Waldencast Acquisition Corp. 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. The filing is for Waldencast Acquisition Corp., the predecessor blank-check company, rather than the later Waldencast plc operating company. The filing does not provide a standalone fourth-quarter income statement or cash flow statement.
Business context
Waldencast Acquisition Corp. was a Cayman Islands special purpose acquisition company formed in December 2020 to pursue a business combination, with an intended focus on beauty, personal care and wellness businesses. It had no operating history, employees or operating revenue before a business combination.
On March 18, 2021, the company completed its initial public offering of 34.5 million units at $10.00 per unit, generating gross proceeds of $345.0 million. It also sold 5.933 million private placement warrants for $8.9 million. Approximately $345.0 million was placed in the Trust Account.
Financial metrics
| Metric | Year ended December 31, 2021 | Prior comparable period |
|---|---|---|
| Operating revenue | $0 | $0; inception through December 31, 2020 |
| Net loss | $14.4 million | $11 thousand |
| Formation and operating costs | $9.1 million | $11 thousand |
| Net cash used in operating activities | $815.7 thousand | $0 |
| Cash outside Trust Account | $1.5 million | $0 |
| Trust Account investments | $345.1 million | $0 |
| Working capital | $1.34 million | Not clearly provided |
| Working Capital Promissory Note | $1.5 million | $0 |
| Warrant liabilities | $21.2 million | $0 |
| Forward purchase agreement liabilities | $13.3 million | $0 |
| Deferred underwriting discount | $12.1 million | $0 |
The net loss included $9.1 million of operating costs, a $719 thousand non-cash expense related to warrant issuance, a $2.96 million change in warrant liability fair value, a $1.67 million change in forward purchase agreement liability fair value, and $53 thousand of interest income. The company had no meaningful operating margin because it had no operating revenue.
Total assets were $346.8 million, total liabilities were $56.6 million, redeemable Class A ordinary shares were recorded as temporary equity at $345.0 million, and shareholders’ deficit was $54.8 million at year-end. The company reported no long-term debt apart from the $1.5 million working capital note and transaction-related obligations.
Material changes versus the prior period
- The company progressed from formation-stage inactivity in 2020 to completing its IPO and private placement in March 2021.
- The Trust Account increased from zero to $345.1 million, including $52 thousand of interest income.
- Operating expenses increased from $11 thousand to $9.1 million, and net loss increased to $14.4 million.
- The company entered into a $1.5 million working capital promissory note with its Sponsor and drew the full amount by October 28, 2021.
- Warrants were reclassified as derivative liabilities following the SEC’s April 2021 SPAC warrant accounting guidance. The company also restated prior-period financial statements for the classification of redeemable shares and warrants.
- On November 15, 2021, the company signed agreements to combine with Obagi Global Holdings Limited and acquire Milk Makeup LLC. These transactions were pending and were not reflected in the reported financial statements.
Proposed transactions and outlook
The proposed transactions contemplated the merger with Obagi and the acquisition of Milk, followed by domestication from the Cayman Islands to Jersey and a name change to Waldencast plc. The combined company was expected to use an Up-C structure with the operating businesses held through Waldencast LP. Closing remained subject to transaction conditions, shareholder approvals and other requirements.
The company had until March 18, 2023, subject to any shareholder-approved extension, to complete a business combination. If it failed to do so, it would redeem the public shares for their pro rata share of the Trust Account, subject to applicable claims, taxes and expenses, and the warrants would expire worthless.
Liquidity, going concern and risks
- The independent auditor included an explanatory paragraph expressing substantial doubt about the company’s ability to continue as a going concern because its business depended on completing a business combination.
- Management expected cash outside the Trust Account, together with the working capital note and potential additional loans, to fund operations through the business combination period. Sponsor, officer and director financing was not required or guaranteed.
- The Trust Account was generally restricted to funding a business combination, redeeming public shares or paying permitted taxes and expenses.
- The company identified a material weakness in internal control over financial reporting relating to complex financial instruments, warrant accounting and redeemable share classification. Management concluded that internal controls were not effective at December 31, 2021 and that remediation was ongoing.
- Three putative shareholders sent letters alleging disclosure deficiencies in the Form F-4 registration statement relating to the proposed transactions and requested additional disclosure.
- Key risks included failure to complete a transaction within the required period, shareholder redemptions reducing available cash, the need for additional financing, dilution from founder shares and warrants, conflicts of interest involving the Sponsor and management, COVID-19 and broader market disruptions, third-party claims against the Trust Account, and potential transaction or integration risks involving Obagi and Milk.
Most important facts to verify
- Confirm the completion status, final terms, financing, shareholder redemptions and dilution associated with the Obagi and Milk transactions.
- Review the subsequent Waldencast plc filings for actual operating revenue, profitability, cash flow, debt and liquidity after the business combination.
- Verify remediation of the material weakness and whether further restatements or control deficiencies were reported.
- Assess the availability and terms of the $1.5 million working capital note, forward purchase commitments and deferred underwriting fee.
- Review the Trust Account balance, redemption mechanics and any creditor or litigation claims that could reduce distributions to public shareholders.
- Evaluate the potential dilution from 8.625 million founder shares, 17.433 million public and private warrants, forward purchase securities and other transaction-related equity issuance.