Business Context and Reporting Period
Company: Inspired Entertainment, Inc. (formerly a Special Purpose Acquisition Company)
Filing Type: Form 8-K (Current Report)
Date of Report: May 7, 2021
Subject: Non-reliance on previously issued financial statements for the years ended December 31, 2020 and 2019 (the "Non-Reliance Periods") due to required accounting corrections regarding warrant classification.
Key Financial Metrics
This filing does not report specific revenue, profit, cash flow, or debt figures for the current period. Instead, it addresses a material accounting reclassification:
- Warrant Classification: Public and private placement warrants issued in 2016 must be reclassified from equity to liabilities under ASC 815.
- Impact on Cash: The restatements are non-cash, non-operating corrections. There is no impact on the company's current or previously reported cash position, operating expenses, or total operating, investing, or financing cash flows.
- Impact on Earnings: Future changes in the fair value of these warrant liabilities will be recorded as non-cash income or expense in earnings, potentially adversely affecting results of operations.
Material Changes Versus Prior Period
The material change is a retrospective accounting correction triggered by an April 12, 2021, SEC Staff Statement on SPAC warrant accounting:
- Previous Treatment: Warrants were previously classified as equity.
- New Treatment: Warrants are now required to be classified as liabilities measured at fair value.
- Scope of Change: This affects audited financial statements for the years ended December 31, 2020 and 2019, as well as related press releases and investor presentations.
Guidance, Outlook, and Risks
- Restatement Plan: The company will file amended Annual Reports on Form 10-K for 2020 and 2019 to reflect the reclassification. Finalized impacts on net loss, accumulated deficit, and earnings per share will be disclosed in those filings.
- Future Outlook: Unless the warrant agreement is amended, the company expects to continue classifying warrants as liabilities until their expiration on December 23, 2021. This will require ongoing fair value measurements.
- Risks and Contingencies:
- Adverse effect on future results of operations due to fair value adjustments.
- Potential impact on internal controls over financial reporting, which is currently under evaluation.
Investor Verification Checklist
- Verify the upcoming amended Form 10-K filings for 2019 and 2020 to review the specific dollar amounts of the restatements.
- Monitor future quarterly reports for non-cash charges related to the fair value changes of the warrant liabilities.
- Confirm the status of the company's evaluation of internal controls over financial reporting.
- Note that all prior press releases and investor presentations covering the Non-Reliance Periods should no longer be relied upon.