Item 9A. Controls and Procedures
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current Chief Executive Officer who also acts as our principal accounting officer, the effectiveness of our disclosure controls and procedures as of December 31, 2022, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer who also acts as our principal accounting officer concluded that, as of December 31, 2022, our disclosure controls and procedures were not effective due to the material weakness in internal control over financial reporting described below.
The material weakness identified relates to the fact that we have not yet designed and maintained effective controls relating to the presentation of our statement of cash flows. Specifically, we incorrectly presented dividends earned and reinvested in money market mutual funds on the trust account within the cash flows from operating activities section on our statement of cash flows and did not present a sale and purchase of marketable securities held in the trust account.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Report on Internal Controls Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide
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reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected in a timely manner. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control-Integrated Framework.” Based on management’s assessment using the COSO criteria, management has concluded that our internal control over financial reporting was not effective as of December 31, 2022 as a result of the material weakness in internal control over financial reporting described above.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this Annual Report.
Remediation Plan
Our Chief Executive Officer will perform additional post-closing review procedures including review of the classification of earnings on the trust account and confirmation of amounts and balances with the trustee.
Changes in Internal Control Over Financial Reporting
Other than the matter discussed above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
Our directors and executive officers are as follows:
Name
Age
Title
Jeb Spencer
54
Chief Executive Officer and Director
Jared Stone
52
Chairman
Sigmund Anderman
81
Director
Matthew Hansen
44
Director
Jennifer Nuckles
48
Director
Cathleen Schreiner Gates
68
Director
David Winfield
71
Director
Jeb Spencer is our Chief Executive Officer and has served as a member of our board of directors since May 2021. He is the co-founder and managing partner of TVC Capital, a software focused, growth equity fund, a position he has held since 2006. He has been a chief executive officer, investor and board member of SaaS companies and currently serves on the board of directors of three software companies—SmartAction (since 2018); MediaPlatform (since 2015) and Centage Corporation (since 2014)—and as observer on the board of directors of Dama Financial (since 2022). Mr. Spencer previously served on the board of directors of 10 other software companies, including SimpleNexus (2018 – 2022); Levels Beyond (2012-2021); ReverseVision (2012-2022); Docupace Technologies (2016 to 2020); EdgeWave (2014 to 2019); Accordent Technologies (2006 to 2011) and Ellie Mae, Inc. (previously NYSE: ELLI) (2011 to 2019). At Ellie Mae, a leading provider of automation software for the mortgage industry which is now a subsidiary of Intercontinental Exchange, Inc (NYSE: ICE), Mr. Spencer also served as the Chair of the board’s M&A Committee. Mr. Spencer was formerly the chief executive officer of Del Mar Datatrac, Inc., a provider of mortgage origination software to the mid-market that was sold to Fiserv (NASDAQ: FISV) in 2005 and to Ellie Mae in 2011. As managing partner of TVC Capital, he was involved in a $20 million Series A financing and a $108 million Series B financing in 2018 and January 2021, respectively, in which TVC Capital invested alongside Insight Partners in SimpleNexus, a homeownership software company that was acquired by nCino, Inc. (NASDAQ: NCNO) in January 2022 in a stock and cash transaction valued at approximately $1.2 billion. SimpleNexus operates a digital platform for loan officers, borrowers and real estate agents that unites the people, systems and stages of the home buying process into a single end-to-end experience. The SimpleNexus platform serves independent mortgage banks, banks and credit unions, and loan originators in the United States. Mr. Spencer holds a B.A in Political Science from Boston College and an MBA from Harvard Business School.
We believe that Mr. Spencer’s extensive experience with software focused companies, including his experience as a board member of a number of these companies (including a former public company) and as a chief executive officer of certain of these companies, his business experience in investing in private companies, as well as experience with sales of private companies qualify him to serve on our board.
Jared Stone has served as Chairman of our board of directors since May 2021. He is an investor in private and public companies with over 27 years of experience leading investments on behalf of institutional and family investors. From 2001 to 2015, he was a co-founder, managing director and member of the investment committee of Northgate Capital, a global private equity investment firm, where he and his partners raised and invested approximately $4.5 billion in private equity capital. Mr. Stone co-led an investment in Del Mar Datatrac, a provider of mortgage origination software to the mid-market that was sold to Fiserv (NASDAQ: FISV) in 2005 and to Ellie Mae in 2011. Since 2014, he has served on the board of directors of Centage Corporation, a cloud planning, budgeting and forecasting software company. Prior to graduate school, Mr. Stone began his career at McKinsey & Company and then worked at Onex Corporation, Greenwich Street Capital Partners and Bain Capital. He holds a B.A. in Honors Economics from Brigham Young University, an MBA from Harvard Business School and a J.D. from Yale Law School.
We believe that Mr. Stone’s vast experience with investing in private and public companies, including a mortgage software company, as well as his experience as a board member qualify him to serve on our board.
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Sigmund “Sig” Anderman has served as a member of our board of directors since May 2021. He is an entrepreneur who has founded, run, invested in and advised many real estate and mortgage services and financial technology companies over a 50-year career. In 1997, he founded Ellie Mae, Inc. (previously NYSE: ELLI). At Ellie Mae, Mr. Anderman served as chief executive officer and chairman of the board of directors from 1997 through January 2015 and as executive chairman of the board of directors from February 2015 until April 2019 when Ellie Mae was acquired by Thoma Bravo, a private equity firm that subsequently sold Ellie Mae to Intercontinental Exchange, Inc. (NYSE: ICE). Mr. Anderman co-founded American Home Shield Corporation, a home warranty company, in 1973, and served as its general counsel until 1979 and as its chief executive officer from 1979 to 1982. Mr. Anderman founded CompuFund, Inc., a computerized mortgage banking company, in 1982 and served as its chief executive officer until 1991. Mr. Anderman founded Inspectech Corporation, a computerized home inspection company, in 1991 and served as its chief executive officer until 1998. Mr. Anderman was named one of the “Ten Most Influential People in the Mortgage Industry” in 2005 by Inman News and received the Distinguished Career Award from the Executive Roundtable for Mortgage Finance in 2019. Mr. Anderman serves on the boards of several nonprofit institutions, including Natural Resources Defense Council Action Fund (since 2014), the Anderman Foundation (President since 2012) and the Springboard Initiative (Chairman and President since 2015). Mr. Anderman holds a B.A. in Education from City College of New York and a J.D. from New York University Law School.
