Item 1A. Risk Factors
Item 1A. Risk Factors
In addition to the information set forth in this Quarterly Report on Form 10-Q, you should also carefully review and consider the risk factors contained in our other reports and periodic filings with the SEC, including without limitation the risk factors contained under the caption “Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 , that could materially and adversely affect our business, financial condition, and results of operations. The risk factors discussed in that Form 10-K do not identify all risks that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. There have been no material changes in the significant factors that may affect our business and operations as described in “Item 1A—Risk Factors” of the Annual Report on 10-K for the year ended December 31, 2020 .
Recent guidance from the SEC may require the warrants of Insurance SPAC III be accounted for as liabilities rather than as equity and may result in the restatement of the previously issued financial statements of Insurance SPAC III.
On April 12, 2021, the staff of the SEC issued a public statement entitled “Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies (“SPACs”)” (the “Statement”). In the 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 on the SPAC’s balance sheet as opposed to equity. Since issuance, the warrants of Insurance SPAC III were accounted for as equity on its balance sheets. As a result of the Statement, Insurance SPAC III is evaluating its accounting for warrants. If Insurance SPAC III concludes that its warrants should be presented as liabilities with subsequent fair value remeasurement, it will then likely restate its previously issued financial statements.
A restatement of Insurance SPAC III’s financial statements may cause a delay for Insurance SPAC III in consummating a business combination and will force its management to focus time and effort on obtaining valuations for the warrants and restating its financials. Any time management spends on a restatement cannot be spent on finding a suitable business combination target. Because Insurance SPAC III must find a business combination target within a fixed period of time, this may increase the chance that Insurance SPAC III is unable to find a suitable target company causing it to liquidate and rendering our investment worthless.
Further, revised accounting may impact the target company in a business combination. Treating the warrants as liabilities would be less desirable for most companies. Therefore, target companies may demand changes to the warrant structure that could negatively impact our economic returns or could further reduce the likelihood that a successful business combination is completed within the limited timeframe allowed.
Any future inquiries from the SEC or NYSE American as a result of a restatement of the financial statements of Insurance SPAC III would, regardless of the outcome, likely consume a significant amount of its resources in addition to those resources consumed in connection with the restatement itself. A restatement of Insurance SPAC III’s financial statements would result in unanticipated costs and may result in a loss of some or all of the funds which we have invested in and may lend to Insurance SPAC III to cover its administrative costs.
If we are unable to complete a business transaction within the allotted time as a result of a restatement of Insurance SPAC III’s financial statements, this may result in potential loss of investor confidence. Such a loss in investor confidence could negatively affect our SPAC franchise and any other SPACs which we would sponsor in the future and could materially harm our business and results of operations.
A restatement of Insurance SPAC III ’ s financial statements may subject it to additional risks and uncertainties, including increased professional costs and the increased possibility of legal proceedings.
A restatement of Insurance SPAC III’s financial statements may subject it to additional risks and uncertainties, including, among others, increased professional fees and expenses and time commitment that may be required to address matters related to a restatement, and scrutiny of the SEC and other regulatory bodies which could cause investors to lose confidence in Insurance SPAC III’s reported financial information and could subject Insurance SPAC III to civil or criminal penalties or shareholder litigation. Insurance SPAC III could face monetary judgments, penalties or other sanctions that could have a material adverse effect on its business, financial condition and results of operations and could cause its stock price to decline.
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