ITEM 4.02 NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A RELATED
AUDIT REPORT OR COMPLETED INTERIM REVIEW.
On April 12, 2021, the staff of the Securities and Exchange Commission ("SEC")
issued a statement (the "Staff Statement") on accounting and reporting
considerations for warrants issued by Special Purpose Acquisition Companies
("SPACs"). The Staff Statement discussed "certain features of warrants issued in
SPAC transactions" that "may be common across many entities" and identified two
specific provisions in many SPAC warrant agreements which, in the view of the
SEC staff, preclude a company from accounting for warrants as equity and require
that warrants be accounted for as liabilities measured at fair value, with
changes in fair value each period reported in earnings.
We were originally incorporated as a SPAC. In connection with our initial public
offering in 2016, we issued public warrants and private placement warrants
(collectively, the "warrants"). On December 23, 2016, we acquired Inspired
Gaming Group, and changed our name to Inspired Entertainment, Inc. Our
outstanding warrants will expire on December 23, 2021. For a description of the
terms of the warrants, please refer to Exhibit 4.4 ("Description of Securities")
to our Annual Report on Form 10-K for the year ended December 31, 2020,
available at www.sec.gov. We previously classified our warrants as equity.
On May 7, 2021, after consultation with Marcum LLP, our independent registered
public accounting firm (the "Independent Accountants", the Audit Committee of
our Board of Directors (the "Audit Committee"), after considering the
recommendations of management, concluded that our previously issued audited
financial statements (including the accompanying audit reports of the
Independent Accountants) as of and for the years ended December 31, 2020 and
2019 (collectively, the "Non-Reliance Periods") should not be relied upon due to
required corrections related to the accounting for warrants described in the
Staff Statement. The audited financial statements as of and for the year ended
December 31, 2019 also included financial statements as of and for the year
ending September 30, 2018 and for the period ended December 31, 2018. In
addition, press releases, earnings releases, investor presentations or other
communications describing our consolidated financial statements and other
related financial information covering the Non-Reliance Periods should no longer
be relied upon.
Following consideration of the guidance in the Staff Statement, while the terms
of the warrants as described in the Description of Securities have not changed,
we concluded that we had issued warrants that do not meet the conditions to be
classified as equity and instead require liability classification under
Accounting Standards Codification 815, Derivatives and Hedging. The Audit
Committee, together with management, determined that the financial statements in
the Non-Reliance Periods should be restated to reflect such issued warrants as a
liability, with subsequent changes in their estimated fair value recorded as
non-cash income or expense in each Non-Reliance Period. These restatements will
result in non-cash, non-operating financial statement corrections and will have
no impact on our current or previously reported cash position, operating
expenses or total operating, investing or financing cash flows. Going forward,
unless we amend the terms of the warrant agreement, until the point of expiry we
expect to continue to classify the warrants as liabilities, which would require
us to incur the cost of measuring the fair value of the warrant liabilities, and
which may have an adverse effect on our results of operations.
We will file an amendment to our Annual Report on Form 10-K for the years ended
December 31, 2020 and 2019 (the "Amended 10-Ks") reflecting this
reclassification of the warrants for the Non-Reliance Periods. The adjustments
to the financial statement items for the Non-Reliance Periods will be set forth
through disclosures in the financial statements included in the Amended 10-Ks.
The Audit Committee has discussed the matters disclosed in this and the above
paragraphs in this Item 4.02 with the Independent Accountants.
We will disclose the finalized impacts to warrant liabilities, additional
paid-in capital, accumulated deficit, change in fair value of warrant
liabilities, net loss, comprehensive loss and basic and diluted net loss per
common share, for all periods in the Non-Reliance Periods in our forthcoming
Amended 10-Ks for the periods ended December 31, 2020 and 2019. We are also
evaluating the impact on the Company's internal controls over financial
reporting.
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