We believe that Mr. Anderman’s broad experience as an entrepreneur and chief executive officer, his years of experience as the chairman of the board of directors of a public company, as well as his experience with mergers and acquisitions qualify him to serve on our board.
Matthew Hansen has served as a member of our board of directors since January 2022. Matthew is currently the chief product officer for nCino, Inc. He is the founder and a former chief executive officer of SimpleNexus, a nCino Company. SimpleNexus is a homeownership software company with a digital platform for loan officers, borrowers and real estate agents. SimpleNexus was acquired by nCino, Inc. (NASDAQ: NCNO) in January 2022. Mr. Hansen founded SimpleNexus in 2011 and served as its chief executive officer until May 2021. Mr. Hansen has over 20 years of software development experience. Prior to founding SimpleNexus, Mr. Hansen designed and led the implementation of enterprise software systems for multiple companies. From 2009 to 2014, Mr. Hansen led core development at Simplifile, a company that primarily facilitates the electronic recording of land-records documents to counties. Prior to Simplifile, Mr. Hansen was the development team lead at Amirsys, Inc. from 2005 to 2009. At Amirsys, Inc., he led a team of software engineers to build STATdx, an imaging diagnostic tool for radiologists. Mr. Hansen also developed a point-of-sale system software for Micron, built software to manage training for unions, and built a point-of-sale system for motorsports and recreational vehicle dealerships.
We believe that Mr. Hansen’s decades of experience in developing enterprise software/SaaS, including FinTech, as well as his years of experience as the founder and chief executive officer of a mortgage software focused company qualify him to serve on our board.
Jennifer Nuckles has served as a member of our board of directors since January 2022. She currently serves as Chief Executive Officer and member of the board of directors of R-Zero, a biosafety technology company. Prior to joining R-Zero, Ms. Nuckles was an Executive Vice President and the Group Business Unit Leader – Enterprise, Content, and Insights at SoFi Technologies, Inc. (NASDAQ: SOFI)(“SoFi”), a digital personal finance company, from March 2020 to September 2022, and Business Unit Leader – Marketplace, Enterprise, Partnerships and Content at SoFi from June 2019 to March 2020. Prior to joining SoFi, she was the Chief Marketing Officer of several consumer technology companies, including Doctor on Demand (2016 – 2019) and Zynga (NASDAQ: ZNGA) (2014 – 2016). Ms. Nuckles spent almost a decade in leadership positions at The Clorox Company, running well-known household-name brands. She began her career in consulting covering consumer and media at Arthur Andersen. Ms. Nuckles holds an MBA from Harvard Business School and a B.A. from the University of California. She is a Certified Public Accountant.
We believe that Ms. Nuckles’ years of experience as a marketing executive in the consumer technology industry, her current experience as a senior executive of a digital personal finance company, as well as her experience as a board member qualify her to serve on our board.
Cathleen Schreiner Gates has served as a member of our board of directors since May 2021. She was the chief executive officer of SimpleNexus from May 2021 to July 2022. SimpleNexus is a homeownership software company with a digital platform for loan officers, borrowers, and real estate agents. SimpleNexus was acquired by nCino, Inc. (NASDAQ: NCNO) in January 2022. Ms. Schreiner Gates was also a member of the board of directors of SimpleNexus from March 2020 until January 2022. She served as the
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President of SimpleNexus from August 2020 until she became the company’s chief executive officer. Prior to SimpleNexus, she was the executive vice president of Sales and Marketing at Ellie Mae, Inc. (previously NYSE: ELLI), now a subsidiary of Intercontinental Exchange, Inc (NYSE: ICE), from March 2015 to July 2019 and was senior vice president of Sales and Client Services at Ellie Mae from February 2012 to March 2015. Ms. Schreiner Gates is the chief executive officer of Trifecta Consulting LLC, a Go-To-Market consulting company she founded in 2019. She has spent the last 10 years in the mortgage FinTech sector and has over 30 years of experience in enterprise software/SaaS, spanning multiple industries and ranging from venture-backed, early-stage companies to larger public companies, all with a high-growth focus. Ms. Schreiner Gates has been a speaker at industry events and is an active supporter of women-in-leadership organizations. She holds a B.A. in French Literature and an MBA from Rutgers University.
We believe that Ms. Schreiner Gates’s decades of experience in enterprise software/SaaS, her experience in various executive officer roles at a mortgage software focused company, including her current role as the chief executive officer of a mortgage software company, as well as her experience as a board member qualify her to serve on our board.
David Winfield has served as a member of our board of directors since May 2021. He is currently an advisor to the Executive Director of the Major League Baseball Players Association, a position he has held since 2013. He is a former MLB player with broad experiences in professional sports, business, media and philanthropy. In his 22 year MLB career following his collegiate baseball career at the University of Minnesota, Minneapolis, Mr. Winfield won a World Series Championship, appeared in 12 All-Star Games and was inducted into the National Baseball Hall of Fame in his first year of eligibility. Subsequent to his baseball career, in 1995, he established Winfield & Winfield, Ltd., a personal services corporation that provides business development, consulting and advocacy services for corporate, sports, education and government entities, where he has served as President since its inception. In addition, Mr. Winfield created and headed the Winfield Foundation, a foundation which provided health and education services to youth and communities nationwide from 1975 to 1997.
We believe that Mr. Winfield’s years of business experience in providing various services to a range of entities, his experience as an officer of a private company, as well as his extensive experience in an advisory role for a major sports association qualify him to serve on our board.
Number and Terms of Office of Officers and Directors
Our board of directors consists of seven members. Only holders of our founder shares have the right to elect and to remove our directors prior to consummation of our initial business combination, and holders of our public shares will not have the right to vote on the election or removal of directors during such time. These provisions of our amended and restated certificate of incorporation may only be amended if approved by the holders of a majority of the outstanding shares of our Class B common stock. Approval of our initial business combination will require the affirmative vote of a majority of our board directors. The term of office of our initial directors will expire at our first annual meeting of stockholders. We may not hold an annual meeting of stockholders until after we consummate our initial business combination. Any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled by vote of a majority of our directors then in office.
Our officers are appointed by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate. Our bylaws provide that our officers may consist of a Chief Executive Officer, a President, a Chief Financial Officer, Vice Presidents, a Secretary, Assistant Secretaries, a Treasurer and such other offices as may be determined by the board of directors.
Committees of the Board of Directors
Our board of directors has one standing committee: an audit committee. Because we are a “controlled company” under applicable rules of the NYSE, we are not required to have a compensation committee composed of independent directors, nor do we have a nominating and corporate governance committee.
