Abacus Life(ABL) - 2022 Q3 - Quarterly Report

PART 1 – FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis for East Resources Acquisition Company Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of East Resources Acquisition Company for the period ended September 30, 2022, including balance sheets, statements of operations, changes in stockholders' deficit, and cash flows, along with comprehensive notes detailing the company's organization, accounting policies, and financial instruments Condensed Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and stockholders' deficit as of September 30, 2022, and December 31, 2021 - Total Assets decreased significantly from $345,993,643 at December 31, 2021, to $100,243,663 at September 30, 2022, primarily due to a substantial reduction in cash and marketable securities held in the Trust Account[4][5] - Total Liabilities saw a slight increase from $29,231,054 to $29,665,527, driven by higher accrued expenses and related party notes, partially offset by a decrease in warrant liability[5] - Stockholders' Deficit improved from $(28,237,411) at December 31, 2021, to $(27,480,838) at September 30, 2022[5] Condensed Consolidated Balance Sheets (Selected Data) | Item | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | Change (Absolute) | Change (%) | | :------------------------------------------- | :----------------------- | :----------- | :---------------- | :--------- | | ASSETS | | | | | | Cash ($) | $1,674,864 | $853,130 | $821,734 | 96.32% | | Prepaid expenses ($) | $308,273 | $91,625 | $216,648 | 236.45% | | Total Current Assets ($) | $1,983,137 | $944,755 | $1,038,382 | 109.91% | | Cash and marketable securities in Trust Account ($) | $98,260,526 | $345,048,888 | $(246,788,362) | -71.52% | | Total Assets ($) | $100,243,663 | $345,993,643 | $(245,749,980) | -71.03% | | LIABILITIES & STOCKHOLDERS' DEFICIT | | | | | | Accrued expenses ($) | $7,940,400 | $144,254 | $7,796,146 | 5404.40% | | Income taxes payable ($) | $64,771 | $— | $64,771 | N/A | | Note payable to related party ($) | $4,924,356 | $1,500,000 | $3,424,356 | 228.29% | | Total Current Liabilities ($) | $12,929,527 | $1,644,254 | $11,285,273 | 686.34% | | Deferred underwriting fee payable ($) | $12,075,000 | $12,075,000 | $— | 0.00% | | Forward purchase agreement liability ($) | $1,000,000 | $1,600,000 | $(600,000) | -37.50% | | Warrant liability ($) | $3,661,000 | $13,911,800 | $(10,250,800) | -73.68% | | Total Liabilities ($) | $29,665,527 | $29,231,054 | $434,473 | 1.49% | | Class A common stock subject to possible redemption ($) | $98,058,974 | $345,000,000 | $(246,941,026) | -71.58% | | Total Stockholders' Deficit ($) | $(27,480,838) | $(28,237,411)| $756,573 | -2.68% | Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income (loss) for the three and nine months ended September 30, 2022 and 2021 - The company reported a net loss of $(6,347,119) for the three months ended September 30, 2022, a significant decrease from a net income of $10,763,775 in the same period of 2021[7] - For the nine months ended September 30, 2022, net income was $1,902,803, down from $14,377,387 in 2021[7] - Formation and operating costs increased substantially to $8,900,483 for the three months ended September 30, 2022, compared to $565,570 in 2021, contributing to the net loss[7] Condensed Consolidated Statements of Operations (Selected Data) | Item | 3 Months Ended Sep 30, 2022 ($) | 3 Months Ended Sep 30, 2021 ($) | 9 Months Ended Sep 30, 2022 ($) | 9 Months Ended Sep 30, 2021 ($) | | :------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Formation and operating costs | $(8,900,483) | $(565,570) | $(9,558,846) | $(1,015,780) | | Loss from operations | $(8,900,483) | $(565,570) | $(9,558,846) | $(1,015,780) | | Change in fair value of warrant liability | $2,092,000 | $10,724,115 | $10,250,800 | $13,077,615 | | Change in fair value of forward purchase agreement liability | $120,000 | $600,000 | $600,000 | $2,300,000 | | Interest earned - bank | $2,804 | $19 | $3,181 | $34 | | Interest earned on marketable securities held in Trust Account | $385,604 | $5,211 | $672,439 | $15,518 | | Other income | $2,600,408 | $11,329,345 | $11,526,420 | $15,393,167 | | Net income before income taxes | $(6,300,075) | $10,763,775 | $1,967,574 | $14,377,387 | | Income tax expense | $47,044 | $— | $64,771 | $— | | Net income (loss) | $(6,347,119) | $10,763,775 | $1,902,803 | $14,377,387 | | Basic and diluted net income (loss) per share, Class A common stock subject to possible redemption ($) | $(0.26) | $0.25 | $0.05 | $0.33 | | Basic and diluted net income (loss) per share, Non-redeemable common stock ($) | $(0.26) | $0.25 | $0.05 | $0.33 | Condensed Consolidated Statements of Changes in Stockholders' Deficit Outlines changes in equity components, including net income/loss and other adjustments, for the periods ended September 30, 2022 and 2021 - The total stockholders' deficit improved from $(28,237,411) at January 1, 2022, to $(27,480,838) at