Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
In connection with the preparation of the financial statements for Forest Road
Acquisition Corp. II, a Delaware corporation (the "Company"), for the three
months ended September 30, 2021, the Company's management, in consultation with
its advisors, identified a classification error made in certain of the
Company's previously issued financial statements, arising from the manner in
which, as of the closing of the Company's initial public offering ("IPO"), the
Company valued its Class A common stock subject to possible redemption. The
Company previously determined the value of such Class A common stock to be equal
to the redemption value of such shares of Class A common stock, after taking
into consideration the terms of the Company's Amended and Restated Certificate
of Incorporation, under which a redemption cannot result in net tangible assets
being less than $5,000,001. The Company's management determined, after
consultation with its advisors, that all of the shares of Class A common
stock underlying the units issued in the IPO can be redeemed or become
redeemable subject to the occurrence of future events considered to be
outside the Company's control. Therefore, management concluded that the
redemption value of the shares of Class A common stock subject to possible
redemption should reflect the possible redemption of all shares of Class A
common stock.
As a result, the Company noted a classification error related to temporary
equity and permanent equity, which it corrected in its condensed financial
statements included in its Quarterly Report on Form 10-Q for the quarter ended
September 30, 2021, filed on November 15, 2021 ("Q3 Form 10-Q"). In the
condensed financial statements included in the Q3 Form 10-Q, the Company
reclassified the requisite amount of Class A common stock from permanent to
temporary equity, with the offset recorded to additional paid-in capital (to the
extent available), accumulated deficit and shares of Class A common stock, and
presented the effects of the revision on the Company's previously issued
financial statements. The Company also revised its earnings per share
calculation to allocate net income (loss) pro rata to Class A and Class B common
stock. This presentation contemplates an initial business combination as the
most likely outcome, in which case, both classes of common stock share pro rata
in the income (loss) of the Company. The Company presented the reclassification
in the Q3 Form 10-Q as a revision that did not require the restatement of
previously filed financial statements. Subsequent to the filing of the Q3 Form
10-Q, the Company determined that it needed to restate its prior financial
statements due to the quantitative materiality of the reclassification. Upon
further review, and in consultation with its advisors, the Company determined
that the Q3 Form 10-Q should be updated to indicate that the classification
error is a restatement and not a revision.
On December 15, 2021, the audit committee of the board of directors of the
Company (the "Audit Committee") determined, after discussion with its advisors,
that the Company's (i) audited balance sheet as of March 12, 2021 filed as
Exhibit 99.1 to the Company's Current Report on Form 8-K filed on March 18, 2021
(the "Post-IPO Balance Sheet"), (ii) unaudited financial statements as of and
for the quarter ended March 31, 2021 contained in the Company's Quarterly Report
on Form 10-Q filed on May 24, 2021 and (iii) unaudited financial statements as
of and for the quarter ended June 30, 2021 contained in the Company's Quarterly
Report on Form 10-Q filed on August 13, 2021 ((ii) and (iii) collectively, the
"Affected Periods") should no longer be relied upon due to the classification
error described above. As a result, the Company plans to restate the Post-IPO
Balance Sheet in a future filing with the Securities and Exchange Commission and
its financial statements for the Affected Periods in an amended Q3 Form 10-Q
(the "Amended Q3 Form 10-Q"), which the Company intends to file as soon as
practicable. The Amended Q3 Form 10-Q will include restatements of the unaudited
interim condensed financial statements for the Affected Periods.
The Company does not expect the changes described above to have any impact on
its cash position or the balance held in its trust account.
The Company's management has concluded that in light of the classification error
described above, a material weakness exists in the Company's internal control
over financial reporting and that the Company's disclosure controls and
procedures were not effective. The Company will describe its remediation plan
with respect to such material weakness in the forthcoming Amended Q3 Form 10-Q.
The Company's management and the Audit Committee have discussed the matters
disclosed in this Current Report on Form 8-K pursuant to this Item 4.02 with
WithumSmith+Brown, PC, the Company's independent registered public accounting
firm.
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