Item
4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
(a) On March 12, 2021, management and the Audit Committee
of the Board of Directors (the “Audit Committee”) of the Company, in consultation with KPMG LLP
(“KPMG”), the Company’s independent registered public accounting firm, determined that the Company’s
previously issued financial statements as of and for the years ended December 31, 2019 and 2018, and as of and for each of
the quarterly periods ended March 31, 2020 and 2019, June 30, 2020 and 2019, and September 30, 2020 and 2019 (collectively,
the “Prior Period Financial Statements”), should no longer be relied upon due to errors in accounting primarily
relating to (i) the reported book value of right of use assets and related finance obligations (“ROU
Accounting”), (ii) loss accruals for certain service contracts, (iii) the impairment of certain long-lived assets, and
(iv) the classification of certain expenses previously included in research and development costs ((i) through (iv)
collectively, the “Restatement Items”). In addition, the fourth quarter and full year 2020 financial results and
related discussion included in the Company’s shareholder letter furnished on the Form 8-K filed by the Company on
February 25, 2021 should no longer be relied upon.
The Company and the Audit Committee have determined that these
accounting changes will require a restatement of the Prior Period Financial Statements.
The revised accounting for the Restatement Items will change
how the Company accounts for certain transactions and items, but the revised accounting is not expected to impact cash
and cash equivalents or the economics of the Company’s existing or future commercial arrangements. The Company currently
anticipates that the primary impact of the revised accounting on the Prior Period Financial Statements will include:
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Adjustments on the balance sheets to reduce the carrying amount of certain right of use assets and finance obligations associated
with leases;
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An increase in the loss accrual relating to certain service contracts;
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Recognition of non-cash impairment charges relating to certain long-lived assets, including certain right of use assets and
certain fixed assets; and
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A reclassification of certain costs resulting in a decrease in Operating expenses - Research and development expense and a
corresponding increase in Cost of revenue.
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In addition to the above, the Company expects to correct
certain less significant items in its previously issued financial statements and other financial data. The Company also
expects that its Form 10-K for the year ended December 31, 2020 will disclose a material weakness in its internal controls
over financial reporting arising from the Restatement Items. As such, KPMG’s report on the Company’s internal control over
financial reporting as of December 31, 2019 should no longer be relied upon. The changes that will be recorded did not result
from a change in published accounting guidance during the relevant time period or any override of controls or misconduct, and
KPMG has not informed the Audit Committee of any issues related to an override of controls or misconduct.
The accounting related to the Restatement Items is complex and
technical and involves significant judgments in applying U.S. GAAP, which is compounded by the unprecedented, dynamic, and innovative
nature of the Company’s business and its position in a nascent and rapidly developing industry.
In September 2018, the Company adopted ASC Topic 842, effective
January 1, 2018, relating to the accounting treatment of leases, including the ROU Accounting. The Company determined its ROU Accounting
after significant input from external accounting advisors as well as discussions with KPMG in the audit process. Subsequently, KPMG
issued unqualified audit opinions on the Company’s financial statements as of and for the years ended December 31, 2018 and
December 31, 2019.
As part of the Company’s normal process, prior to
releasing the Company’s preliminary results for the quarter and year ended December 31, 2020, and prior to completion
of the audit, on February 24, 2021 the Company and the Audit Committee discussed such results with KPMG, and, at that time,
no material issues were raised. After the Company reported its 2020 fourth quarter and year end results, in the course of finalizing the audit
with respect to the Company’s financial statements for the year ended December 31, 2020, the Company and KPMG
identified the Restatement Items. The Company has since reevaluated such accounting and determined that it must correct the
previous accounting for the Restatement Items.
The Company expects to restate its financial statements as of
and for the years ended December 31, 2019 and 2018 and for each of the quarterly periods ended March 31, 2020 and 2019, June 30,
2020 and 2019, September 30, 2020 and 2019, and December 31, 2019, in its Form 10-K for the year ended December 31, 2020. The Company
will not be able to file its Form 10-K for the year ended December 31, 2020 by the March 16, 2021 deadline, but it is working diligently
to finalize the restated financial statements and to file its Form 10-K as soon as practicable.
The Company’s internal review is ongoing and the Company
may identify further errors. There can be no assurance that the actual effects of the error corrections will be only as described
above.
The Audit Committee and Company management have discussed with
KPMG the matters disclosed in this Item 4.02(a).
Forward-Looking Statements
This
Current Report on Form 8-K contains forward-looking statements within the meaning of the federal securities laws. These statements
include, but are not limited to, statements regarding the nature and extent of the accounting changes and errors and the expected
impact of the accounting changes and the restatement on the Company’s prior and future financial statements, financial position
and results of operation. These forward-looking statements are made as of the date hereof and are based on current expectations,
estimates, forecasts and projections as well as the beliefs and assumptions of management. Forward-looking statements are subject
to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond the Company’s control.
The Company’s actual results could differ materially from those stated or implied in forward-looking statements due to a
number of factors, including, but not limited to, the risk that additional information may arise prior to the filing of the restated
financial statements; the final determination of the Audit Committee regarding matters relating to its internal review; the timing
and ultimate conclusions of KPMG regarding the audit of the Company’s financial statements, and the risk that the completion
and filing of the Company’s annual report on Form 10-K will take longer than expected. These and other potential risks and
uncertainties that could cause actual results to differ from the results predicted are more fully detailed in the Company’s
filings and reports with the SEC, including the Annual Report on Form 10-K for the year ended December 31, 2019, as amended and
supplemented by the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020,
as well as other filings and reports that are filed by the Company from time to time with the SEC. The Company disclaims any obligation
to update forward-looking statements.