ALPHA MODUS HOLDINGS, INC. quarterly report, Q3 FY2023

Business context and reporting period

This is Insight Acquisition Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2023, filed November 14, 2023. Although the request identifies Alpha Modus Holdings, Inc., the filing is for Insight Acquisition Corp., a blank-check SPAC; Alpha Modus was a proposed acquisition target, not the reporting company. Insight had no operating business or revenue and was searching for a business combination.

Key financial metrics

MetricThree months ended September 30, 2023Nine months ended September 30, 2023
Operating revenueNoneNone
Operating loss$575,375$1,747,947
Net income (loss)$(227,581)$284,429
Net income (loss) per share$(0.03)$0.02
Net cash used in operating activitiesNot presented for the quarter$2,342,735

Nine-month net income included $2.9 million of trust investment gains and was partly offset by a $589,000 loss from changes in derivative fair value, operating expenses, and taxes. No operating margin is meaningful because the company had no revenue.

At September 30, assets were $11.86 million, including $10.43 million in the Trust Account and $306,096 of restricted cash; unrestricted operating cash was zero. Current liabilities were $4.63 million versus current assets of $1.43 million, a working-capital deficit of about $3.19 million. Total liabilities were $11.90 million, including $6.60 million of deferred underwriting commissions, $2.35 million of excise tax payable, and $673,805 of derivative liabilities. Another $11.22 million of Class A shares was classified as subject to possible redemption, outside stockholders’ deficit.

Material changes versus prior comparable periods

  • Third-quarter results shifted from $2.39 million net income in 2022 to a $228,000 net loss in 2023. Nine-month net income fell from $8.60 million in 2022 to $284,000 in 2023. The prior-year results included substantially larger gains from changes in warrant fair value.
  • Trust investments fell from $244.31 million at December 31, 2022 to $10.43 million at September 30, 2023, primarily following substantial shareholder redemptions. Redeemed shares totaled 21.15 million in March and 1.85 million in September 2023.
  • Unrestricted cash was zero at quarter-end, compared with $171,583 at December 31, 2022; restricted cash was $306,096.
  • Deferred underwriting commissions declined from $12.0 million to $6.6 million after an underwriter waived $5.4 million. The company recognized $273,110 of forgiveness gain.

Outlook, risks, contingencies, and unusual items

  • Insight reported substantial doubt about its ability to continue as a going concern, citing zero operating cash, a working-capital deficit, and the risk of mandatory liquidation if it fails to complete a business combination. Management intended to complete a transaction by June 7, 2024, subject to monthly extensions and required Trust Account deposits. A November 7, 2023 deposit extended the deadline to December 7, 2023.
  • On October 13, 2023, after quarter-end, Insight signed a business combination agreement with Alpha Modus, Corp. The filing states that Alpha Modus would become a wholly owned subsidiary if the transaction closes; completion was not assured. An earlier agreement with Avila Energy was terminated in August 2023. Avila agreed to reimburse up to $300,000 of expenses under stated payment conditions.
  • The company recorded $2.35 million of excise tax payable related to share redemptions. The filing says responsibility for payment can depend on the outcome and terms of the proposed Alpha Modus transaction; payment could reduce funds available for a business combination.
  • Disclosure controls and internal control over financial reporting were deemed ineffective due to late filings and a material weakness involving transfers from the Trust Account through the operating account to the Sponsor. The Sponsor repaid $891,000 after quarter-end; the filing also reports a $150,000 amount due from the Sponsor related to a subscription arrangement. Management intended to improve filing timeliness and review procedures.
  • A $480,000 Sponsor promissory note described in the quarter’s disclosures was rescinded and nullified on November 6, 2023. The filing reports no amounts drawn under that note at September 30.
  • Other identified uncertainties include the ability to secure financing and complete a transaction, dilution from potential equity issuance, and possible effects of COVID-19 and geopolitical events. The company disclosed no legal proceedings or off-balance-sheet arrangements.

Important facts for investors to verify

  • Whether the Alpha Modus transaction is completed, its final terms, required approvals, financing, and resulting dilution.
  • The company’s actual liquidity and funding needs, the status of Sponsor-related balances, and compliance with Trust Account restrictions.
  • The amount and allocation of excise tax and deferred underwriting commissions ultimately payable, and their effect on cash available at closing.
  • Whether the company meets each extension condition and completes a business combination before the applicable deadline or instead liquidates.
  • Whether management remediates the reported material weaknesses and improves timely filing and financial controls.