Business context and reporting period
This is EG Acquisition Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2023, signed November 17, 2023. Although the request identifies flyExclusive, the registrant in this filing is EG Acquisition Corp., a shell company seeking a business combination. It had no operating business or revenue. Its proposed transaction is an acquisition of LGM; the contemplated combined company would be named flyExclusive, Inc.
Financial results and position
| Metric | Q3 2023 / September 30, 2023 | Comparable period / prior year-end |
|---|---|---|
| Revenue | No operating revenue | No operating revenue |
| Net income (loss) | $1.49 million | Q3 2022: loss of $0.27 million |
| Nine-month net income | $2.00 million | Nine months 2022: $4.66 million |
| Operating costs | Q3: $0.56 million; nine months: $2.21 million | Q3 2022: $1.33 million; nine months 2022: $2.38 million |
| Trust interest income | Q3: $0.58 million; nine months: $4.96 million | Q3 2022: $1.02 million; nine months 2022: $1.34 million |
| Change in warrant fair value | Q3 gain: $1.58 million; nine-month gain: $0.26 million | Q3 2022 gain: $0.25 million; nine months 2022 gain: $5.90 million |
| Cash and trust assets | Operating cash: $0.45 million; trust securities: $45.16 million | December 31, 2022: cash $0.09 million; trust securities $228.25 million |
| Liquidity and liabilities | Working capital deficit: $8.14 million; current liabilities: $8.66 million | December 31, 2022 current liabilities: $4.35 million |
| Related-party promissory notes | $2.81 million outstanding | December 31, 2022: $1.15 million |
| Cash flow | Nine-month operating cash used: $2.32 million; ending cash: $0.45 million | Nine months 2022 operating cash used: $0.66 million; ending cash: $0.05 million |
The reported profit was driven by trust interest and noncash warrant remeasurement, not operations. Nine-month net income declined year over year, principally as the prior-year warrant fair-value gain was much larger. The filing does not provide a meaningful operating margin because the company had no operating revenue. Trust assets fell primarily following $187.03 million of shareholder redemptions.
Material changes and transaction developments
- At the May 19, 2023 extension vote, holders redeemed 18,268,171 public shares for approximately $187.03 million. The filing reports 4,231,829 public shares remaining in several places, but one note states 4,231,289; this inconsistency should be checked.
- The sponsor converted 5,624,000 founder shares from Class B to Class A. As of September 30, the filing reports 9,855,829 total Class A shares outstanding, including converted founder shares.
- The sponsor funded monthly trust extensions, including $160,000 deposits on June 2, July 6, August 4 and September 5. Subsequent to quarter-end, further $160,000 extension deposits were made for October and November.
- The proposed LGM transaction contemplates an Up-C structure. LGM’s $85 million of bridge notes, bearing 10% annual interest, are intended to convert into PubCo Class A shares at closing, based on the amount owed divided by $10 per share, subject to note terms.
- The filing describes a deferred underwriting discount of $7.875 million payable upon a business combination, as well as transaction-related fees and potential equity financing. The transaction remained pending; the business-combination proxy was filed November 13, 2023.
Outlook, risks and unusual items
- Management stated that it intends to complete a business combination before the mandatory liquidation date. The extension framework allowed extensions through December 28, 2023, subject to required sponsor deposits and applicable approvals.
- Management concluded that low operating cash, a substantial working capital deficit, the need for additional financing and the approaching liquidation deadline raised substantial doubt about the company’s ability to continue as a going concern. Sponsor or insider loans are possible but not committed.
- The company recorded a $1.87 million excise-tax liability related to the May redemptions. The filing says it may be offset by qualifying share issuances in the same tax year and would not be due if the company liquidated before December 31, 2023.
- Disclosure controls were deemed ineffective as of September 30 due to material weaknesses associated with prior-period restatements involving redeemable-share classification, stock compensation and fees under an agreement. Management described remediation efforts but gave no assurance they would be effective.
- The filing notes potential uncertainty from COVID-19 and the Russia-Ukraine conflict, with specific financial effects not determinable. No material litigation or material changes to previously disclosed risk factors were reported.
- No financial guidance or forecast was provided. The company stated that it had no off-balance-sheet arrangements as of September 30.
Important facts for investors to verify
- Whether the LGM business combination closed, its final terms, and the cash and share ownership remaining after redemptions, financing and transaction fees.
- The liquidation deadline and whether all required extensions, deposits and shareholder approvals were completed.
- The inconsistent remaining public-share count (4,231,829 versus 4,231,289) and the final fully diluted share count, including founder shares, warrants and bridge-note conversion shares.
- The amount and repayment or conversion terms of sponsor notes, LGM bridge notes, deferred underwriting fees and other transaction costs.
- Whether additional financing was obtained and how the going-concern uncertainty and disclosed material weaknesses were addressed.