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") issued a public statement entitled "Staff Statement on Accounting and
Reporting Considerations for Warrants issued by Special Purpose Acquisition
Companies ("SPACs")" (the "Staff Statement"). In the Staff Statement, the SEC
staff expressed its view that certain terms and conditions common to SPAC
warrants may require the warrants to be classified as liabilities rather than
equity on a SPAC's balance sheet. Since their issuance on February 2, 2021, (i)
the 10,999,980 redeemable warrants to purchase common stock of EQ Health
Acquisition Corp. (the "Company") that were included in the units issued by the
Company in its initial public offering (the "Public Warrants") and (ii) the
6,399,992 redeemable warrants that were issued in a private placement (the
"Private Warrants", collectively with the Public Warrants, the "Warrants") were
accounted for as equity within the Company's balance sheet.
The Company's audit committee (the "Audit Committee"), based on the
recommendation of, and after consultation with, the Company's management, and as
discussed with Marcum LLP ("Marcum"), determined that the Company's audited
balance sheet of EQ Health Acquisition Corp. as of February 2, 2021 and the
related notes (the "Financial Statement") with respect to the Company's initial
public offering, which was filed as an exhibit to the Company's Current Report
on Form 8-K filed with the SEC on February 9, 2021, should no longer be relied
upon due to the misclassification of the Company's outstanding Warrants as
components of equity instead of as liabilities. Similarly, the audit report of
Marcum dated February 8, 2021 on the Company's Financial Statement, and any
communications describing relevant portions of the Company's Financial
Statement, should no longer be relied upon.
As a result, the Company will restate its previously issued Financial Statement
to reflect the accounting for the Warrants as liabilities (the "Restatement").
The Company has worked diligently with an independent valuation expert to
determine the best estimate of the fair value for the Warrants and with its
advisors to correct the Financial Statement in the notes to its Quarterly Report
on Form 10-Q for the period ended March 31, 2021 to reflect the Restatement as
soon as practicable after the date hereof. The Company also intends to reflect
the reclassification of the Warrants as liabilities in its forthcoming Quarterly
Report on Form 10-Q for the period ended March 31, 2021, which the Company will
file as soon as practicable after the date hereof.
Going forward, unless the Company amends the terms of its warrant agreement, the
Company expects to continue to classify the Warrants as a liability, which would
require the Company to incur the cost of measuring the fair value of the Warrant
liabilities, and which may have an adverse effect on the Company's results of
operations. While the Company has not generated any operating revenues to date
and will not generate any operating revenues until after completion of its
initial business combination, at the earliest, the change in fair value of the
Warrants is a non-cash charge and will be reflected in the Company's statement
of operations. The Company does not expect the above-described accounting for
the Warrants as components of equity instead of as derivative liabilities to
have any effect on the Company's previously reported investments held in trust
or cash.
The Audit Committee and management of the Company have discussed the matters
disclosed pursuant to this Item 4.02 with Marcum.
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