Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
On November 15, 2021, the audit committee (the "Audit Committee") of EQ Health
Acquisition Corp., a Delaware corporation and special purpose acquisition
company (the "Company"), based on the recommendation of, and after consultation
with, the Company's management, and as discussed with Marcum LLP ("Marcum"), the
Company's independent registered public accounting firm, concluded that the
Company's previously issued financial statements consisting of (a) the audited
balance sheet of EQ Health Acquisition Corp. as of February 2, 2021 and the
related notes (the "IPO Financial Statement") with respect to the Company's
initial public offering that was filed as an exhibit to the Company's Current
Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the
"SEC") on February 9, 2021, as previously restated in the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2021, filed with
the SEC on June 24, 2021 (the "Q1 Form 10-Q"), and the audit report dated as of
February 9, 2021 included in the IPO Financial Statement, (b) the Company's
unaudited condensed financial statements as of March 31, 2021 and for the three
months then ended, and the related notes included in the Q1 Form 10-Q (the
"March 31 Financial Statements"), (c) the Company's unaudited condensed
financial statements as of June 30, 2021 and for the three and six months then
ended, and the related notes (the "June 30 Financial Statements") included in
the Company's Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2021, filed with the SEC on August 10, 2021 (the "Q2 Form 10-Q"), and (d)
and any communications describing relevant portions of the Company's Previously
Issued Financial Statements (as herein defined), should no longer be relied upon
due to the classification of a portion of the Company's shares of Class A common
stock, par value $0.0001 per share, included in its units sold and issued during
the Company's initial public offering (such shares, the "Public Shares") as
permanent equity. The IPO Financial Statements, the March 31 Financial
Statements and the June 30 Financial Statements are collectively referred to
herein as the "Previously Issued Financial Statements").
In the Previously Issued Financial Statements, the Company classified a portion
of its Class A common stock subject to possible redemption as permanent equity
to maintain stockholders' equity of at least $5,000,001 on the basis that the
Company will consummate its initial business combination only if the Company has
net tangible assets greater than $5,000,001.
Recently, the Staff of the Division of Corporation Finance of the SEC issued
indirect guidance through professional advisors to several special purpose
acquisition companies addressing certain accounting and reporting considerations
related to redeemable equity instruments of a kind similar to those issued by
the Company under ASC 480-10-99. In light of the recent guidance, the Company's
management, re-evaluated the Company's application of ASC 480-10-99 to its
accounting classification and valuation of the Public Shares. Upon
re-evaluation, the Company's management determined that the Public Shares can be
redeemed or become redeemable subject to the occurrence of future events
considered outside the Company's control. Therefore, management concluded that
the redemption value should include all Public Shares subject to possible
redemption, resulting in the Public Shares subject to possible redemption being
equal to their redemption value. As a result, management has noted a
reclassification error related to temporary equity and permanent equity. This
resulted in an adjustment to the initial carrying value of the Public Shares
subject to possible redemption with the offset recorded to additional paid-in
capital (to the extent available), accumulated deficit and Class A common stock.
In connection with the change in presentation and valuation for the Public
Shares subject to redemption, the Company also restated its income (loss) per
common share calculation to allocate net income (loss) evenly to Class A and
Class B common stock. This presentation contemplates a business combination as
the most likely outcome, in which case, both classes of shares share pro rata in
the income (loss) of the Company.
In accordance with SEC Staff Accounting Bulletin No. 99, "Materiality," and SEC
Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements;" the Company evaluated the changes and has determined that the
related impacts were material to the Previously Issued Financial Statements.
Therefore, the Company, in consultation with its Audit Committee, concluded that
its Previously Issued Financial Statements impacted should be restated to report
all Public Shares as temporary equity at its redemption value. The Company has
restated those periods in its Quarterly Report on Form 10-Q for the period ended
September 30, 2021, filed with the SEC on November 15, 2021 (the "Q3 Form
10-Q").
The Company does not expect the above-described accounting for the Public Shares
to have any effect on the Company's previously reported investments held in
trust or cash.
The Company's management has concluded that in light of the classification and
valuation error described above, a material weakness with regards to accounting
for complex financial instruments exists in the Company's internal control over
financial reporting and that the Company's disclosure controls and procedures
were not effective. The Company's remediation plan with respect to such material
weakness is described in more detail in the Q3 Form 10-Q.
The Audit Committee and management of the Company have discussed the matters
disclosed pursuant to this Item 4.02 with Marcum.
Forward-Looking Statements
This Current Report on Form 8-K includes "forward-looking statements" within the
meaning of the safe harbor provisions of the United States Private Securities
Litigation Reform Act of 1995. Certain of these forward-looking statements can
be identified by the use of words such as "believes," "expects," "intends,"
"plans," "estimates," "assumes," "may," "should," "will," "seeks," or other
similar expressions. Such statements may include, but are not limited to,
statements regarding the impact of the Company's restatement of certain
historical financial statements, the Company's cash position and cash held in
the Trust Account and any proposed remediation measures with respect to
identified material weaknesses. These statements are based on current
expectations on the date of this Current Report on Form 8-K and involve a number
of risks and uncertainties that may cause actual results to differ
significantly. The Company does not assume any obligation to update or revise
any such forward-looking statements, whether as the result of new developments
or otherwise. Readers are cautioned not to put undue reliance on forward-looking
statements.
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