Item 8. Financial Statements and Supplementary Data
Item 8. Financial Statements and Supplementary Data
This information appears following Item 15 of this annual report and is included herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On February 8, 2023, WithumSmith+Brown PC (“Withum”), Adara’s independent registered public accounting firm prior to the Business Combination, was dismissed as Adara’s independent registered public accounting firm effective following the completion of Adara’s audit of the year-ended December 31, 2022, which consisted only of the accounts of the pre-Business Combination special purpose acquisition company, Adara.
Withum’s report on Adara’s balance sheets as of December 31, 2022 and 2021, the related statements of operations, changes in stockholders’ equity (deficit) and cash flows for the years ended December 31, 2022 and 2021 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, other than the uncertainty surrounding Adara’s ability to continue as a going concern.
During the period from August 5, 2020 (inception) through the years ended December 31, 2021 and December 31, 2022, there were no: (i) disagreements with Withum on any matter of accounting principles or practices, financial statement disclosures or audited scope or procedures, which disagreements if not resolved to Withum’s satisfaction would have caused Withum to make reference to the subject matter of the disagreement in connection with its report or (ii) reportable events as defined in Item 304(a)(1)(v) of Regulation S-K other than as described immediately below.
On April 12, 2021, the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”), the “Statement.” In the Statement, the SEC indicates its view that certain terms of the warrants issued in connection with a SPAC Initial Public Offering (“Public Warrants”) and private placement warrants typically issued by a SPAC (“Private Warrants”) call for such warrants to be accounted for as liabilities and not as equity. The Company had recorded such warrants as equity. In light of the SEC’s Statement Adara re-evaluated the guidance surrounding the Public and Private Warrants and determined that both Warrants should be recorded as a liability. This determination (liability vs. equity) caused the Company to restate previously issued financial statements that showed the warrants as equity. Further in December 2021 Adara determined that the Class A common stock contains a redemption feature that management has no control over and therefore all Class A shares should be recorded as temporary equity. This change caused the restatement of previously issued financial statements to effect this change. As a result of these restatements, management concluded that the Company did not maintain effective internal control over financial reporting as of February 11, 2021, March 31, 2021, June 30, 2021 September 30, 2021, December 31, 2021,
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March 31, 2022 and June 30, 2022, due to a material weakness in the Company’s internal control over financial reporting related to a lack of an effectively designed control over financial reporting related to the Company’s accounting for complex financial instruments. The need to restate financial statements in these instances constitutes a material weakness in internal control.
In response to the previously identified material weakness, Adara designed and implemented remediation measures to address the material weakness identified and enhanced its internal control over financial reporting. Adara has enhanced its financial reporting processes to better identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to its financial statements, including providing enhanced access to accounting literature, research materials and documents and increased communication among Adara’s personnel and third-party professionals with whom management consults regarding complex accounting applications.