Audit Committee
We have established an audit committee of our board of directors. The members of our audit committee are Sigmund Anderman, Jennifer Nuckles and David Winfield, with Jennifer Nuckles serving as chair of the audit committee. The audit committee held four meetings during 2022.
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Each member of the audit committee is financially literate. In addition, our board of directors has determined that each of Sigmund Anderman, Jennifer Nuckles and David Winfield qualifies as an “audit committee financial expert” as defined in applicable SEC rules and has accounting or related financial management expertise. Our board of directors has also determined that Sigmund Anderman, Jennifer Nuckles and David Winfield are independent directors under applicable NYSE rules and Rule 10A-3 under the Exchange Act.
We have adopted an audit committee charter, which details the purpose and principal functions of the audit committee, including:
● assisting board oversight of (1) the integrity of our financial statements, (2) our compliance with legal and regulatory requirements, (3) our independent registered public accounting firm’s qualifications and independence, and (4) the performance of our internal audit function and independent registered public accounting firm;
● the appointment, compensation, retention, replacement, and oversight of the work of the independent registered public accounting firm and any other independent registered public accounting firm engaged by us;
● pre-approving all audit and non-audit services to be provided by the independent registered public accounting firm or any other registered public accounting firm engaged by us, and establishing pre-approval policies and procedures;
● reviewing and discussing with the independent registered public accounting firm all relationships the independent registered public accounting firm has with us in order to evaluate their continued independence;
● obtaining and reviewing a report, at least annually, from the independent registered public accounting firm describing (1) the independent registered public accounting firm’s internal quality-control procedures and (2) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues;
● meeting to review and discuss our annual audited financial statements and quarterly financial statements with management and the independent registered public accounting firm, including reviewing our specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;
● reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction; and
● reviewing with management, the independent registered public accounting firm, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities.
You will be able to review the audit committee charter by accessing our public filings at the SEC’s website at www.sec.gov.
Director Nominations
We do not have a standing nominating committee, although we intend to form a corporate governance and nominating committee as and when required to do so by law or by the rules of the NYSE. Our board of directors believes that the independent directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee. As there is no standing nominating committee, we do not have a nominating committee charter in place.
The board of directors will also consider director candidates recommended for nomination by our stockholders during such times as they are seeking proposed nominees to stand for election at the next annual meeting of stockholders (or, if applicable, a
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special meeting of stockholders). Our stockholders that wish to nominate a director for election to our board of directors should follow the procedures set forth in our bylaws.
We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, our board of directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders.
Code of Ethics
We have adopted a Code of Ethics applicable to our directors, officers and employees. You will be able to review this document by accessing our public filings at the SEC’s website at www.sec.gov. In addition, a copy of our Code of Ethics will be provided without charge upon request from us. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current Report on Form 8-K.
Conflicts of Interest
Each of our officers and directors presently has, and any of them in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a business combination opportunity. Accordingly, if any of our officers or directors becomes aware of a business combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such opportunity to such entity. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially affect our ability to complete our business combination. Our amended and restated certificate of incorporation contains a waiver of the corporate opportunity doctrine, which provides that we renounce our interest in any corporate opportunity offered to any director or officer unless (i) such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our Company, (ii) such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue and (iii) the director or officer is permitted to refer the opportunity to us without violating another legal obligation. The purpose for the surrender of corporate opportunities is to allow officers, directors or other representatives with multiple business affiliations to continue to serve as an officer of our Company or on our board of directors. Our officers and directors may from time to time be presented with opportunities that could benefit both another business affiliation and us. In the absence of the “corporate opportunity” waiver in our charter, certain candidates would not be able to serve as an officer or director. We believe we substantially benefit from having representatives, who bring significant, relevant and valuable experience to our management, and, as a result, the inclusion of the “corporate opportunity” waiver in our amended and restated certificate of incorporation provides us with greater flexibility to attract and retain the officers and directors that we feel are the best candidates.
However, the personal and financial interests of our directors and officers may influence their motivation in timely identifying and selecting a target business and completing a business combination. The different timelines of competing business combinations could cause our directors and officers to prioritize a different business combination over finding a suitable acquisition target for our business combination. Consequently, our directors’ and officers’ discretion in identifying and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and in our stockholders’ best interest, which could negatively impact the timing for a business combination.
In addition, our sponsor, officers and directors may participate in the formation of, or become an officer or director of, any other blank check company prior to completion of our initial business combination. As a result, our sponsor, officers or directors could have conflicts of interest in determining whether to present business combination opportunities to us or to any other blank check company with which they may become involved. Although we have no formal policy in place for vetting potential conflicts of interest, our board of directors will review any potential conflicts of interest on a case-by-case basis.
Investors should be aware of the following potential conflicts of interest:
● None of our officers and directors is required to commit their full time to our affairs and, accordingly, they may have conflicts of interest in allocating their time among various business activities.
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● In the course of their other business activities, our officers and directors may become aware of investment and business opportunities which may be appropriate for presentation to our Company as well as the other entities with which they are affiliated. Our management has pre-existing fiduciary duties and contractual obligations and may have conflicts of interest in determining to which entity a particular business opportunity should be presented.
● Our sponsor, directors and officers have agreed to waive their redemption rights with respect to any founder shares and any public shares held by them in connection with the consummation of our initial business combination. Additionally, our sponsor, directors and officers have agreed to waive their redemption rights with respect to any founder shares held by them if we fail to consummate our initial business combination by June 14, 2023, or during an Extension Period. If we do not complete our initial business combination within such applicable time period, the proceeds of the sale of the private placement warrants held in the Trust Account will be used to fund the redemption of our public shares, and the private placement warrants will expire worthless. With certain limited exceptions, the founder shares will not be transferable, assignable or salable by our Initial Stockholders until one year after the completion of our initial business combination. With certain limited exceptions, the private placement warrants and the Class A common stock underlying such warrants, will not be transferable, assignable or salable by our sponsor or its permitted transferees until 30 days after the completion of our initial business combination. Since our sponsor, directors and officers may directly or indirectly own founder shares and private placement warrants, our sponsor, directors and officers may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination because of their financial interest in completing an initial business combination by June 14, 2023, or during an Extension Period.
● Our officers and directors may in the future become affiliated with entities, including other blank check companies, engaged in business activities similar to those intended to be conducted by our Company.
