STEM, INC. current report, 23 April 2021

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Business Context and Reporting Period

Star Peak Energy Transition Corp. (now associated with STEM, Inc.) filed this Form 8-K on April 23, 2021, under Item 4.02. The filing concerns accounting for the company’s publicly traded warrants and the reliability of previously issued financial statements.

Key Financial and Accounting Matters

  • The company determined that its outstanding warrants, issued on August 20, 2020, should be classified as liabilities rather than equity.
  • The warrants will require subsequent remeasurement at fair value, which may create significant non-cash changes in reported earnings and liabilities.
  • The filing does not provide revised warrant valuations, revised net income, cash flow, margins, debt, liquidity, or other financial metrics.
  • The SEC staff’s April 12, 2021 statement on SPAC warrant accounting prompted the company’s review.

Material Changes Versus Prior Periods

On April 22, 2021, the Audit Committee concluded that the company’s consolidated financial statements for the period from inception on October 29, 2018 through December 31, 2018, and for the years ended December 31, 2019 and 2020, should no longer be relied upon because of a misapplication of accounting guidance related to the warrants.

The company’s previously filed 2020 Form 10-K, filed March 4, 2021, including the audit report of WithumSmith+Brown, PC, should also no longer be relied upon. Prior press releases, earnings releases, investor presentations, and other communications covering the affected periods should likewise not be relied upon.

Guidance, Risks, and Unusual Items

  • Restated financial statements or other corrective filings may be required, but the filing does not specify their timing or the quantitative impact.
  • Liability classification and fair-value remeasurement of the warrants may materially affect reported liabilities, earnings, and shareholders’ equity without directly affecting cash flows.
  • Investors should treat historical financial information for the stated Non-Reliance Period as subject to revision.
  • The Audit Committee discussed the matter with the company’s independent auditor, which was given an opportunity to review the filing disclosures.

Investor Verification Priorities

  1. Verify the company’s subsequent restated financial statements and any amended Form 10-K or other corrective SEC filings.
  2. Review the final fair value assigned to the warrants and the resulting impact on liabilities, equity, and historical earnings.
  3. Confirm whether any additional accounting errors, internal-control issues, or auditor changes were disclosed in later filings.
  4. Reconcile revised historical results with merger-related disclosures and STEM, Inc. reporting after the business combination.