements for that period should no longer be relied upon.
The determination of the
Board to restate the above-referenced financial statements was based upon the requirement to reclassify all of its debt from
non-current to current in its consolidated balance sheets that was identified by management during the course of preparing the
Company’s financial statements for the quarter ended March 31, 2021. As previously disclosed in its Form 8-K dated June 21,
2021, the Company entered into a waiver (the “Waiver”) under its Third Amended and Restated First Lien Credit Agreement,
dated as of July 1, 2016 (as amended, restated or otherwise modified from time to time, the “Amended BOA Credit
Agreement”), with Bank of America, N.A. (“BoA”), as administrative agent and collateral agent, and the lenders
party thereto. Due to the Waiver, management reassessed its existing waivers with Wilmington Trust, National Association and the
required lenders under its Third Amended and Restated Credit Agreement, dated as of July 1, 2016 along with its balance sheet
classification of debt for the quarter ended September 30, 2020 and the year ended December 31, 2020. Sequential determined that all
non-current debt at September 30, 2020 and December 31, 2020 should be reclassified to current. Following the filing of this Current
Report on Form 8-K and no later than August 6, 2021, the Company will file an Amendment No. 1 to both its Quarterly Report on
Form 10-Q for the quarter ended September 30, 2020 (the “Form 10-Q/A”), and its Annual Report on Form 10-K for the year
ended December 31, 2020 (the “Form 10-K/A”). The Form 10-Q/A and Form 10-K/A will contain restatements of the
Company’s consolidated financial statements for the quarter ended September 30, 2020 and the year ended December 31, 2020,
respectively, along with additional data regarding these restatements.
Management has considered
the effect of the error on the Company’s prior conclusions of the adequacy of its internal control over financial reporting and
disclosure controls and procedures as of the end of each of the applicable periods. As a result of the error, management has determined
that a material weakness existed in the Company’s internal control over financial reporting as of the end of each of the affected
periods. Accordingly, the Company’s principal executive officer has concluded that the Company’s disclosure controls and
procedures were not effective at the reasonable assurance level as of the end of each of the effective periods. The Company has begun
reviewing its process for determining the classification of debt and is formulating the corrective action to remediate. The Company plans
to include appropriate updates on status of remediation in its future filings.
The Company’s principal executive officer has discussed
the matters disclosed in this Item 4.02 with the Company’s Board and independent auditor, CohnReznick LLP.
Existing Waivers
As previously disclosed, there
are ongoing defaults under the Third Amended and Restated First Lien Credit Agreement and the Third Amended and Restated Credit Agreement,
both dated as of July 1, 2016 (collectively the “Credit Agreements”) with Bank of America, N.A., as administrative agent and
collateral agent and Wilmington Trust, National Association as administrative agent and collateral agent, respectively. The lenders under
the Credit Agreements have provided a waiver of such defaults through August 10, 2021. We have disclosed certain uncertainties and risks
applicable to us in our previous Form 8-K filed on July 2, 2021 and July 8, 2021. The disclosure in this Form 8-K should be read in conjunction
with such information. It is uncertain whether the Company will be able to comply with the covenants under the Credit Agreements going
forward, and the Company is not currently forecasted to be able to comply, in the next twelve months, with certain of the financial covenants
under the Credit Agreements. The Company cannot assure you that its lenders would be willing to negotiate further changes to its financial
covenants when necessary and the Company cannot obtain further waivers of the defaults under the Credit Agreements without the consent
of the respective lenders thereunder. If the Company is unable to obtain additional waivers of ongoing defaults, or otherwise is unable
to comply with its debt arrangements, the obligations under the indebtedness may be accelerated. If an acceleration were to occur, the
Company does not have sufficient liquidity to satisfy the loan, and the Company would potentially need to seek protection under the federal
bankruptcy code.
As a result of the risk of
non-compliance with the covenants and uncertainty of further waiver extensions under the Credit Agreements, management has determined
that as of the date of this filing there continues to be a material uncertainty that casts substantial doubt with respect to the ability
of the Company to continue as a going concern.
Our Board of Directors is
continuing to evaluate strategic alternatives, including refinancing all or a portion of our debt and/or the divestiture of one or more
existing brands or a sale of the Company, which divestiture or sale may occur pursuant to a case under the federal bankruptcy code. However,
we cannot assure you that any such divestiture or sale efforts will be successful or that such efforts will yield the overall best price
for such assets, particularly if such events occurred through a restructuring or bankruptcy filing. Any sale of assets may represent a
triggering event requiring that we evaluate the carrying value of such assets for impairment purposes, which impairments may be material.