● Our sponsor, officers or directors may have a conflict of interest with respect to evaluating a business combination and financing arrangements as we may obtain loans from our sponsor or an affiliate of our sponsor or any of our officers or directors to finance transaction costs in connection with an intended initial business combination. Up to $1,500,000 of such loans may be convertible into warrants at a price of $1.00 per warrant at the option of the lender. Such warrants would be identical to the private placement warrants, including as to exercise price, exercisability and exercise period.
The conflicts described above may not be resolved in our favor.
Under Delaware law, officers and directors owe the following fiduciary duties:
● duty to act in good faith, with the care of a prudent person, and in the best interest of the corporation as a whole;
● duty to refrain from self-dealing, usurping corporate opportunities and receiving improper personal benefits; and
● duty to make decisions on an informed basis, in good faith and in the honest belief that the action was taken in the best interest of the corporation and that these decisions will be protected by the “business judgment rule.”
In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
● the corporation could financially undertake the opportunity;
● the opportunity is within the corporation’s line of business; and
● it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of the corporation.
Accordingly, as a result of multiple business affiliations, our officers and directors may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. Furthermore, our amended and restated certificate of incorporation provides that the doctrine of corporate opportunity will not apply with respect to any of our officers or
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directors in circumstances where the application of the doctrine would conflict with any fiduciary duties or contractual obligations they may have, and none of our directors or officers will be required to offer any such corporate opportunity of which he or she may become aware to us.
We are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, officers or directors. In the event we seek to complete our initial business combination with such a company, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm which is a member of FINRA, or from an independent accounting firm, that such an initial business combination is fair to our Company from a financial point of view.
In the event that we submit our initial business combination to our public stockholders for a vote, our sponsor, directors and officers have agreed to vote any founder shares held by them and any public shares purchased during or after the offering in favor of our initial business combination.
Item 11. Executive Compensation.
Executive Officer and Director Compensation
None of our officers or directors have received any compensation for services rendered to us. Commencing on December 10, 2021, the date that our units were first listed on the NYSE, through the earlier of consummation of our initial business combination and our liquidation, we will pay our sponsor a total of $15,000 per month for office space, utilities, and secretarial and administrative services. In addition, our sponsor, officers, directors and their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made by us to our sponsor, officers, directors or our or any of their respective affiliates.
After the completion of our initial business combination, officers and directors who remain with us may be paid consulting, management or other compensation from the post-transaction company. All compensation will be fully disclosed to stockholders, to the extent then known, in the tender offer materials or proxy solicitation materials furnished to our stockholders in connection with a proposed business combination. It is unlikely that the amount of such compensation will be known at the time, because the directors of the post-transaction company will be responsible for determining executive officer and director compensation. Any compensation to be paid to our officers after the completion of our initial business combination will be determined by a compensation committee constituted solely by independent directors or by a majority of independent directors of the post-transaction company.
We are not party to any agreements with our officers and directors that provide for benefits upon termination of employment. The existence or terms of any such employment or consulting arrangements may influence our management’s motivation in identifying or selecting a target business, and we do not believe that the ability of our management to remain with us after the consummation of our initial business combination should be a determining factor in our decision to proceed with any potential business combination.
Compensation Committee Interlocks and Insider Participation
In the past year, Jeb Spencer, who serves, and in the past year served, as our Chief Executive Officer, served as a member of the board of directors of SimpleNexus, a company in which Cathleen Schreiner Gates, one of the members of our board of directors, currently serves, and in the past year served as chief executive officer, and in which Matthew Hansen, another member of our board of directors, served as chief executive officer in the past year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information regarding the beneficial ownership of our common stock as of March 31, 2023, based on information obtained from the persons named below, with respect to the beneficial ownership of shares of our common stock, by:
● each person known by us to be the beneficial owner of more than 5% of the outstanding shares of any class of our common stock;
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● each of our executive officers and directors; and
● all our executive officers and directors as a group.
Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. The following table does not reflect record or beneficial ownership of the private placement warrants as these warrants are not exercisable within 60 days of the date of this report.
Class A common stock
Class B common stock
Number of
Approximate
Number of
Approximate
Shares
Percentage
Shares
Percentage
Beneficially
of
Beneficially
of
Name of Beneficial Owners (3)
Owned
Class (1)
Owned
Class (2)
5% or Greater Beneficial Owners:
Southport Acquisition Sponsor LLC (4)
—
—
5,750,000
100.0
%
Saba Capital Management, L.P. and affiliated entities and persons (5)
1,362,913
5.9
%
—
—
Directors and Executive Officers:
Jeb Spencer (6)
—
—
5,750,000
100.0
%
Jared Stone (6)
—
—
5,750,000
100.0
%
Sigmund Anderman*
—
—
—
—
Matthew Hansen*
—
—
—
—
Jennifer Nuckles*
—
—
—
—
Cathleen Schreiner Gates*
—
—
—
—
David Winfield*
—
—
—
—
All officers and directors as a group (seven individuals)
—
—
5,750,000
100.0
%
*
This individual does not beneficially own any shares of common stock or private placement warrants. However, this individual has a pecuniary interest in shares of Class B common stock and private placement warrants through his or her ownership of membership interests of our sponsor.
(1) Based on 23,000,000 shares of Class A common stock outstanding as of March 31, 2023, including those shares of Class A common stock comprising a portion of a unit.
(2) Based on 5,750,000 shares of Class B common stock outstanding as of March 31, 2023.
(3) Unless otherwise noted, the business address of each of the following entities or individuals is c/o Southport Acquisition Corporation, 1745 Grand Avenue, Del Mar, California 92014.
(4) Interests shown consist solely of shares of Class B common stock, which are referred to herein as founder shares. Such shares will automatically convert into shares of Class A common stock at the time of our initial business combination, or earlier at the option of the holders thereof, on a one-for-one basis, subject to adjustment. Southport Acquisition Sponsor LLC, a Delaware limited liability company, is our sponsor and is controlled by Jeb Spencer, our Chief Executive Officer, and Jared Stone, the Chairman of our board.
(5) Based on information contained in a Schedule 13G filed on February 14, 2023, each of Saba Capital Management, L.P. (“Saba Capital”), Saba Capital Management GP, LLC (“Saba GP”) and Boaz R. Weinstein had shared voting and dispositive power over 1,362,913 shares of Class A common stock. The business address of each of Saba Capital, Saba GP and Boaz R. Weinstein is 405 Lexington Avenue, 58th Floor, New York, New York 10174.
