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 (the “SEC”) released a statement (the “SEC Statement”) expressing the
view that warrants issued by special purpose acquisition companies (“SPACs”) may require classification as a liability of
the entity measured at fair value, with changes in fair value each period reported in earnings.
DraftKings
Inc. (the “Company,” “we” or “our”) has previously classified its private placement warrants and public
warrants (collectively, the “warrants”), which were initially issued by Diamond Eagle Acquisition Corp. (“DEAC”)
in connection with its initial public offering and assumed by the Company in connection with the consummation of the transactions
contemplated by the Business Combination Agreement dated December 22, 2019, as amended on April 7, 2020, (the “Business
Combination”), as equity. A form of the warrants is included as part of Exhibit 4.3 to the Company’s annual report on Form
10-K for the year ended December 31, 2020 (the “Warrant Agreement”).
The SEC Statement discussed
“certain features of warrants issued in SPAC transactions” that “may be common across many entities.” The SEC
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.”
Management initially
evaluated the accounting for its warrants and believed its positions to be appropriate at that time, and while the terms of the
warrants as described in the Warrant Agreement have not changed, as a result of the SEC Statement, the Company has determined to
classify its warrants as liabilities, and will subsequently measure them at fair value through earnings pursuant to Accounting
Standards Codification 815.
On April 30, 2021, the Audit
Committee of the Board of Directors of the Company (the “Audit Committee”), after considering the recommendations of and consultation
with management, concluded that the Company’s previously issued audited financial statements for the years ended December 31, 2020,
and previously issued unaudited financial statements for the three month periods ending June 30, 2020 and September 30, 2020 (such years
and periods, the “Affected Periods”) should no longer be relied upon due to such change in classification of the warrants.
The Company will file an amendment
to its Annual Report on Form 10-K for the year ended December 31, 2020 (the “Amended 10-K”) reflecting this change in classification
of the warrants for the Affected Periods and the corresponding changes to the financial statement items for the Affected Periods will
be set forth through disclosures in the financial statements included in the Amended 10-K. The Audit Committee and management have discussed
the matters disclosed in this and the above paragraphs in this Item 4.02(a) with its independent registered public accounting firm, BDO
USA, LLP.
At April 23, 2020, the Company assumed approximately 19.7 million
warrants as part of the consummation of the Business Combination. At each of June 30, 2020, September 30, 2020, and December 31, 2020,
the Company had approximately 2 million warrants remaining outstanding, all of which are subject to the reclassification
as described herein.
The Company’s prior
accounting for the warrants as components of equity instead of as derivative liabilities did not have any effect on the Company’s
previously reported revenue, operating expenses, cash flows, cash or common shares outstanding.