SEC Staff Statement on Accounting for SPAC Warrants: Changes to Financial Reporting

The Securities and Exchange Commission (SEC) staff issued a public statement on April 12, 2021, expressing its view that certain terms and conditions common to Special Purpose Acquisition Company (SPAC) warrants require them to be classified as liabilities on the SPAC's balance sheet rather than equity. This change in accounting treatment affects Kadem Sustainable Impact Corporation, which had previously accounted for its outstanding warrants as equity within its balance sheet. Following discussion with its independent registered public accounting firm, Marcum LLP, the Company has concluded that its warrants should be presented as liabilities at fair value, with subsequent fair value changes recorded in its financial statements at each reporting period.

Key Takeaways:

• The SEC staff views certain common terms and conditions of SPAC warrants as requiring classification as liabilities on the SPAC's balance sheet.
• Kadem Sustainable Impact Corporation's outstanding warrants were previously accounted for as equity, but will now be presented as liabilities at fair value.
• The reclassification of warrants will result in changes to the Company's audited balance sheet as of March 19, 2021, and its financial statements.
• The changes are expected to be reflected in the Company's upcoming Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021.
• The reclassification does not impact the Company's cash position or cash held in the trust account.
• The audit report of Marcum LLP included in the Company's Form 8-K filed on March 25, 2021, should no longer be relied upon.
• The SEC staff statement was issued on April 12, 2021.
• Kadem Sustainable Impact Corporation's warrants were issued on March 19, 2021.
• The Company's audited balance sheet as of March 19, 2021, was filed as Exhibit 99.1 to Form 8-K on March 25, 2021.
• The Company plans to reflect the changes in its upcoming Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021.

Sources:

• Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies, issued by the SEC staff on April 12, 2021.
• SEC Form 8-K filed by Kadem Sustainable Impact Corporation on March 25, 2021.
• Kadem Sustainable Impact Corporation's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 (forthcoming).