Business Context and Reporting Period
This Form 8-K is a current report filed by Rimini Street, Inc. on April 30, 2021, regarding events occurring on April 29, 2021. The filing addresses a material weakness in internal control over financial reporting identified following an SEC statement on the accounting treatment of warrants issued in connection with the Company's 2017 SPAC merger.
Key Financial Metrics
The filing does not provide specific revenue, profit, cash flow, or margin figures for the current period. However, it discloses the following financial instrument details:
- Outstanding Warrants: Approximately 6.1 million GP Sponsor Private Placement Warrants.
- Exercise Price: $11.50 per share.
- Expiration: October 2022.
- Accounting Classification: Reclassified from equity to non-cash liabilities.
- Valuation Method: Black Scholes pricing model (warrants are currently out-of-the-money).
Material Changes and Accounting Reclassification
Following an April 12, 2021 SEC statement, management determined that the GP Sponsor Private Placement Warrants must be classified as non-cash liabilities rather than equity. This change requires the Company to measure the fair value of these warrants at the end of each reporting period and recognize changes in fair value in operating results. The Company concluded that the previous treatment resulted in immaterial misstatements in its 2020 Form 10-K, though the audited financial statements remain fairly presented in all material respects.
Internal Control Weakness and Outlook
Management identified a material weakness in internal control over financial reporting as of December 31, 2020, due to the failure to prevent or detect the incorrect accounting treatment of the warrants. Consequently, reliance should not be placed on the Management's Report on Internal Control or KPMG's opinion on internal controls included in the 2020 Form 10-K.
- Remediation: The Company is evaluating and implementing changes to internal controls.
- Filing Schedule: The Company plans to file an amended 2020 Form 10-K and the Q1 2021 Form 10-Q on or before May 10, 2021.
- Earnings Call: Rescheduled from May 5, 2021, to May 10, 2021.
- Risks: Forward-looking statements highlight risks including the impact of the COVID-19 pandemic, the terms of Series A Preferred Stock, litigation, and the need for additional financing.
Investor Verification Checklist
- Verify the impact of the warrant reclassification on future operating results and net income.
- Review the upcoming amended 2020 Form 10-K for revised internal control disclosures.
- Monitor the Company's ability to remediate the material weakness in internal controls.
- Assess the sufficiency of cash and cash equivalents given the liquidity risks mentioned in the forward-looking statements.
- Confirm the status of the 13.00% Series A Preferred Stock and its potential impact on capital structure.