September 30, 2022[9] - The accumulated deficit increased from $(28,262,411) at January 1, 2022, to $(27,505,838) at September 30, 2022, reflecting net losses in Q2 and Q3 2022, partially offset by net income in Q1 2022[9] - A remeasurement of Class A common stock to redemption value resulted in a $(1,146,230) impact during the nine months ended September 30, 2022[9] Changes in Stockholders' Deficit (Selected Data) | Item | Jan 1, 2022 Balance ($) | Mar 31, 2022 Balance ($) | Jun 30, 2022 Balance ($) | Sep 30, 2022 Balance ($) | | :------------------------------------------- | :------------------ | :------------------- | :------------------- | :------------------- | | Class B Common Stock Amount | $863 | $863 | $863 | $863 | | Additional Paid-in Capital | $24,137 | $24,137 | $24,137 | $24,137 | | Accumulated Deficit | $(28,262,411) | $(18,878,597) | $(20,012,489) | $(27,505,838) | | Total Stockholders' Deficit | $(28,237,411) | $(18,853,597) | $(19,987,489) | $(27,480,838) | | Net income (Q1 2022) | N/A | $9,383,814 | N/A | N/A | | Net loss (Q2 2022) | N/A | N/A | $(1,133,892) | N/A | | Net loss (Q3 2022) | N/A | N/A | N/A | $(6,347,119) | | Remeasurement of Class A common stock to redemption value | N/A | N/A | $(1,146,230) | N/A | Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2022 and 2021 - Net cash used in operating activities increased from $(895,974) for the nine months ended September 30, 2021, to $(1,976,167) for the same period in 2022[11] - Net cash provided by investing activities significantly increased to $247,460,801 in 2022, primarily due to a large Trust Account withdrawal for Class A share redemption ($248,087,256)[11] - Net cash provided by financing activities shifted from providing $1,500,000 in 2021 to using $(244,662,900) in 2022, driven by the redemption of Class A common stock[11] Condensed Consolidated Statements of Cash Flows (Selected Data) | Item | 9 Months Ended Sep 30, 2022 ($) | 9 Months Ended Sep 30, 2021 ($) | Change (Absolute) ($) | Change (%) | | :------------------------------------------- | :-------------------------- | :-------------------------- | :---------------- | :--------- | | Net income | $1,902,803 | $14,377,387 | $(12,474,584) | -86.77% | | Net cash used in operating activities | $(1,976,167) | $(895,974) | $(1,080,193) | 120.56% | | Net cash provided by investing activities | $247,460,801 | $— | $247,460,801 | N/A | | Net cash provided by financing activities | $(244,662,900) | $1,500,000 | $(246,162,900) | -16410.86% | | Net Change in Cash | $821,734 | $604,026 | $217,708 | 36.04% | | Cash — Ending | $1,674,864 | $1,193,711 | $481,153 | 40.31% | Notes to Condensed Consolidated Financial Statements Provides detailed explanations of the company's accounting policies, financial instruments, and significant transactions NOTE 1. Description of Organization and Business Operations Outlines the company's formation, purpose as a blank check company, IPO details, and current operational status - East Resources Acquisition Company is a blank check company formed on May 22, 2020, for the purpose of effecting a business combination, and had not commenced operations as of September 30, 2022[13][14] - The Initial Public Offering (IPO) on July 27, 2020, and subsequent over-allotment exercise raised an aggregate of $345,000,000, which was placed in a Trust Account. In June 2022, Trust Account investments were liquidated to cash to mitigate investment company risk[15][17][19] - On July 25, 2022, stockholders approved an extension to complete a Business Combination until January 27, 2023, leading to the redemption of 24,781,028 Class A shares for approximately $248,087,256 from the Trust Account[27][85] - As of September 30, 2022, the Company had a working capital deficiency of $10,946,390, raising substantial doubt about its ability to continue as a going concern without additional financing or completing a business combination[30][34] NOTE 2. Basis of Presentation and Summary of Significant Accounting Policies Details the financial statement preparation basis, accounting policies for key financial instruments, and tax rate considerations - The unaudited Condensed Consolidated financial statements are prepared in accordance with GAAP for interim financial information, following Form 10-Q and Article 8 of Regulation S-X[35] - The Company is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised financial accounting standards, which may affect comparability[37][38] - Key accounting policies include classifying Class A common stock subject to possible redemption as temporary equity, treating warrants and forward purchase agreements as derivative financial instruments measured at fair value, and applying the two-class method for earnings per share[44][47][52] - The effective tax rate was (0.75)% for the three months ended September 30, 2022, and 3.29% for the nine months ended September 30, 2022, differing from the 21% statutory rate due to changes in fair value of warrants and valuation