Filing summary
Entity and period: This is East Resources Acquisition Company’s Form 10-K for the fiscal year ended December 31, 2022, filed April 17, 2023. Despite the request metadata, the registrant is not identified in this filing as Abacus Global Management, Inc. It is a blank-check company whose proposed merger targets are Longevity Market Assets, LLC and Abacus Settlements, LLC.
Business context and proposed transaction
East Resources had no operating business or revenue during 2022; its activity was seeking and pursuing a business combination. It entered into a merger agreement in August 2022, amended in October, for approximately $531.8 million of consideration, principally newly issued Class A shares valued at $10 per share, with some cash consideration subject to conditions. The transaction was expected to close in the first half of 2023, subject to conditions.
After stockholder-approved extensions, the deadline to complete a business combination was July 27, 2023. In January 2023, stockholders approved the second extension; that vote also resulted in redemptions of approximately 6.86 million shares for $70.1 million. The filing reports these as subsequent events, not 2022 activity.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Operating revenue | None | None |
| Formation and operating costs | $11.72 million | $1.38 million |
| Net income (loss) | $(0.64) million | $15.84 million |
| Cash used in operating activities | $2.60 million | $1.24 million |
| Cash outside trust at year-end | $86,572 | $853,130 |
| Trust assets at year-end | $99.22 million | $345.05 million |
The 2022 net loss followed 2021 net income; neither result reflects operating revenue. Both periods’ results were materially affected by non-cash fair-value changes in warrant liabilities: a $9.34 million gain in 2022 versus a $15.90 million gain in 2021. The 2022 result also included a $0.60 million gain from the forward purchase agreement, $0.51 million from a deferred underwriting fee waiver, and $0.67 million of trust-account interest. The forward purchase agreement was terminated in December 2022. Operating margins are not meaningful because the company had no operating revenue.
At December 31, 2022, total assets were $99.37 million and total liabilities were $18.78 million. Current liabilities included $9.23 million of accrued expenses, $4.92 million of related-party notes, and $4.58 million of warrant liabilities. Redeemable Class A shares were presented as $98.98 million of temporary equity; stockholders’ deficit was $18.39 million. The trust balance was largely held in cash after investments were liquidated in June 2022.
The company reported a $14.05 million working-capital deficiency and only $86,572 in cash outside the trust. It had no long-term debt or lease obligations reported. Sponsor working-capital and extension notes are generally non-interest-bearing and repayable upon a business combination or liquidation; some may be converted into warrants. No dividend or operating-margin guidance is provided.
Material changes, outlook, and risks
- In July 2022, holders redeemed 24.78 million public shares for approximately $248.09 million, reducing the trust balance from approximately $345.05 million at the end of 2021 to $99.22 million at the end of 2022. The sponsor deposited $1.92 million into the trust for the first extension by year-end.
- The company recorded $11.72 million of 2022 formation and operating costs, sharply above the prior year, including significant transaction-related costs. Approximately $3.1 million of legal fees and $4.8 million of advisory fees were accrued for the proposed merger.
- Management and the auditor disclosed substantial doubt about the company’s ability to continue as a going concern, citing the working-capital deficiency, limited cash outside the trust, need for additional funding, and the July 27, 2023 business-combination deadline. The financial statements contain no adjustments for a possible failure to continue as a going concern.
- Management concluded disclosure controls and internal control over financial reporting were ineffective as of year-end, citing material weaknesses involving accruals and complex financial instruments. The filing also describes prior-period restatement and accounting errors. Remediation was planned, but effectiveness was not assured.
- Key risks include failure to complete the merger or obtain financing, further redemptions, sponsor dependence, conflicts of interest, creditor claims against trust assets, and potential dilution from shares and warrants. Public warrants may expire worthless if no business combination is completed.
- Redemptions after December 31, 2022 may trigger the Inflation Reduction Act’s 1% corporate excise tax; the filing says the amount and applicability were uncertain. The trust funds had been moved to cash, in part to mitigate investment-company regulatory risk.
Important facts for investors to verify
- Confirm the exact registrant and transaction parties: this 10-K is for East Resources Acquisition Company and names Abacus Settlements, LLC—not Abacus Global Management, Inc.—as a merger target.
- Review the merger agreement and proxy materials for closing conditions, cash consideration, financing needs, dilution, and the effects of redemptions.
- Verify the post-January 2023 trust balance, subsequent redemptions and sponsor deposits, and the company’s ability to fund operations through the July 27, 2023 deadline.
- Assess the going-concern warning, related-party financing terms, accrued transaction costs, and the sponsor’s ability to meet any obligations.
- Review the accounting restatement disclosures, material weaknesses, remediation progress, and warrant-liability valuation effects on reported earnings.