Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
On November 19, 2020, the Audit Committee of the Board of Directors of Toga
Limited (the "Company") concluded, after discussion with the Company's
management, that the Company's consolidated financial statements for the (i)
year ended July 31, 2019, (ii) interim period ended April 30, 2019, (iii)
interim period ended October 31, 2019, (iv) interim period ended January 31,
2020, and (v) interim period April 30, 2020 (collectively, the "Non-Reliance
Periods") should no longer be relied upon due to errors in the consolidated
financial statements and should be restated. Similarly, press releases, earnings
releases, and investor presentations or other communications describing the
Company's consolidated financial statements and other related financial
information covering the Non-Reliance Periods should no longer be relied upon.
In addition, the audit report of Pinnacle Accountancy Group of Utah ("Pinnacle")
included in the Company's Annual Report on Form 10-K for the year ended July 31,
2019 (the "2019 Form 10-K") should no longer be relied upon.
In connection with the preparation of the Company's Annual Report on Form 10-K
for the fiscal year ended July 31, 2020 (the "2020 Form 10-K"), the Company's
management became aware that the Company's consolidated financial statements for
the Non-Reliance Periods contained errors related to revenue recognition for one
or more of the Company's subsidiaries engaged in the Company's direct sales
business. In such instances, the Company improperly recognized the cash
proceeds from sales of membership packages to its independent agents as
revenues, rather than as deferred revenue. In accordance with Accounting
Standards Codification 606, Revenues from Contracts with Customers, the proceeds
should have been recognized as revenue upon the satisfaction of the subsidiary's
performance obligations, which would have been the time of shipment of inventory
to such independent agents. This resulted in an overstatement of revenue and an
understatement of deferred revenue. The Company is unable at this time to
estimate the amount and full effect of the restatements in the Non-Reliance
Periods.
The Company is working to complete the restatement of its financial statements
for the Non-Reliance Periods. The Company is still in the process of
determining if it will file the restated consolidated financial statements for
the Non-Reliance Periods by filing a comprehensive Form 10-K that includes the
restated consolidated financial statements and related financial information for
the Non-Reliance Periods or filing amendments to (i) each of the Quarterly
Reports on Form 10-Q for the interim periods covered by the Non-Reliance Periods
and (ii) the 2019 Form 10-K. The Company intends to restate the consolidated
financial statements for the Non-Reliance Periods as soon as practicable. The
Company also intends to file the 2020 Form 10-K, which will contain the restated
information for the year ended July 31, 2019 as soon as practicable.
Accordingly, investors and others should rely only on the financial information
and other disclosures regarding the Non-Reliance Periods once the Company
restates its consolidated financial statements and not rely on any previously
issued or filed registration statements or reports, earning press releases,
investor presentations or other communications related thereto covering the
Non-Reliance Periods.
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Management is assessing the effect of the restatements on the Company's internal
control over financial reporting and its disclosure controls and procedures.
The Company expects to report one or more material weaknesses following
completion of its investigation of the cause of these restatements. A material
weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a
material misstatement of a company's annual or interim financial statements will
not be prevented or detected on a timely basis. The existence of one or more
material weaknesses precludes a conclusion by management that a company's
disclosure controls and procedures and internal control over financial reporting
are effective. In addition, the Audit Committee, the Board of Directors, and
management have begun evaluating appropriate remediation actions. For example,
commencing in January 2021, management intends to implement a new Enterprise
Resource Planning (ERP) system with more oversight and control of the Company's
subsidiaries' financial reporting processes by key members of management.
The Audit Committee has discussed the matters disclosed in the original Form 8-K
and this Amendment pursuant to this Item 4.02 with the Company's current
independent registered public accounting firm, Marcum LLP ("Marcum"), and with
the Company's former independent registered public accounting firm, Pinnacle.
Both Marcum and Pinnacle were provided with a copy of the disclosures made
herein and was given the opportunity, no later than the day of the filing of
this Amendment, to review these disclosures and provide us with a letter stating
whether or not they agree with these disclosures. Copies of the letters from
Marcum and Pinnacle are attached hereto as Exhibits 7.01 and 7.02, respectively,
and which are incorporated herein by reference.
On November 24, 2020, we issued a press release announcing that we intend to
restate the Company's consolidated financial statements for the Non-Reliance
Periods, which was filed as Exhibit 99.1 to the original Form 8-K on November
24, 2020.
Forward-Looking Statements.
Certain statements contained in this Current Report on Form 8-K may constitute
"forward-looking statements" within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995 or "forward-looking information" as such term is
defined in applicable Canadian securities legislation (collectively,
"forward-looking statements"). Often, but not always, forward-looking statements
can be identified by the use of words such as "plans", "expects", "is expected",
"budget", "potential", "scheduled", "estimates", "forecasts", "intends",
"anticipates", "believes", or "projects", or the negatives thereof or variations
of such words and phrases or statements that certain actions, events or results
"will", "should", "may", "could", "would", "might" or "will be taken", "occur"
or "be achieved" or the negative of these terms or comparable terminology. All
statements other than statements of historical fact, including those that
express, or involve discussions as to, expectations, beliefs, plans, objectives,
assumptions or future events or performance, are not historical facts and may be
forward-looking statements and may involve estimates, assumptions and
uncertainties that could cause actual results or outcomes to differ materially
from those expressed in the forward-looking statements. Such statements reflect
the Company's current views and intentions with respect to future events, and
current information available to the Company, and are subject to certain risks,
uncertainties and assumptions. Many factors could cause the actual results,
performance or achievements that may be expressed or implied by such
forward-looking statements to vary from those described herein should one or
more of these risks or uncertainties materialize. These factors include, the
impact of the restatement and correction of the Company's previously issued
financial statements; the identified weakness in the Company's internal control
over financial reporting and the Company's ability to remediate that material
weakness; any delay in the filing of the 2020 Form 10-K with the SEC; the
initiation of legal or regulatory proceedings with respect to the restatement
and corrections; the adverse effects on the Company's business, results of
operations, financial condition and stock price as a result of the restatement
and correction process; as well as those risk factors discussed or referred to
in the Company's disclosure documents filed with the SEC available on the SEC's
website at www.sec.gov, including the 2019 Form 10-K. Should any factor affect
the Company in an unexpected manner, or should assumptions underlying the
forward-looking statements prove incorrect, the actual results or events may
differ materially from the results or events predicted. Any such forward-looking
statements are expressly qualified in their entirety by this cautionary
statement. Moreover, the Company does not assume responsibility for the accuracy
or completeness of such forward-looking statements. The forward-looking
statements included in this Current Report on Form 8-K are made as of the date
of this Current Report on Form 8-K and the Company undertakes no obligation to
publicly update or revise any forward-looking statements, other than as required
by applicable law.
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Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The following exhibits are filed with this Current Report on Form 8-K:
Exhibit Number Description
7.01 Letter from Marcum LLP dated January 25, 2021
7.02 Letter from Pinnacle Accountancy Group of Utah dated January 25,
2021
99.1 Press Release dated November 24, 2020 (Restatement) as filed on
November 24, 2020 on Form 8-K
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