allowance[50] - The Inflation Reduction Act of 2022 introduces a potential 1% excise tax on stock repurchases after January 1, 2023, which could reduce cash available for a Business Combination[51] NOTE 3. Public Offering Describes the terms and proceeds of the company's Initial Public Offering, including units and public warrants - The Company sold 34,500,000 units in its Initial Public Offering, including the full exercise of the over-allotment option, at a purchase price of $10.00 per unit[66] - Each unit consists of one share of Class A common stock and one-half of one redeemable Public Warrant, with each whole Public Warrant entitling the holder to purchase one Class A common stock at $11.50 per share[66] NOTE 4. Private Placement Details the private placement of warrants to the Sponsor and the use of proceeds - The Sponsor purchased an aggregate of 8,900,000 Private Placement Warrants at $1.00 per warrant, generating gross proceeds of $8,900,000[67] - The proceeds from the sale of the Private Placement Warrants were added to the net proceeds from the Initial Public Offering held in the Trust Account[67] - If the Company does not complete a Business Combination within the Combination Period, the Private Placement Warrants will expire worthless[67] NOTE 5. Related Party Transactions Highlights transactions with the Sponsor and affiliates, including founder shares, administrative fees, and loans - The Sponsor purchased 8,625,000 Founder Shares (Class B common stock) for $25,000, which are subject to transfer restrictions and convert to Class A common stock upon a business combination[68][69] - The Company pays two affiliates of the Sponsor $10,000 each per month for administrative support, totaling $180,000 for the nine months ended September 30, 2022[73][141] - The Sponsor committed to provide up to $1,500,000 in non-interest bearing Working Capital Loans, convertible into warrants, with a balance of $1,500,000 outstanding as of September 30, 2022[74][75] - An Extension Note for up to $1,924,356 was issued to the Sponsor to finance the extension of the Business Combination deadline, and the Sponsor deposited $962,178 into the Trust Account for this purpose as of September 30, 2022[78][79] - On September 29, 2022, the Sponsor agreed to loan the Company an additional $1,500,000 for expenses related to the Business Combination and other operating activities[80] NOTE 6. Commitments Outlines the company's contractual obligations, including registration rights, deferred underwriting fees, and forward purchase agreements - Holders of Founder Shares, Private Placement Warrants, and Working Capital Warrants are entitled to registration rights[81] - Underwriters are entitled to a deferred fee of $12,075,000, payable only upon completion of a Business Combination[82][142] - East Asset Management, an affiliate of the Sponsor, has committed to purchase up to 5,000,000 forward purchase units for up to $50,000,000, contingent on the Business Combination closing[83][144] - On August 30, 2022, the Company entered into a Merger Agreement with LMA and Abacus, with the business combination expected to be consummated in the first quarter of 2023. The aggregate merger consideration is approximately $531.8 million[86][119] NOTE 7. Stockholders' Equity Details the authorized and outstanding shares of preferred, Class A, and Class B common stock, and their respective rights - The Company is authorized to issue 1,000,000 shares of preferred stock and 200,000,000 shares of Class A common stock, with no preferred stock issued and 0 Class A shares issued and outstanding (excluding those subject to redemption) as of September 30, 2022[88][89] - 8,625,000 shares of Class B common stock are issued and outstanding, which are subject to transfer restrictions and convert to Class A common stock upon a Business Combination[90][92][95] - Common stockholders of record (Class A and Class B) are entitled to one vote for each share held on all matters[91] NOTE 8. Warrant Liability Explains the terms, exercisability, and redemption conditions for public and private placement warrants - Public Warrants become exercisable on the later of 30 days after a Business Combination or 12 months from the IPO closing, and expire five years from Business Combination completion[96] - The Company may redeem outstanding Public Warrants for cash at $0.01 per warrant if the Class A common stock price equals or exceeds $18.00 for 20 trading days within a 30-day period[99] - The Company may also redeem outstanding warrants for shares of Class A common stock if the Class A common stock price equals or exceeds $10.00 on the trading day prior to notice[102] - Private Placement Warrants are identical to Public Warrants but are non-transferable for 30 days post-Business Combination (with limited exceptions), exercisable on a cashless basis, and non-redeemable while held by initial purchasers or permitted transferees[105] NOTE 9. Fair Value Measurements Describes the fair value hierarchy used for