(6) These shares consist solely of shares of Class B common stock held in the name of our sponsor. Our sponsor is controlled by Jeb Spencer, our Chief Executive Officer, and Jared Stone, the Chairman of our board, who serve as the only members of our sponsor’s board of managers.
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As of March 31, 2023, our sponsor holds all of our founder shares. Holders of our founder shares have the right to elect and to remove all of our directors prior to the consummation of our initial business combination. Holders of our public shares do not have the right to elect any directors to our board of directors prior to our initial business combination. In addition, because our sponsor holds all of our founder shares, our sponsor may be able to effectively influence the outcome of all matters requiring approval by our stockholders, including amendments to our amended and restated certificate of incorporation and approval of significant corporate transactions.
Our sponsor purchased an aggregate of 11,700,000 private placement warrants in the Private Placement. Each private placement warrant entitles the holder thereof to purchase one share of our Class A common stock at $11.50 per share, subject to adjustment. If we do not complete our initial business combination by June 14, 2023, or during any Extension Period, the funds in the Trust Account, which includes a portion of the proceeds from the Private Placement, will be used to fund the redemption of our public shares, and the private placement warrants will expire worthless. The private placement warrants are subject to the transfer restrictions and are entitled to registration rights, in each case, described below. The private placement warrants will not be redeemable by us except in certain redemption scenarios and will be exercisable on a cashless basis so long as they are held by our management team or our sponsor or their permitted transferees. If the private placement warrants are held by holders other than our management team or our sponsor or their permitted transferees, the private placement warrants will be redeemable by us in all redemption scenarios and exercisable by the holders on the same basis as the warrants included in the units sold in our IPO. Otherwise, the private placement warrants have terms and provisions that are identical to those of the warrants sold in our IPO.
Our sponsor, officers and directors are deemed to be our “promoter” as such term is defined under the federal securities laws. Please see “Certain Relationships and Related Transactions, and Director Independence” for additional information regarding our relationships with our promoters.
Transfers of Founder Shares and Private Placement Warrants
The founder shares, private placement warrants and any warrants issued upon conversion of working capital loans and any shares of Class A common stock issued upon conversion or exercise thereof are each subject to transfer restrictions pursuant to lock-up provisions in letter agreements between us and our sponsor, officers and directors. Those lock-up provisions provide that such securities are not transferable or salable (1) in the case of the founder shares, until the earlier of (A) one year after the completion of our initial business combination and (B) subsequent to our initial business combination, (x) if the closing price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after our initial business combination, or (y) the date following the completion of our initial business combination on which we complete a liquidation, merger, stock exchange, reorganization or other similar transaction that results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property, and (2) in the case of the private placement warrants, any warrants issued upon conversion of working capital loans and the respective Class A common stock underlying such warrants, until 30 days after the completion of our initial business combination, except in each case (a) to our officers or directors, any affiliates or family members of any of our officers or directors, our sponsor or any members of our sponsor, or any of its affiliates; (b) in the case of an individual, by gift to a member of the individual’s immediate family or to a trust, the beneficiary of which is a member of the individual’s immediate family or an affiliate of such person, or to a charitable organization; (c) in the case of an individual, by virtue of laws of descent and distribution upon death of the individual; (d) in the case of an individual, pursuant to a qualified domestic relations order; (e) transfers by private sales or transfers made in connection with consummation of our initial business combination at prices no greater than the price at which the securities were originally purchased; (f) in the event of our liquidation prior to our completion of our initial business combination; (g) by virtue of the laws of Delaware or our sponsor’s limited liability company agreement, as amended, upon dissolution of our sponsor; or (h) in the event of our completion of a liquidation, merger, stock exchange, reorganization or other similar transaction which results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property subsequent to our completion of our initial business combination; or (i) to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible under clauses (a) through (h) above, provided, however, that in the case of clauses (a) through (e) and (i), these permitted transferees must enter into a written agreement agreeing to be bound by these transfer restrictions and the other restrictions contained in the letter agreement.
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Registration Rights
The holders of the founder shares, private placement warrants and warrants that may be issued upon conversion of working capital loans (and any shares of common stock issuable upon the exercise of the private placement warrants or warrants issued upon conversion of the working capital loans and upon conversion of the founder shares) are entitled to registration rights pursuant to a registration rights agreement requiring us to register such securities for resale (in the case of the founder shares, only after conversion to shares of Class A common stock). The holders of these securities are entitled to make up to three demands, excluding short form registration demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our completion of our initial business combination and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that we are not required to effect or permit any registration or cause any registration statement to become effective until termination of the applicable lock-up period as described above under “—Transfers of Founder Shares and Private Placement Warrants.” We will bear the expenses incurred in connection with the filing of any such registration statements.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
On May 27, 2021, our sponsor purchased an aggregate of 7,187,500 founder shares for an aggregate purchase price of $25,000. On November 24, 2021, our sponsor surrendered 1,437,500 founder shares for no consideration, thereby reducing the aggregate number of founder shares outstanding to 5,750,000, resulting in an effective purchase price paid for the founder shares of approximately $0.004 per share, and reducing the aggregate number of founder shares owned by our sponsor to 5,750,000.
Our sponsor has purchased an aggregate of 11,700,000 private placement warrants for a purchase price of $1.00 per warrant in the Private Placement. As such, our sponsor’s at-risk capital in this transaction is valued at $11,700,000. Each private placement warrant entitles the holder thereof to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment as provided herein. The private placement warrants (including the Class A common stock issuable upon exercise of the private placement warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by our sponsor or its permitted transferees until 30 days after the completion of our initial business combination.
If any of our officers or directors becomes aware of a business combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual duties or obligations to present the opportunity to such entity, he or she will honor these duties or obligations to present such business combination opportunity to such entity prior to presenting such opportunity to us. Our officers and directors currently have other relevant fiduciary or contractual duties or obligations that may take priority over their duties or obligations to us, and even when they do not have such fiduciary or contractual duties or obligations, may choose to present business combination opportunities to other entities before presenting them to us if they are not prohibited by our amended and restated certificate of incorporation from doing so.
Our sponsor, officers and directors or any of their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made by us to our sponsor, officers, directors or our or any of their respective affiliates and will determine which expenses and the amount of expenses that will be reimbursed. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf.
