Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
(a) On April 12, 2021, the Acting Director of the Division of Corporation
Finance and Acting Chief Accountant of the SEC together issued a public
statement (the "SEC Warrant Accounting Statement") on accounting and reporting
considerations for warrants issued by special purpose acquisition companies
("SPACs"). The SEC Warrant Accounting Statement discussed "certain features of
warrants issued in SPAC transactions" that "may be common across many entities."
The SEC Warrant Accounting Statement indicated that when one or more of such
features is included in a warrant, the warrant "should be classified as a
liability measured at fair value, with changes in fair value each period
reported in earnings."
The warrant agreement governing Churchill Capital Corp II's (the "Company")
warrants includes a provision that provides for potential changes to the
settlement amounts dependent on the characteristics of the holder of the
warrant. Upon review of the statement, the Company's management further
evaluated the warrants under Accounting Standards Codification ("ASC") Subtopic
815-40, Contracts in Entity's Own Equity. ASC Section 815-40-15 addresses equity
versus liability treatment and classification of equity-linked financial
instruments, including warrants, and states that a warrant may be classified as
a component of equity only if, among other things, the warrant is indexed to the
issuer's common stock. Under ASC Section 815-40-15, a warrant is not indexed to
the issuer's common stock if the terms of the warrant require an adjustment to
the exercise price upon a specified event and that event is not an input to the
fair value of the warrant.
The Company previously classified (i) the public warrants and private placement
warrants issued in connection with the Company's initial public offering (the
"Warrants"), (ii) the Company's convertible promissory note - related party and
(iii) the subscription agreement, dated as of October 12, 2020, by and among the
Company, Churchill Sponsor II LLC and MIH Ventures B.V. (the "Prosus Agreement")
as equity instruments. Upon further consideration of the rules and guidance,
management of the Company concluded that the Warrants, the convertible
promissory note and the Prosus Agreement (collectively, the "Derivative
Instruments") are precluded from equity classification. As a result, the
Derivative Instruments should be recorded as liabilities on the balance sheet
and measured at fair value at inception and on a recurring basis in accordance
with ASC 820, Fair Value Measurement, with changes in fair value recognized in
the statement of operations.
On May 10, 2021, the Company's management and the Audit Committee of the
Company's board of directors, after consultation with management and a
discussion with Marcum LLP, the Company's independent registered public
accounting firm, concluded that its financial statements for the year ended
December 31, 2020; as of July 1, 2019; as of and for the period ended September
30, 2019; as of December 31, 2019 and for the period April 11, 2019 (inception)
to December 31, 2019; and as of and for the periods ended March 31, 2020, June
30, 2020 and September 30, 2020 (collectively, the "Non-Reliance Periods")
should no longer be relied upon based on the correction of an error as described
above.
As a result, the Company today is announcing that it will restate its historical
financial results for the Non-Reliance Periods, in each case to reflect the
change in accounting treatment (the "Restatement"). The Company is filing its
Form 10-K/A for the year ended December 31, 2020 to reflect the Restatement
contemporaneously with the filing of this Form 8-K.
The Company's prior accounting for the Derivative Instruments did not have any
effect on the Company's previously reported investments held in trust or cash.
Cautionary Statements Regarding Forward-Looking Statements
This Current Report on Form 8-K includes "forward-looking statements" within the
meaning of the safe harbor provisions of the United States Private Securities
Litigation Reform Act of 1995. Certain of these forward-looking statements can
be identified by the use of words such as "believes," "expects," "intends,"
"plans," "estimates," "assumes," "may," "should," "will," "seeks," or other
similar expressions. Such statements may include, but are not limited to,
statements regarding the Company's intent to restate certain historical
financial statements and the timing and impact of the Restatement. These
statements are based on current expectations on the date of this Form 8-K and
involve a number of risks and uncertainties that may cause actual results to
differ significantly. The Company does not assume any obligation to update or
revise any such forward-looking statements, whether as the result of new
developments or otherwise. Readers are cautioned not to put undue reliance on
forward-looking statements.
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