financial instruments and changes in warrant and forward purchase agreement liabilities - The Company classifies its financial assets and liabilities into a three-level fair value hierarchy: Level 1 for marketable securities in Trust Account and Public Warrants, Level 2 for Private Placement Warrants, and Level 3 for Forward Purchase Agreement Liability[107] - Total warrant liabilities decreased from $13,911,800 at January 1, 2022, to $3,661,000 at September 30, 2022, primarily due to a $(10,250,800) change in valuation inputs[109] - The Forward Purchase Agreement Liability decreased from $1,600,000 at December 31, 2021, to $1,000,000 at September 30, 2022, reflecting a $(600,000) change in fair value[108][113] Level 3 Valuation Inputs (Forward Purchase Agreement) | Input | Sep 30, 2022 | Dec 31, 2021 | | :---------------------------------- | :----------- | :----------- | | Unit price ($) | $10.10 | $10.31 | | Term to initial business combination (in years) | 0.25 | 0.50 | | Risk-free rate (%) | 4.01% | 0.19% | | Dividend yield (%) | 0.0% | 0.0% | NOTE 10. Subsequent Events Confirms the evaluation of events occurring after the balance sheet date and before financial statement issuance - The Company evaluated subsequent events up to the financial statement issuance date and did not identify any requiring adjustment or disclosure[114] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results, highlighting its status as a blank check company, the proposed business combination, and the factors influencing its liquidity and capital resources. It also discusses critical accounting policies and recent accounting standards Overview Provides a general introduction to the company's nature as a blank check company and its proposed business combination - East Resources Acquisition Company is a blank check company formed to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar Business Combination[118] - On August 30, 2022, the Company entered into a Merger Agreement with Longevity Market Assets, LLC and Abacus Settlements, LLC, with the business combination expected to close in the first quarter of 2023. The aggregate merger consideration is approximately $531.8 million[119] Results of Operations Analyzes the company's financial performance, highlighting net income/loss and non-operating income sources - The Company has not generated any operating revenues to date, with activities focused on organizational tasks and identifying a target company for a Business Combination[121] - Non-operating income is primarily derived from changes in the fair value of warrant liability, forward purchase agreement liability, and interest income[121] - For the three months ended September 30, 2022, the Company reported a net loss of $6,347,119, compared to a net income of $10,763,775 for the same period in 2021, primarily due to increased operating costs and reduced gains from fair value changes[123][125] - For the nine months ended September 30, 2022, the Company had a net income of $1,902,803, significantly lower than the $14,377,387 net income reported for the same period in 2021[124][126] Liquidity and Capital Resources Discusses the company's cash position, Trust Account funds, and need for additional capital to sustain operations - The Initial Public Offering and private placement of warrants generated $345,000,000 for the Trust Account and $8,900,000 from private placement warrants[127][128] - As of September 30, 2022, $98,260,526 was held in the Trust Account, a decrease from $345,048,888 at December 31, 2021, primarily due to redemptions. Funds are intended for the Business Combination[132] - The Company had $1,674,864 in cash outside the Trust Account as of September 30, 2022, for identifying and evaluating target businesses and other operational expenses[133] - Net cash used in operating activities was $1,976,167 for the nine months ended September 30, 2022[130] - The Company may need to raise additional capital through loans or investments from its Sponsor or other parties, and current conditions raise substantial doubt about its ability to continue as a going concern[138][139] - The Sponsor provided an Extension Note of up to $1,924,356 and an additional working capital note of up to $1,500,000, both non-interest bearing and repayable upon business combination[137] Off-Balance Sheet Arrangements Confirms the absence of any off-balance sheet obligations, assets, or liabilities - As of September 30, 2022, the Company has no obligations, assets, or liabilities considered off-balance sheet arrangements[140] Contractual obligations Details the company's commitments, including administrative fees, deferred underwriting fees, and forward purchase agreements - The Company has an agreement to pay two affiliates of the Sponsor a monthly fee of $10,000 each for office space and administrative support, totaling $180,000 for the nine months ended September 30, 2022[141] - Underwriters are entitled to a deferred fee of $12,075,000, which is payable only