Item 4.02 Non-Reliance on Previously Issued Financial Statements or Related Audit Report or Completed Interim Report.
On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the Securities and Exchange Commission (“SEC”) together issued a statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Statement”). Specifically, the SEC Statement focused on certain settlement terms and provisions related to certain tender offers following a business combination as well as provisions that provided for potential changes to the settlement amounts dependent upon the characteristics of the holder of the warrant, which terms are similar to those contained in the warrant agreement, dated as of February 24, 2021, by and between Isleworth Healthcare Acquisition Corp., a Delaware corporation (the “Company”), and Continental Stock Transfer & Trust Company, a New York corporation, as warrant agent. As a result of the SEC Statement, the Company reevaluated the accounting treatment of (i) the 10,350,000 redeemable warrants (the “Public Warrants”) that were included in the units issued by the Company in its initial public offering (the “IPO”), and (ii) the 6,140,000 warrants that were issued in a private placement of private placement warrants that closed concurrently with the closing of the IPO (the “Private Warrants” together with the Public Warrants, the “Warrants”), and determined to classify the Warrants as derivative liabilities on the balance sheet and measured at fair value at inception and at each reporting date, with changes in fair value recognized in the statement of operations in the period of change. The Company previously accounted for the Warrants as components of equity.
On May 21, 2021, the Company’s management, in consultation with its audit committee (the “Audit Committee”), concluded that (i) the Company’s audited balance sheet as of March 1, 2021 filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 5, 2021 and (ii) the Company’s pro-forma unaudited balance sheet dated March 1, 2021 filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with SEC on March 5, 2021 should no longer be relied upon due to changes required to reclassify the Warrants as liabilities to align with the requirements set forth in the SEC Statement. In addition, the audit report of Marcum LLP dated March 5, 2021 should no longer be relied upon.
The Company is in the process of preparing its Form 10-Q for the quarter ended March 31, 2021, and will include in the Notes to Unaudited Condensed Financial Statements in such Form 10-Q a restated balance sheet dated March 1, 2021 reflecting the impact of accounting for the Warrants as liabilities at fair value.
Going forward, unless the Company amends the terms of its warrant agreement, it expects to continue to classify the Warrants as liabilities, which would require it to incur the cost of measuring the fair value of the warrant liabilities, and which may have an adverse effect on its results of operations.
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 the Marcum LLP, the Company’s independent registered public accounting firm.
2
