Business context and reporting period
This is East Resources Acquisition Company’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2022—not an operating-company filing by Abacus Global Management. East Resources was a blank-check company pursuing a merger with Longevity Market Assets, LLC (LMA) and Abacus Settlements, LLC (Abacus).
The merger agreement was signed August 30, 2022. The company expected the transaction to close in the first quarter of 2023, subject to conditions. Proposed consideration was approximately $531.8 million, primarily in newly issued shares valued at $10 per share, with a portion payable in cash subject to conditions.
Financial results and position
| Metric | Period / date | Reported amount |
|---|---|---|
| Operating revenue | Three and nine months ended September 30, 2022 | None; the company had not begun operations or generated revenue. |
| Operating costs | Q3 2022 / Q3 2021 | $8.90 million / $0.57 million |
| Net income (loss) | Q3 2022 / Q3 2021 | $(6.35) million / $10.76 million |
| Net income | Nine months 2022 / 2021 | $1.90 million / $14.38 million |
| Operating cash used | Nine months 2022 / 2021 | $1.98 million / $0.90 million |
| Cash outside Trust Account | September 30, 2022 / December 31, 2021 | $1.67 million / $0.85 million |
| Trust Account assets | September 30, 2022 / December 31, 2021 | $98.26 million / $345.05 million |
| Total liabilities | September 30, 2022 | $29.67 million, including $4.92 million in related-party notes and $12.08 million in deferred underwriting fees |
At September 30, 2022, total assets were $100.24 million, current liabilities were $12.93 million, and the company reported a working capital deficiency of $10.95 million. It had no long-term debt reported. No meaningful operating margin is available because there was no operating revenue.
Reported earnings were driven substantially by non-operating fair-value changes in warrants and the forward purchase agreement, rather than business operations. For the first nine months of 2022, warrant fair-value gains were $10.25 million and the forward purchase agreement gain was $0.60 million; these gains helped offset operating costs.
Material changes versus the prior comparable period
- Q3 2022 swung to a $6.35 million net loss from $10.76 million net income in Q3 2021, as operating costs rose sharply while warrant and forward-purchase fair-value gains were lower.
- Nine-month net income declined to $1.90 million from $14.38 million, while operating costs increased to $9.56 million from $1.02 million.
- In July 2022, holders redeemed 24,781,028 Class A shares for approximately $248.09 million, about $10.01 per share. At September 30, 9,718,972 redeemable Class A shares remained.
- In June 2022, the company liquidated Trust Account investments and held the funds in cash to reduce the risk of being treated as an unregistered investment company. It warned this could mean minimal interest income.
Outlook, risks and unusual items
- The business-combination deadline was extended to January 27, 2023. The Sponsor was required to deposit $320,726 for each additional month; $962,178 had been deposited by September 30, and a further $320,726 was deposited October 27, 2022.
- Management stated that limited working capital, dependence on possible Sponsor or other financing, and uncertainty completing a business combination raised substantial doubt about the company’s ability to continue as a going concern. Sponsor loans are not guaranteed.
- The merger remained subject to closing conditions. A separate forward purchase agreement could provide up to $50 million, but the Sponsor affiliate’s funding obligation is conditional, including on its acceptance of the transaction and unanimous board approval.
- Disclosure controls were deemed ineffective because of material weaknesses involving accruals and accounting for complex financial instruments. Management described remediation efforts but gave no assurance they would succeed.
- The filing discusses uncertainty from COVID-19 and the Russia-Ukraine conflict, and potential exposure to the federal 1% stock-repurchase excise tax for qualifying repurchases after 2022.
- Warrants may expire worthless if no business combination is completed. The filing also notes that the deferred underwriting fee is payable only if a business combination closes.
Important facts for investors to verify
- Confirm the identity and status of the registrant: this filing is for East Resources Acquisition Company, the SPAC pursuing the Abacus and LMA combination.
- Check subsequent filings for merger completion, transaction consideration, financing, redemptions, and any changes to the closing timetable or extension deadline.
- Assess available liquidity and related-party funding against the reported working capital deficiency and going-concern uncertainty.
- Review remediation of the material weaknesses and the company’s accounting for accruals, warrants, and other complex instruments.
- Note a narrative inconsistency: the MD&A calls Q3 2021 a net loss in one passage, while the financial statements report net income of $10.76 million; the financial statements show the reported figure used above.