D.5 Financial Statement Presentation for Reverse Recapitalizatio | DART

Although there is no direct U.S. GAAP guidance on accounting for reverse recapitalizations,the guidance in ASC 805-40-45-1 and 45-2 on the presentation of financial statements for reverse business combination acquisitions has been applied by analogy.

Accordingly, in SPAC transactions accounted for as reverse recapitalizations, the financial statements of the combined company represent a continuation of the target’s financial statements. As a result, the target’s assets and liabilities are presented at their historical carrying values in the combined company’s financial statements, and the assets and liabilitiesof the SPAC are recognized on the acquisition date and measured on the basis of the net proceeds from the capital transaction.

The table below summarizes the measurement basis for the combined company’s financial statements at the time of a reverse recapitalization with a SPAC.

Balance	Measurement Basis
Assets and liabilities	Sum of (1) the SPAC’s net assets (net cash proceeds from capital raise) and (2) the target’s assets and liabilities, measured at their carrying values.
Retained earnings and other equity balances	The target’s pretransaction carrying amount, proportionately reduced by any preexisting noncontrolling interests in the target.
Issued equity	Sum of (1) the target’s issued equity immediately before the reverse recapitalization, proportionately reduced by any preexisting noncontrolling interests in the target, and (2) the net proceeds received from the SPAC (i.e., the hypothetical consideration transferred). The equity structure (i.e., the number and type of equity interests issued) reflects the target’s equity structure. However, the balance is adjusted to reflect the par value of the SPAC’s outstandingshares, including the number of shares issued in the reverse recapitalization. Any difference is recognized as an adjustment to the additional paid-in capital (APIC) account.
APIC	The historical APIC account of the target immediately before the reverse recapitalization is carried forward and increased to reflect the net proceeds received for the SPAC, adjusted for any necessary changes in the par value of the shares and the ratio of shares held by preexisting target shareholders.
Noncontrolling interest	The noncontrolling interest’s proportionate share of the target’s pretransaction retained earnings and other equity balances.
Prior-period presentation of common shares	For periods before the reverse recapitalization, the common shares of the combined company are presented on the basis of the historical common shares of the target before the reverse recapitalization, retroactively recast to reflect the number of common shares deemed to be received in the transaction.
EPS	For periods before the reverse recapitalization, the EPS of the combined company is presented on the basis of the target’s shares outstanding multiplied by the exchange ratio. Complexities may arise for targets with multiple-class share structures; consultation with accounting advisers is encouraged.
Transaction costs	SABTopic 5.A states that “[s]pecific incremental costs directly attributable to a proposed or actual offering of securities may properly be deferred and charged against the gross proceeds of the offering.” While a reverse recapitalizationis legally structured as a merger or acquisition, the transaction is, in substance, a capital raise of the target. Therefore, we believe that specific incremental costs incurred by the target that directly result from the transaction may be offset against the proceeds raised. Management salaries or other general and administrative expenses typically are not considered incremental or directly attributable to the SPAC transaction, even though they may increase as a result of the transaction. Costs incurred by the SPAC would generally be expensed as incurred in the SPAC’s pretransaction financial statements.

D.5 Financial Statement Presentation for Reverse Recapitalizations