Abacus Global Management, Inc. quarterly report, Q1 FY2023

Business context and reporting period

This is East Resources Acquisition Company’s unaudited Form 10-Q for the quarter ended March 31, 2023, signed May 24, 2023. Although the request identifies Abacus Global Management, Inc., the filing is for East Resources Acquisition Company, a SPAC that had not begun operating; it is not a quarterly report for the post-merger Abacus business.

The SPAC was pursuing a merger with Longevity Market Assets, LLC and Abacus Settlements, LLC. The proposed transaction contemplated approximately $531.8 million of consideration, primarily in newly issued shares valued at $10 per share, with some cash consideration subject to conditions.

Financial results and position

Q1’s loss included $1.323 million of operating costs, offset by a $1.177 million noncash gain from the decline in warrant liability and $2,586 of bank interest. The prior-year profit largely reflected larger fair-value gains on warrants and a forward purchase agreement. The company reported no operating revenue or operating margins.

The cash flow statement reports $500,368 of cash used in operating activities. The MD&A gives a conflicting figure of $198,953; the filing text does not reconcile the difference. Investing cash flow included $69.932 million withdrawn from the Trust Account for redemptions, while financing cash flow included an equal redemption payment and $565,497 of related-party note proceeds. Ending cash was $56,933.

Accrued expenses were $10.074 million, including approximately $3.8 million of legal fees and $4.8 million of advisory fees related to the proposed merger. The balance sheet reports a $5.490 million related-party note payable. Sponsor notes described in the filing generally bear no interest and are repayable upon a business combination or liquidation; repayment may be unavailable if the SPAC liquidates. No conventional long-term debt, capital leases, or operating leases were reported.

Material changes versus the prior comparable period

• Net results shifted from $9.384 million of income in Q1 2022 to a $143,746 loss in Q1 2023, as warrant fair-value gains were substantially smaller and operating costs increased.
• Trust assets fell by $69.837 million from year-end, primarily reflecting $69.932 million of redemptions, partly offset by Trust contributions and other activity.
• At the January 2023 extension vote, holders redeemed 6,862,925 shares for approximately $69.932 million. Redeemable Class A shares outstanding declined to 2,856,047 at quarter-end from 9,718,972 at year-end.
• The company’s Q1 2023 statement of operations reports weighted-average redeemable shares of 5,507,417, while the EPS note reports 6,745,038. This is an additional presentation difference to check.

Outlook, risks, contingencies, and unusual items

• The company had until July 27, 2023 to complete a business combination, after a shareholder-approved extension. Management was preparing a proxy statement and expected the proposed transaction to close in the first half of 2023, subject to conditions; completion was not assured.
• Management disclosed substantial doubt about the company’s ability to continue as a going concern through one year after the financial statements. It cited $56,933 of operating cash, a $16.167 million working-capital deficit, dependence on sponsor or other financing, and the risk of liquidation if the transaction was not completed by the deadline.
• Disclosure controls and procedures were deemed ineffective due to material weaknesses involving accrual accounting and complex financial instruments. Management described remediation efforts but gave no assurance they would be effective.
• Nasdaq had notified the company of an annual-meeting compliance issue, with a stated potential compliance deadline of June 29, 2023. Separately, an April 2023 notice said market value of listed securities was below the $35 million minimum; the company had until October 23, 2023 to regain compliance or face possible delisting.
• The company held Trust Account funds in cash from June 2022 to reduce investment-company regulatory risk, resulting in minimal expected interest. A 1% federal excise tax may apply to certain share repurchases; the company recorded $699,321 of excise taxes payable related to the redemption event.
• The forward purchase agreement, which had contemplated up to $50 million of financing, was terminated in December 2022. The company also disclosed a waiver by Wells Fargo of its $12.075 million deferred underwriting fee.

Important facts for investors to verify

• Confirm the actual status and final terms of the proposed Abacus/LMA transaction, including closing conditions, cash consideration, financing, and post-merger ownership and dilution.
• Reconcile the $500,368 cash-flow-statement figure with the MD&A’s $198,953 operating cash-use figure, and reconcile the two weighted-average redeemable share counts.
• Assess the company’s ability to fund operations and complete the transaction given its minimal unrestricted cash, working-capital deficit, sponsor-note terms, and liquidation deadline.
• Check the status of Nasdaq annual-meeting and market-value compliance notices, and the remediation of the disclosed control weaknesses.
• Verify the excise-tax exposure, accrued transaction costs, remaining Trust Account balance, and any subsequent redemptions or sponsor extension deposits.