We have entered into a letter agreement with our sponsor pursuant to which we are required to pay our sponsor a total of $15,000 per month for office space, utilities, and secretarial and administrative services, commencing on December 10, 2021, the date that our securities were first listed on the NYSE. Upon the earlier of consummation of our initial business combination and our liquidation, we will cease paying these monthly fees. Accordingly, assuming the consummation of our initial business combination takes until June 14, 2023, our sponsor will be paid a total of $360,000 for these services.
Our sponsor loaned us $350,000 under an unsecured promissory note to be used for a portion of the expenses of our IPO. These loans were non-interest bearing, unsecured and were due at the earlier of May 31, 2022 and the closing of the IPO. These loans were repaid upon completion of the IPO out of the $2,500,000 of offering proceeds that was allocated for the payment of offering expenses (other than underwriting fees) and amounts not to be held in the Trust Account.
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In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, our management team and our sponsor and any of their respective affiliates may, but none of them is obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that our initial business combination is not completed by June 14, 2023 or during any Extension Period, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from the Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the private placement warrants. The terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. Prior to our initial business combination, we do not expect to seek loans from parties other than our management team or our sponsor or any of their respective affiliates, if any, as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in the Trust Account.
After our initial business combination, members of our management team who remain with us, if any, may be paid consulting, management or other fees from the post-transaction company with any and all amounts being fully disclosed to our stockholders, to the extent then known, in the tender offer or proxy solicitation materials, as applicable, furnished to our stockholders. It is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a stockholder meeting held to consider our initial business combination, as applicable, as it will be up to the directors of the post-transaction company to determine executive officer and director compensation.
We have entered into a registration rights agreement with respect to the founder shares, private placement warrants and warrants issued upon conversion of working capital loans (if any) and shares of our Class A common stock issuable for conversion or exercise thereof, which is described under the heading “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Registration Rights.”
Refer to Note 5 of our financial statements for more information regarding our related party transactions.
Related Party Policy
We have not yet adopted a formal policy for the review, approval or ratification of related party transactions. Accordingly, the transactions discussed above were not reviewed, approved or ratified in accordance with any such policy.
We have adopted a Code of Ethics requiring us to avoid, wherever possible, all conflicts of interests, except under guidelines or resolutions approved by our board of directors (or the appropriate committee of our board) or as disclosed in our public filings with the SEC. Under our Code of Ethics, conflict of interest situations include any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) involving our Company.
In addition, our audit committee, pursuant to its written charter, is responsible for reviewing and approving related party transactions to the extent that we enter into such transactions. An affirmative vote of a majority of the members of the audit committee present at a meeting at which a quorum is present will be required in order to approve a related party transaction. A majority of the members of the entire audit committee will constitute a quorum. Without a meeting, the unanimous written consent of all of the members of the audit committee will be required to approve a related party transaction. Our audit committee will review on a quarterly basis all payments that were made by us to our sponsor, officers or directors, or our or any of their respective affiliates.
These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, officer or employee.
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To further minimize conflicts of interest, we have agreed not to consummate an initial business combination with an entity that is affiliated with our sponsor, directors or officers unless we, or a committee of independent directors, have obtained an opinion from an independent investment banking firm which is a member of FINRA or an independent accounting firm that our initial business combination is fair to our Company from a financial point of view. There will be no finder’s fees, reimbursement, consulting fee, monies in respect of any payment of a loan or other compensation paid by us to our sponsor, officers or directors or our or any of their respective affiliates, for services rendered to us prior to or in connection with the completion of our initial business combination (regardless of the type of transaction that it is). However, the following payments may be made to our sponsor, officers or directors, or our or their affiliates, and, if made prior to our initial business combination will be made from funds held outside the Trust Account:
● payment to our sponsor of a total of $15,000 per month for office space, utilities, and secretarial and administrative services;
● reimbursement for any out-of-pocket expenses related to identifying, investigating and completing an initial business combination; and
● repayment of loans which may be made by our sponsor, officers or directors or their respective affiliates to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, the terms of which have not been determined nor have any written agreements been executed with respect thereto. Up to $1,500,000 of such loans may be convertible into warrants of the post-business combination entity at a price of $1.00 per warrant at the option of the lender.
These payments may be funded using, if any, the net proceeds from our IPO and the Private Placement not held in the Trust Account or, upon completion of the initial business combination, from any amounts remaining from the proceeds of the Trust Account, if any, released to us in connection therewith.
Director Independence
We are a “controlled company” within the meaning of the rules of the NYSE prior to the consummation of our initial business combination. As a controlled company, we will not be required to comply with the rules of the NYSE that require that a majority of our board of directors be independent. An “independent director” is defined generally as a person that, in the opinion of the Company’s board of directors, has no material relationship with the listed company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company). Our board has determined that each of Sigmund Anderman, Jennifer Nuckles and David Winfield is an independent director under applicable NYSE rules, and that each of Sigmund Anderman, Matthew Hansen, Jennifer Nuckles, Cathleen Schreiner Gates and David Winfield is an independent director under Rule 10A-3 under the Exchange Act. Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Item 14. Principal Accountant Fees and Services.
The following is a summary of fees paid or to be paid to BDO USA LLP, for services rendered in 2022:
Year Ended
Year Ended
December 31,
December 31,
Type of Fee
2022
2021
Audit Fees
$
90,700
$
153,000
Audit-Related Fees
$
—
$
—
Tax Fees
$
—
$
—
All Other Fees
$
—
$
—
Pre-Approval Policy
Our audit committee was formed upon the effective date for the registration statement for our IPO. As a result, the audit committee did not pre-approve all of the foregoing services. Since the formation of our audit committee, and on a going-forward basis, the audit committee will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit).
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PART IV
Item 15. Exhibit and Financial Statement Schedules.
(a) The following documents are filed as part of this report:
(1) Financial Statements
(2) Financial Statements Schedules
All financial statement schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes thereto in Item 15 of Part IV below.
(3) Exhibits
We hereby file as part of this report the exhibits listed in the attached Exhibit Index. Copies of such material can be obtained on the SEC website at www.sec.gov.
Item 16. Form 10-K Summary.
Not applicable.