if the Company completes a Business Combination[142] - East Asset Management has a forward purchase agreement to buy up to 5,000,000 forward purchase units for up to $50,000,000, contingent on the Business Combination[144] Critical Accounting Policies Explains key accounting policies for derivative financial instruments, redeemable common stock, and earnings per share - Derivative financial instruments, including warrants and forward contracts, are recorded at fair value with changes recognized in the Condensed Consolidated Statement of Operations[146] - Class A common stock subject to possible redemption is classified as temporary equity and measured at redemption value due to redemption rights outside the Company's control[147] - Net income (loss) per common share is calculated using the two-class method, and warrants are excluded from diluted EPS due to their contingent exercise[148] Recent Accounting Standards Discusses the impact of recently issued accounting standards on the company's financial statements - The Company plans to adopt ASU 2020-06, which simplifies accounting for certain financial instruments, on January 1, 2024, and is currently assessing its impact[149] - Management does not believe any other recently issued, but not yet effective, accounting standards would have a material effect on the financial statements[150] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that quantitative and qualitative disclosures about market risk are not required for smaller reporting companies - As a smaller reporting company, East Resources Acquisition Company is not required to provide quantitative and qualitative disclosures about market risk[151] Item 4. Control and Procedures This section addresses the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting, noting material weaknesses related to accounting for accruals and complex financial instruments Evaluation of Disclosure Controls and Procedures Assesses the effectiveness of the company's disclosure controls and procedures, noting material weaknesses - As of September 30, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective[152] - The ineffectiveness is attributed to material weaknesses in internal control over financial reporting concerning improper accounting for accruals and complex financial instruments in accordance with U.S. GAAP[152] - The Company plans to enhance processes, provide better access to accounting literature, and increase communication among personnel and third-party professionals to remediate these material weaknesses[153] Changes in Internal Control over Financial Reporting Reports on any material changes in internal control over financial reporting during the quarter - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[154] - In light of the restatement of financial statements, the Company plans to enhance processes for identifying and applying complex accounting standards[154] PART II – OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, and other relevant information Item 1. Legal Proceedings This section states that there are no legal proceedings to report - The Company has no legal proceedings to disclose[155] Item 1A. Risk Factors This section updates the risk factors, primarily highlighting the impact of liquidating Trust Account securities into cash, which reduces potential interest income for public shareholders - Other than material weaknesses related to financial instruments and accounting for accruals, there have been no material changes to the risk factors disclosed in the Annual Report on Form 10-K[156] - In June 2022, the Company liquidated Trust Account securities to cash to mitigate investment company risk, which will likely result in minimal interest income and reduce the dollar amount public shareholders would receive upon redemption or liquidation[157][158][159] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there are no unregistered sales of equity securities or use of proceeds to report - The Company has no unregistered sales of equity securities or use of proceeds to disclose[160] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - The Company has no defaults upon senior securities to disclose[160] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[160] Item 5. Other Information This section states that there is no other information to report - The Company has no other information to disclose[160] Item 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q, including merger agreements, support agreements, and certifications - Key exhibits include the Agreement and Plan of Merger (Exhibit 2.1†), Sponsor Support Agreement (Exhibit 10.2), and certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1*, 31.2*, 32.1*, 32.2*)[163] SIGNATURES Provides the official signatures of the company's executive officers, certifying the report's contents - The report was signed on November 21, 2022, by Terrence M. Pegula, Chief Executive Officer, and Gary L. Hagerman, Jr., Chief Financial Officer and Treasurer[164]