Item 4.02 Non-Reliance on Previously Issued Financial Statements.
On August 10, 2020, the Board of Directors (the "Board") of FaceBank Group, Inc.
(the "Company") concluded, upon the recommendation of the Company's Audit
Committee and in consultation with management and L J Soldinger Associates, LLC,
the Company's independent registered public accounting firm ("Soldinger"), that
the Company will restate its financial statements as of and for the year ended
December 31, 2019 and the quarter ended March 31, 2020 (the "Affected Periods"),
as contained in the Company's 2019 Annual Report on Form 10-K and the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 2020. In light of
the restatement, investors should no longer rely upon the financial statements
for the Affected Periods.
Description of Error
In connection with the preparation of the Company's condensed consolidated
interim financial statements as of and for the quarter ended June 30, 2020, the
Company identified an inadvertent error in the accounting for goodwill relating
to the Company's acquisitions of Nexway AG and Facebank AG. In connection with
these acquisitions, goodwill was inadvertently impaired.
Upon further evaluation, the Company determined that goodwill amounting to $79.7
million should not have been impaired. Accordingly, the Company should have
allocated $51.2 million towards the loss on deconsolidation of Nexway AG during
the three months ended March 31, 2020, which would have resulted in a loss on
deconsolidation of Nexway AG of $11.9 million. The financial statement
misstatements reflected herein did not impact cash flows from operations,
investing, or financing activities in the Company's consolidated statements of
cash flows for any period previously presented.
Internal Control Over Financial Reporting
The Company is in the process of finalizing its evaluation of the matter
described above with respect to internal control over financial reporting and
disclosure controls and procedures and will reiterate a previously disclosed
material weakness in internal control over financial reporting related. The
Company has concluded that its disclosure controls and procedures and internal
control over financial reporting for the Affected Periods were not effective as
of the end of each of the Affected Periods, as well as in subsequent periods
until such material weakness as well as other previously-identified material
weaknesses are remediated.
Timing of Restatement
The Company intends to restate the previously filed financial statements to
correct for this accounting error in advance of filing the Company's Quarterly
Report on Form 10-Q for the six months ended June 30, 2020, which the Company
expects to file on a timely basis. Determination of the impact of the error
described above is subject to continued analysis by management and Soldinger,
the Company's independent registered public accounting firm, and could change
based on further review and analysis of the Affected Periods. The Company, when
restating the previously filed financial statements, may also correct other
previously identified errors that were determined to be immaterial.
The Board and members of the Company's management have discussed the matters
disclosed in this Item 4.02 with Soldinger, the Company's independent registered
public accounting firm.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
(d)
On August 6, 2020, Ignacio Figueras was elected to the Board by unanimous
written consent of the then-current members of the Board. Subsequently, the
Ignacio was appointed to serve as a member of the Company's newly-formed
Compensation Committee. The Company issued a press release announcing the
appointment of Mr. Figueras on August 10, 2020, a copy of which is attached
hereto as Exhibit 99.1.
Ignacio "Nacho" Figueras is an award-winning Argentinian polo player, an
entrepreneur, television personality, spokesperson, investor and philanthropist.
Mr. Figueras is currently the captain and co-owner of the Black Watch polo team
and is the owner of Cria Yata, a successful global horse breeding operation
based in Argentina. In addition to his polo career, in collaboration with
Flavors & Fragrances, Mr. Figueras has developed a luxury fragrance line, The
Ignacio Figueras Collection, which is expanding to stores internationally in
2020; a portion of the proceeds from the collection's sales support Sentebale, a
charity of which Mr. Figueras has been an ambassador since 2006. Further, in
2013, Mr. Figueras and Estudio Ramos co-founded the Figueras Design Group (FDG),
a global design consultancy headquartered in Buenos Aires with offices in New
York and Chicago. Mr. Figueras is also an investor and a member of the board of
directors and advisors at Flow Water, a fast-growing premium wellness water
brand in North America as well as an advisory board member for Saudi Arabia's
Giga Project Amaala. Mr. Figueras is recognized around the globe for his nearly
two-decade association as a spokesperson with Ralph Lauren and Ralph Lauren
fragrances. The Company believes that Mr. Figueras's background as an
international athlete, entrepreneur, investor and philanthropist will bring a
unique perspective to the Board.