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EXHIBIT INDEX
Exhibit
Description
1.1
Underwriting Agreement, dated December 9, 2021, by and between the Company and BofA Securities, Inc., as underwriter (2)
3.1
Amended and Restated Certificate of Incorporation of the Company (2)
3.2
Amended and Restated Bylaws of the Company (2)
4.1
Specimen Unit Certificate (1)
4.2
Specimen Class A Common Stock Certificate (1)
4.3
Specimen Warrant Certificate (included in Exhibit 4.4) (2)
4.4
Warrant Agreement, dated December 9, 2021, by and between the Company and Continental Stock Transfer & Trust Company, as warrant agent (2)
4.5
Description of Securities (3)
10.1
Promissory Note, dated May 27, 2021 issued to Southport Acquisition Sponsor LLC (1)
10.2
Letter Agreement, dated December 9, 2021, by and among the Company, its initial officers and directors, and the Sponsor (2)
10.3
Letter Agreement, dated January 6, 2022, by and among the Company, Matthew Hansen and Jennifer Nuckles (3)
10.4
Investment Management Trust Agreement, dated December 9, 2021, by and between the Company and Continental Stock Transfer & Trust Company, as trustee (2)
10.5
Registration Rights Agreement, dated December 9, 2021, by and between the Company and Southport Acquisition Sponsor LLC (2)
10.6
Securities Subscription Agreement, dated May 27, 2021 between the Company and Southport Acquisition Sponsor LLC (1)
10.7
Private Placement Warrants Subscription Agreement, dated December 9, 2021, by and between the Company and Southport Acquisition Sponsor LLC (2)
10.8
Form of Indemnity Agreement (1)
31*
Certification of the Chief Executive Officer (and Principal Financial Officer) required by Rule 13a-14(a) or Rule 15d-14(a)
32**
Certification of the Chief Executive Officer (and Principal Financial Officer) required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Calculation Linkbase
101.LAB
XBRL Taxonomy Label Linkbase
101.PRE
XBRL Definition Linkbase Document
101.DEF
XBRL Definition Linkbase Document
104
Cover Page Interactive Data File (formatted in Inline XBRL and included as Exhibit 101)
*
Filed herewith
**
Furnished herewith
(1)
Filed as an exhibit to the Registration Statement on Form S-1 filed with the SEC on November 24, 2021 (File No. 333-261370).
(2)
Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 14, 2021 (File No. 001-41150).
(3)
Filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022 (File No. 001-41150).
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SOUTHPORT ACQUISITION CORP.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (BDO USA, LLP; New York, New York; PCAOB ID# 243 )
F-2
Financial Statements:
Balance Sheets as of December 31, 2022 and 2021
F-3
Statements of Operations for the year ended December 31, 2022 and for the period from April 13, 2021 (inception) through December 31, 2021
F-4
Statements of Changes in Common Stock Subject to Possible Redemption and Stockholders’ Deficit for the year ended December 31, 2022 and for the period from April 13, 2021 (inception) through December 31, 2021
F-5
Statements of Cash Flows for the year ended December 31, 2022 and for the period from April 13, 2021 (inception) through December 31, 2021
F-6
Notes to Financial Statements
F-7
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Southport Acquisition Corporation
Del Mar, California
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Southport Acquisition Corporation (the “Company”) as of December 31, 2022 and 2021, the related statements of operations, changes in common stock subject to possible redemption and stockholders’ deficit, and cash flows for the year ended December 31, 2022 and for the period from April 13, 2021 (inception) through December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and cash flows for the year ended December 31, 2022 and for the period from April 13, 2021 (inception) through December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company does not have sufficient cash and working capital to sustain its operations and the Company’s ability to execute its business plan is dependent upon its successful completion of the proposed business combination described in Note 1 to the financial statements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company’s auditor since 2021.
May 30, 2023
New York, NY
F-2
Table of Contents
SOUTHPORT ACQUISITION CORPORATION
BALANCE SHEETS
December 31, 2022
December 31, 2021
ASSETS
Current assets:
Cash
$
50,858
$
1,950,543
Prepaid expenses – current
227,594
—
Due from related party
—
83,581
Total Current Assets
278,452
2,034,124
Non-current assets:
Cash and marketable securities held in Trust Account
237,984,513
234,600,690
Total Non-current Assets
237,984,513
234,600,690
Total Assets
$
238,262,965
$
236,634,814
LIABILITIES, COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accrued expenses
$
681,395
$
213,245
Accounts payable
97,987
15,091
Accrued offering costs
184,047
795,490
Due to related party
244,550
—
Total Current Liabilities
1,207,979
1,023,826
Non-Current liabilities:
Warrant Liability
527,050
17,216,000
Deferred underwriter fee payable
—
8,050,000
Total Non-current Liabilities
527,050
25,266,000
Total Liabilities
1,735,029
26,289,826
Commitments and Contingencies (Note 8)
Class A common stock subject to possible redemption; 200,000,000 shares authorized; 23,000,000 shares issued and outstanding subject to possible redemption at redemption value
237,984,513
234,600,690
Stockholders’ Deficit
Preferred stock, $ 0.0001 par value; 1,000,000 shares authorized; none issued and outstanding
—
—
Class A common stock, $ 0.0001 par value; 200,000,000 shares authorized; none issued and outstanding (excluding 23,000,000 shares subject to possible redemption)
—
—
Class B common stock, $ 0.0001 par value; 20,000,000 shares authorized; 5,750,000 shares issued and outstanding
575
575
Additional paid-in capital
—
—
Accumulated deficit
( 1,457,152 )
( 24,256,277 )
Total Stockholders’ Deficit
( 1,456,577 )
( 24,255,702 )
TOTAL LIABILITIES, COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT
$
238,262,965
$
236,634,814
The accompanying notes are an integral part of the financial statements.
F-3
Table of Contents
SOUTHPORT ACQUISITION CORPORATION
STATEMENTS OF OPERATIONS
For the Period
From
April 13, 2021
For the Year
(Inception)
Ended
Through
December 31,
December 31,
2022
2021
Operating costs:
Transaction costs allocated to warrant issuance
$
—
$
609,514
Administrative expenses
217,424
6,773
Legal and accounting expenses
466,287
45,618
Insurance expense
516,250
30,531
Franchise tax expense
200,000
143,562
Listing fees
175,124
—
Other operating costs
2,458
3,000
Loss from operations
( 1,577,543 )
( 838,998 )
Other income:
Change in fair value of warrant liability
16,688,950
3,164,000
Dividend income on marketable securities held in Trust Account
3,383,823
690
Other income
20,072,773
3,164,690
Income before provision for income taxes
18,495,230
2,325,692
Provision for income taxes
( 362,282 )
—
Net income
$
18,132,948
$
2,325,692
Basic and diluted weighted average shares outstanding, Class A common stock
23,000,000
1,580,153
Basic and diluted net income per share, Class A common stock
$
0.66
$
4.72
Basic and diluted weighted average shares outstanding, Class B common stock
5,750,000
5,777,433
Basic and diluted net income (loss) per share, Class B common stock
$
0.51
$
( 0.89 )
The accompanying notes are an integral part of the financial statements.
