Business Context and Reporting Period
Waldencast Acquisition Corp., the predecessor SPAC referenced in the filing, was an early-stage Cayman Islands blank-check company formed on December 8, 2020 to pursue a merger, acquisition, share exchange, reorganization or similar business combination. The unaudited Form 10-Q covers the three and six months ended June 30, 2021. The company had no operating revenue and remained a shell company pending 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, and sold 5.933 million private placement warrants for $8.9 million.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 |
|---|---|---|
| Operating revenue | $0 | $0 |
| Formation and operating costs | $201,567 | $319,082 |
| Net loss | $1,551,508 | $2,735,465 |
| Basic and diluted loss per non-redeemable share | $0.12 | $0.24 |
| Interest income | $13,393 | $14,818 |
| Cash used in operating activities | Not separately presented | $651,509 |
- Net loss included non-cash fair-value losses of $697,334 on warrant liabilities and $666,000 on forward purchase agreement liabilities for the quarter; for the six-month period, these charges were $1.046 million and $666,000, respectively.
- The six-month loss also included a $719,201 non-cash offering expense related to warrant issuance.
- At June 30, 2021, cash outside the Trust Account was $851,860, while marketable securities in the Trust Account totaled $345.014 million.
- Total assets were $346.305 million, including the Trust Account. Total liabilities were $44.422 million, including $19.236 million of warrant liabilities, $12.321 million of forward purchase agreement liabilities, $12.075 million of deferred underwriting discount and $683,919 of deferred legal fees.
- Class A ordinary shares subject to possible redemption were recorded as temporary equity at $296.883 million for 29.688 million shares.
- Shareholders’ equity was $5.000 million. The company had no long-term debt, capital leases or operating leases.
- The company had 17.433 million warrants outstanding, consisting of 11.5 million public warrants and 5.933 million private placement warrants. The warrants have an exercise price of $11.50 per share and were classified as derivative liabilities.
Material Changes Versus the Prior Comparable Period
- Compared with December 31, 2020, when the company had only $166,792 of assets and no Trust Account, the March IPO materially increased total assets and funded a $345.0 million Trust Account.
- Cash increased from zero at December 31, 2020 to $851,860 at June 30, 2021. The company also recorded $296.883 million of redeemable Class A shares, $19.236 million of warrant liabilities and $12.321 million of forward purchase agreement liabilities.
- The prior-year comparable period was not economically meaningful because the company was dormant through December 31, 2020 and had no operating activity or issued shares.
- Management revised the accounting for public and private warrants and forward purchase agreements, classifying them as liabilities measured at fair value. The revision did not affect previously reported cash or total assets but resulted in a material weakness in internal control over financial reporting.
Guidance, Outlook, Risks and Unusual Items
- The company expects no operating revenue until after completion of a business combination and expects ongoing legal, accounting, reporting, due diligence and acquisition-related costs.
- The company had 24 months from the March 18, 2021 IPO closing to complete a business combination, subject to possible extension with shareholder approval. If no transaction is completed, public shares are to be redeemed for a pro rata portion of the Trust Account and the company is expected to liquidate.
- Management stated that the $851,860 of unrestricted cash was expected to fund operations for at least the next 12 months from issuance of the financial statements, assuming no business combination. Sponsor, officer and director loans may be available, but none are obligated to provide funding.
- The Trust Account is generally unavailable before a business combination, except for permitted tax withdrawals. It may be subject to creditor claims that could have priority over public shareholders.
- Forward purchase agreements contemplated up to $303.0 million of additional capital, subject to the stated terms and discretion described in the filing. Their fair value liability was $12.321 million at June 30, 2021.
- The sponsor agreed to indemnify the company for certain third-party claims that reduce the Trust Account below specified levels, but the company had not verified the sponsor’s ability to satisfy those obligations.
- COVID-19 was identified as a potential adverse factor affecting the company’s financial position, operations and target search, although the specific impact was not determinable.
- Warrant fair values are remeasured each reporting period, which may create material quarterly earnings volatility unrelated to operating performance. The filing identifies this as a significant risk.
- Disclosure controls and procedures were determined to be ineffective as of June 30, 2021 due to the material weakness related to warrant accounting. Management reported no material change in internal control during the quarter that independently affected financial reporting.
- The filing states that no material litigation was pending or contemplated and no subsequent event requiring adjustment or disclosure was identified through issuance of the financial statements.
Important Facts for Investors to Verify
- Confirm the status and terms of the eventual business combination, including target valuation, financing, shareholder redemptions and any required extension of the 24-month combination period.
- Reconcile the $345.014 million Trust Account balance with public-share redemption value, deferred underwriting fees, taxes and any permitted withdrawals.
- Monitor recurring fair-value changes in the $19.236 million warrant liability and $12.321 million forward purchase agreement liability, including their effect on reported earnings and equity.
- Assess whether the company remediated the material weakness in warrant accounting and whether future filings contain additional revisions.
- Evaluate liquidity outside the Trust Account, sponsor funding availability and the risk that due diligence or transaction costs exceed available unrestricted cash.
- Review dilution exposure from 8.625 million founder shares, 17.433 million warrants and the forward purchase agreements.