There is no arrangement or understanding between Mr. Figueras and any other
person, other than as described below, pursuant to which Mr. Figueras was
elected as a director of the Company. There are no family relationships between
Mr. Figueras and any director or executive officer of the Company, and, other
than as described herein, no transactions involving Mr. Figueras that would
require disclosure under Item 404(a) of Regulation S-K.
In connection with his appointment to the Board, Mr. Figueras was granted an
option to purchase 66,132 shares of the Company's common stock (the "Initial
Award") in accordance with the Company's Outside Director Compensation Policy
(the "Compensation Policy") and subject to the Company's 2020 Equity Incentive
Plan (the "Plan") and standard option award agreements thereunder. The Initial
Award will vest in 36 equal, monthly installments beginning on the grant date,
provided that Mr. Figueras continues to serve as a Service Provider (as defined
in the Plan) through the applicable vesting date. In addition, any unvested
potion of the Initial Award that remains outstanding as of the date of a change
of control of the Company will immediately vest in full and become exercisable.
In addition to the Initial Awards in accordance with the Compensation Policy,
Mr. Figueras will receive an annual cash retainer of $45,000 for his Board
service, subject to increase for service on Board committees. In addition to the
Initial Award, Mr. Figueras will be eligible to receive an annual equity award
in accordance with the Compensation Policy.
The Company entered into its standard form of indemnification agreement with Mr.
Figueras, which is included as Exhibit 10.1. The form of indemnification
agreement was previously filed as Exhibit 10.2 to the Company's current report
on Form 8-K filed April 7, 2020 and is incorporated herein by reference.
Cautionary Note Regarding Forward-Looking Statements
This Current Report on Form 8-K, the Press Release and the Shareholder Letter
contains forward-looking statements within the meaning of applicable U.S.
securities laws, including statements regarding our expectations, beliefs,
plans, operations and strategies relating to our business. Forward-looking
statements may be identified by words such as "seek", "believe", "plan",
"estimate", "anticipate", expect", "intend", and statements that an event or
result "may", "will", "should", "could", or "might" occur or be achieved and any
other similar expressions. Forward-looking statements involve risks and
uncertainties, as well as assumptions which, if they do not fully materialize or
prove incorrect, could cause the Company's results to differ materially from
those expressed or implied by such forward-looking statements, and include the
impact of the restatement on investor perception of the Company and its ability
to remediate its material weaknesses, risks related to the Company's access to
capital and fundraising prospects to fund its ongoing operations and its ability
to continue as a "going concern", risks related to the Company's ability to
uplist to a national securities exchange, risks related to diverting
management's attention from the Company's ongoing business operations to address
integration and fundraising efforts, and other business effects, including the
effects of industry, market, economic, political or regulatory conditions,
future exchange and interest rates, and changes in tax and other laws,
regulations, rates and policies, including the impact of COVID-19 on the broader
market. Further risks that could cause actual results to differ materially from
those matters expressed in or implied by such forward-looking statements are
discussed in the Company's periodic filings with the Securities and Exchange
Commission and we encourage you to read such risks in detail. The
forward-looking statements in this Current Report on Form 8-K, the Press Release
and the Shareholder Letter represent our views as of the date of this Current
Report on Form 8-K. The Company anticipates that subsequent events and
developments will cause its views to change. However, while it may elect to
update these forward-looking statements at some point in the future, it
specifically disclaims any obligation to do so. You should, therefore, not rely
on these forward-looking statements as representing the Company's views as of
any date subsequent to the dates of this Current Report on Form 8-K, the Press
Release and the Shareholder Letter, respectively.
Item 9.01 Financial Statements and Exhibits.
Exhibit No. Description
10.1 Form of Indemnification Agreement by and between FaceBank Group,
Inc. and its directors and officers (previously filed as Exhibit
10.2 to the Company's Current Report on Form 8-K filed April 7,
2020).
99.1 Press Release of the Company dated August 10, 2020.
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