Business context and reporting period
This is Forest Road Acquisition Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2021—not an operating-company filing by Beachbody Company, Inc. Forest Road was a pre-business-combination SPAC and had no operating revenue or business operations. On February 9, 2021, it agreed to combine with The Beachbody Company Group, LLC and Myx Fitness Holdings, LLC. A concurrent PIPE was agreed for 22.5 million shares at $10 each, or $225 million, subject to closing conditions.
Financial results and position
| Metric | Quarter ended March 31, 2021 / period-end |
|---|---|
| Revenue | None; operating revenue is not expected before a business combination. |
| Operating costs and operating loss | $2.72 million; operating loss was $2.72 million. |
| Net loss | $16.59 million, driven primarily by a $13.87 million noncash increase in warrant liabilities. |
| Interest income | $20 on bank cash and $4,432 on trust investments. |
| Operating cash flow | $453,395 used. |
| Cash and liquidity | $730,435 outside the trust; $300.00 million in the restricted trust account. Management expected outside cash to fund operations for at least 12 months, assuming no business combination. |
| Assets and liabilities | Total assets $300.99 million; total liabilities $58.80 million, including $45.61 million of warrant liabilities and $10.50 million of deferred underwriting discount payable. |
| Debt | No Working Capital Loans were outstanding at quarter-end; the filing reports no other borrowing balance. |
Margins are not meaningful because the SPAC had no revenue. Class A shares subject to possible redemption were presented as temporary equity: 23.72 million shares at $237.19 million.
Changes versus prior comparable period
The filing does not present a prior-year-quarter income statement for comparison. From December 31, 2020 to March 31, 2021, cash outside the trust declined from $1.18 million to $730,435, current liabilities rose from $464,045 to $2.70 million, and warrant liabilities increased from $31.74 million to $45.61 million. Redeemable Class A shares declined from 25.38 million to 23.72 million. The quarter’s warrant fair-value remeasurement materially increased reported loss.
Outlook, risks, and unusual items
- Management said existing outside-trust cash was expected to cover at least 12 months of operations, but warned that higher-than-estimated due-diligence or transaction costs could create a funding shortfall. Sponsor, officers, and directors were not obligated to provide additional financing.
- The SPAC had until November 30, 2022 to complete a business combination; otherwise, public shares were generally subject to redemption from the trust and warrants could expire worthless. Public shareholders had redemption rights in connection with a transaction.
- COVID-19-related market, travel, and operating disruption could impede fundraising or completion of a business combination.
- Warrants are recorded as derivative liabilities and remeasured through earnings, creating potentially substantial noncash earnings volatility.
- Management concluded disclosure controls were ineffective at March 31, 2021 because a material weakness arose from prior warrant classification as equity rather than liabilities. The company reported enhanced supervisory review as remediation.
- No legal proceedings or material subsequent events were reported. The filing states there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the reporting entity: this 10-Q is for Forest Road Acquisition Corp., not Beachbody’s operating business, and does not report Beachbody operating results.
- Review the status and closing conditions of the Beachbody/Myx merger and the $225 million PIPE; the agreements were not evidence of completed transactions.
- Reconcile apparent source-text inconsistencies: the cash-flow statement gives net loss as $16,509,561, while the income statement and MD&A report $16,590,561; MD&A also cites outside-trust cash of $730,735 versus $730,435 on the balance sheet and in the notes. The filing text does not provide a clear reconciliation.
- Assess the warrant valuation and accounting-control remediation, since warrant fair-value changes drove a large portion of the reported loss and a material weakness was disclosed.