Business Context and Reporting Period
This Form 8-K was filed by Churchill Capital Corp II, the SPAC associated with the proposed Skillsoft transaction, on May 10, 2021. It addresses accounting for certain derivative instruments and the resulting restatement of historical financial statements.
Key Financial and Accounting Matters
- The company previously classified its public and private placement warrants, convertible promissory note payable to a related party, and the Prosus Agreement as equity instruments.
- Following review of the SEC’s April 12, 2021 warrant accounting statement and ASC Subtopic 815-40, management concluded that these instruments do not qualify for equity classification.
- The instruments must instead be recorded as liabilities, measured at fair value at inception and on a recurring basis under ASC 820, with changes in fair value recognized in earnings.
- The filing does not provide revised amounts for assets, liabilities, earnings, cash flow, margins, debt, or liquidity.
- The prior accounting treatment did not affect previously reported investments held in trust or cash.
Material Changes Versus Prior Reporting
Management and the Audit Committee concluded that the company’s previously issued financial statements for the specified periods should no longer be relied upon because of the warrant and derivative-instrument accounting error.
The affected periods include fiscal year 2020, periods beginning July 1, 2019, the period ended September 30, 2019, the period from inception through December 31, 2019, and quarterly periods ended March 31, June 30, and September 30, 2020.
The company stated that it would restate the affected historical financial statements and filed a Form 10-K/A for the year ended December 31, 2020 contemporaneously with this Form 8-K.
Outlook, Risks, and Unusual Items
- The principal unusual item is the required accounting restatement and recognition of the affected instruments as fair-value liabilities.
- Future earnings may be affected by recurring fair-value changes in the derivative instruments.
- The filing provides no operating guidance or business outlook for Skillsoft or the combined company.
- Forward-looking statements concerning the timing and impact of the restatement are subject to risks and uncertainties, and the company disclaims any obligation to update them.
Investor Verification Checklist
- Verify the restated 2020 financial statements in the filed Form 10-K/A.
- Review the revised fair values and balance-sheet classification of the warrants, convertible promissory note, and Prosus Agreement.
- Assess the effect of recurring fair-value changes on reported earnings and accumulated equity or deficit.
- Confirm that trust investments and cash balances remain unchanged, as stated in the filing.
- Review any subsequent disclosures regarding the Skillsoft transaction, accounting controls, or additional restatement effects.