Business Context and Reporting Period
This 10-Q filing covers the quarterly period ended September 30, 2024, for Southport Acquisition Corporation (the "Company"), a blank check company formed to effectuate a business combination. The Company is currently in the process of merging with Angel Studios, Inc., pursuant to a Merger Agreement signed on September 11, 2024. Upon closing, the Company will be renamed "Angel Studios, Inc." The Company has not yet commenced operations and is classified as a shell company and an emerging growth company.
Key Financial Metrics
| Metric | Q3 2024 (Three Months) | YTD 2024 (Nine Months) | YTD 2023 (Nine Months) |
|---|---|---|---|
| Net (Loss) Income | $(1,495,898) | $(1,739,275) | $2,831,194 |
| Total Assets | $13,544,096 | $13,544,096 | $46,881,358 (Dec 31, 2023) |
| Cash (Outside Trust) | $517,975 | $517,975 | $2,171,553 (Dec 31, 2023) |
| Trust Account Balance | $12,895,117 | $12,895,117 | $44,709,805 (Dec 31, 2023) |
| Warrant Liability | $1,856,000 | $1,856,000 | $580,500 (Dec 31, 2023) |
| Excise Tax Liability | $2,299,092 | $2,299,092 | $1,976,947 (Dec 31, 2023) |
| Working Capital Deficit | $(3,166,087) | $(3,166,087) | $(2,808,465) (Dec 31, 2023) |
Material Changes vs. Prior Period
- Net Loss vs. Net Income: The Company reported a net loss of $1.50 million for Q3 2024, compared to a net loss of $10,518 for Q3 2023. For the nine months ended September 30, 2024, the Company reported a net loss of $1.74 million, a significant reversal from the $2.83 million net income reported in the same period in 2023.
- Warrant Liability Volatility: The warrant liability increased significantly to $1.86 million as of September 30, 2024, from $580,500 at year-end 2023. This resulted in a non-cash loss of $1.39 million in Q3 2024 due to changes in fair value.
- Share Redemptions: Significant redemptions occurred in Q1 2024 (Second Special Meeting), reducing the Trust Account from $44.7 million to $12.9 million. Consequently, shares subject to possible redemption dropped from 4.15 million to 1.16 million.
- Excise Tax Liability: The excise tax liability increased to $2.30 million, reflecting the 1% tax on share redemptions under the Inflation Reduction Act.
- Operating Expenses: Total operating expenses for the nine months ended September 30, 2024, were $939,480, compared to $786,678 in the prior year period. This includes $274,973 in non-redemption agreement expenses.
Outlook, Risks, and Unusual Items
- Merger with Angel Studios: The Company entered into a definitive Merger Agreement with Angel Studios, Inc. The transaction values Angel Studios at approximately $1.5 billion plus gross proceeds raised prior to closing. The Company must extend its business combination deadline to September 30, 2025, which requires stockholder approval.
- Going Concern Uncertainty: Management has raised substantial doubt about the Company's ability to continue as a going concern for the next 12 months due to a working capital deficit and the need for additional funding to complete the merger. The Sponsor has agreed to provide up to $1 million in loans to cover expenses.
- Recent Redemptions: Following the filing of a proxy statement for a Third Special Meeting, approximately 1.13 million shares were redeemed in November 2024 (subsequent to the reporting period) for approximately $12 million. The Company amended its charter to allow redemptions even if net tangible assets fall below $5,000,001.
- Internal Control Weaknesses: The Company disclosed material weaknesses in internal controls over financial reporting related to the presentation of the statement of cash flows and the recognition of excise tax liability.
- Warrant Conversion: Upon closing the merger, public warrants will automatically convert into 0.1 shares of common stock, and the Sponsor has agreed to forfeit all private placement warrants.
Investor Verification Checklist
- Merger Approval Status: Verify the outcome of the Third Special Meeting held on November 13, 2024, regarding the extension of the deadline and the redemption limitation amendment.
- Trust Account Sufficiency: Confirm the remaining balance in the Trust Account after the November 2024 redemptions (~$12 million) and whether it is sufficient to fund the transaction or if additional equity/debt financing is required.
- Sponsor Support: Review the terms of the Sponsor Promissory Note ($1 million limit) and the Sponsor Support Agreement to ensure commitment to the merger.
- Warrant Liability Impact: Assess the impact of the $1.86 million warrant liability on the post-merger capital structure and the dilution effect of the 0.1 share conversion ratio.
- Internal Control Remediation: Monitor the Company's progress in remediating the material weaknesses in internal controls over financial reporting.