Waldencast Acquisition Corp. Form 10-Q Summary
Reporting period: Three months ended March 31, 2021; filed July 16, 2021. The company was a Cayman Islands blank check company formed on December 8, 2020 to pursue a business combination. It remained dormant through December 31, 2020 and completed its initial public offering on March 18, 2021.
Business Context and Period
The company had no operating business or operating revenue during the quarter. Its activities consisted primarily of formation, preparation for the IPO, raising capital, evaluating potential acquisition targets, and maintaining the related trust and financing arrangements.
Key Financial Metrics
| Metric | March 31, 2021 / Three Months Ended |
|---|---|
| Operating revenue | $0 |
| Formation and operating costs | $117,515 |
| Net loss | $1,183,957 |
| Interest income | $1,425, comprising $131 from the operating account and $1,294 from trust-account securities |
| Change in fair value of warrant liabilities | $348,666 loss |
| Offering expenses related to warrant issuance | $719,201 expense |
| Net cash used in operating activities | $53,682 |
| Cash outside the trust account | $1,449,687 |
| Marketable securities in trust account | $345,001,294 |
| Total liabilities | $43,545,334 |
| Class A shares subject to possible redemption | $298,434,690 for 29,843,469 shares, as reported on the balance sheet |
| Shareholders’ equity | $5,000,004 |
| Long-term debt | None reported |
Margins are not meaningful because the company generated no operating revenue. Basic and diluted net loss per Class B ordinary share was $0.13; Class A basic and diluted loss per share was reported as $0.00.
Material Changes Versus the Prior Comparable Period
- Compared with December 31, 2020, cash increased from zero to $1.45 million and total assets increased from $166,792 to $346.98 million, primarily due to the IPO and private placement.
- The company raised $345.0 million through the IPO and $8.9 million through the sale of private placement warrants. It placed $345.0 million in the trust account.
- Warrant liabilities of $18.54 million, forward purchase agreement liabilities of $11.66 million, deferred legal fees of $683,919, and a deferred underwriting discount of $12.08 million were recorded during the quarter.
- The company revised its accounting for public and private warrants and forward purchase agreements after the SEC’s April 12, 2021 SPAC warrant accounting statement. The warrants were reclassified from equity to derivative liabilities, with subsequent fair-value changes recognized in earnings.
- Management identified a material weakness in internal control over financial reporting related to accounting for IPO warrants. Disclosure controls and procedures were determined to be ineffective as of March 31, 2021.
Guidance, Outlook, Risks, and Unusual Items
- The company expects to incur additional legal, accounting, public-company compliance, due diligence, and transaction expenses while searching for and negotiating a business combination.
- Management expects the $1.45 million of cash outside the trust account to support operations for at least the next 12 months from issuance of the financial statements, assuming no business combination occurs during that period.
- The company has 24 months from the March 18, 2021 IPO closing to complete a business combination, subject to possible shareholder-approved extension. If it does not complete a transaction, public shares are expected to be redeemed for a pro rata portion of the trust account, and the company would liquidate.
- There is no assurance that a business combination will be completed. The company may need additional financing if transaction costs exceed estimates, if substantial redemptions occur, or if additional capital is required to complete a transaction. Potential sponsor or affiliate working-capital loans are discretionary and not guaranteed.
- Public shareholders have redemption rights in connection with a business combination. The trust account is generally unavailable for operating purposes before a transaction and may be subject to creditor claims that have priority over shareholder claims.
- The company has forward purchase agreements for up to $303 million of securities, subject to the contractual terms and discretion described in the filing. The agreements were recorded as liabilities at fair value.
- Warrant liabilities are remeasured each reporting period using Level 3 valuation inputs. Resulting non-cash gains or losses may materially fluctuate reported earnings.
- COVID-19 could adversely affect the company’s financial position, operations, or ability to identify a target, although the specific impact was not determinable at the reporting date.
- The company pays its sponsor $10,000 per month for office space and administrative support beginning March 15, 2021, continuing until a business combination or liquidation.
- No litigation was reported, and management stated that there were no subsequent events requiring adjustment or disclosure.
Important Facts for Investors to Verify
- Confirm the final accounting treatment and valuation of the public warrants, private placement warrants, and forward purchase agreement liabilities.
- Review remediation of the material weakness and the effectiveness of disclosure controls in subsequent filings.
- Reconcile the reported number of redeemable Class A shares: the balance sheet reports 29,843,469 shares, while the critical accounting policies discussion refers to 31,008,969 shares.
- Monitor the 24-month business-combination deadline, any proposed target, shareholder approval requirements, and potential redemptions.
- Assess whether cash outside the trust account is sufficient for transaction and operating costs and whether sponsor or third-party financing becomes necessary.
- Review the deferred $12.075 million underwriting fee, sponsor support arrangements, forward purchase commitments, and dilution from founder shares and warrants.
- Verify that the filing is for Waldencast Acquisition Corp., the predecessor blank check company, rather than the later operating entity Waldencast plc.