F-4
Table of Contents
SOUTHPORT ACQUISITION CORPORATION
STATEMENTS OF CHANGES IN COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT
For the Year Ended December 31, 2022
Class A
Common Stock Subject to
Class B
Additional
Total
Possible Redemption
Common Stock
Paid-in
Accumulated
Stockholders’
Shares
Amount
Shares
Amount
Capital
Deficit
Deficit
Balance – January 1, 2022
23,000,000
$
234,600,690
5,750,000
$
575
$
—
$
( 24,256,277 )
$
( 24,255,702 )
Remeasurement of Class A common stock to redemption value
—
3,383,823
—
—
—
( 3,383,823 )
( 3,383,823 )
Gain on waiver of deferred underwriter commissions by underwriter
—
—
—
—
—
8,050,000
8,050,000
Net income
—
—
—
—
—
18,132,948
18,132,948
Balance – December 31, 2022
23,000,000
$
237,984,513
5,750,000
$
575
$
—
$
( 1,457,152 )
$
( 1,456,577 )
For the period from April 13, 2021 (inception) through December 31, 2021
Class A Common Stock
Subject to Possible
Additional
Total
Redemption
Class B Common Stock
Paid-in
Accumulated
Stockholders’
Shares
Amount
Shares
Amount
Capital
Deficit
Deficit
Balance – April 13, 2021 (inception)
—
$
—
—
$
—
$
—
$
—
$
—
Issuance of Class B common stock to Sponsor
—
—
5,750,000
575
24,425
—
25,000
Issuance of Class A common stock
23,000,000
206,614,296
—
—
—
—
—
Deemed capital contribution from issuance of private placement warrants
—
—
—
—
1,380,000
—
1,380,000
Accretion of Class A common stock to redemption value
—
27,985,704
—
—
( 1,404,425 )
( 26,581,279 )
( 27,985,704 )
Remeasurement of Class A common stock to redemption value
—
690
—
—
—
( 690 )
( 690 )
Net income
—
—
—
—
—
2,325,692
2,325,692
Balance – December 31, 2021
23,000,000
$
234,600,690
5,750,000
$
575
$
—
$
( 24,256,277 )
$
( 24,255,702 )
The accompanying notes are an integral part of the financial statements.
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SOUTHPORT ACQUISITION CORPORATION
STATEMENTS OF CASH FLOWS
For the Period
From
April 13, 2021
For the Year
(Inception)
Ended
Through
December 31,
December 31,
2022
2021
Cash Flows from Operating Activities:
Net income
$
18,132,948
$
2,325,692
Adjustments to reconcile net income to net cash provided by operating activities:
Accrued dividend on marketable securities held in Trust Account
( 759,525 )
( 690 )
Change in fair value of warrant liability
( 16,688,950 )
( 3,164,000 )
Allocation of deferred offering cost for warrant liability
—
609,514
Changes in operating assets and liabilities:
Accounts payable and accrued expenses
551,046
228,336
Accrued offering costs
( 611,443 )
795,490
Prepaid expenses
( 227,594 )
—
Net cash provided by operating activities
396,482
794,342
Cash Flows from Investing Activities:
Purchase of marketable securities held in Trust Account
( 237,780,570 )
—
Sale of marketable securities held in Trust Account
235,156,272
Investment of cash in Trust Account
—
( 234,600,000 )
Net cash used in investing activities
( 2,624,298 )
( 234,600,000 )
Cash Flows from Financing Activities:
Proceeds from issuance of Class B ordinary shares to the Sponsor
—
25,000
Proceeds from sale of Units, net of underwriting discounts paid
—
225,400,000
Proceeds from sale of Private Placement Warrants
—
11,700,000
Proceeds from promissory note – related party
—
489,728
Repayment of promissory note – related party
—
( 489,728 )
Due from related party
—
( 83,581 )
Payments made by related party on behalf of the Company
244,550
—
Receipt of amounts due from related party
83,581
—
Deferred offering costs
—
( 1,285,218 )
Net cash provided by financing activities
328,131
235,756,201
Net Change in Cash
( 1,899,685 )
1,950,543
Cash – Beginning
1,950,543
—
Cash – Ending
$
50,858
$
1,950,543
Supplemental disclosure of non-cash financing activities:
Initial classification of Class A common stock subject to possible redemption
$
—
$
206,614,296
Remeasurement of Class A common stock subject to possible redemption
$
3,383,823
$
27,986,394
Initial measurement of public warrants and private placement warrants
$
—
$
20,380,000
Gain on waiver of deferred underwriting fee
$
8,050,000
$
—
Deferred underwriting fee payable
$
—
$
8,050,000
The accompanying notes are an integral part of the financial statements.
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SOUTHPORT ACQUISITION CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
Note 1. Description of Organization and Business Operations
Southport Acquisition Corporation. (the “Company”) is a blank check company formed in Delaware on April 13, 2021. The Company was formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses (the “Business Combination”). The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of December 31, 2022, the Company had not yet commenced any operations. All activity for the year ended December 31, 2022 and for the period April 13, 2021 (inception) through December 31, 2021 relates to the Company’s formation, initial public offering (the “IPO”), and pursuit of a target company to effect a business combination.
The registration statement for the Company’s IPO was declared effective on December 9, 2021. On December 14, 2021, the Company consummated the IPO, which involved the Company’s sale of 23,000,000 units (the “Units”) at $ 10.00 per Unit, generating gross proceeds of $ 230,000,000 , which is discussed in Note 3. The 23,000,000 Units sold by the Company include 3,000,000 Units purchased by the underwriter for the IPO pursuant to the full exercise of its option to purchase up to 3,000,000 additional Units to cover over-allotments. Simultaneously with the closing of the IPO, the Company consummated the private sale of an aggregate of 11,700,000 warrants (the “Private Placement Warrants”) to Southport Acquisition Sponsor LLC (the “Sponsor”) at a price of $ 1.00 per Private Placement Warrant, generating proceeds to the Company of $ 11,700,000 .
Following the closing of the IPO on December 14, 2021, $ 234,600,000 ($ 10.20 per Unit) from the net proceeds of the sale of the Units in the IPO and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”) located in the United States, which will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination, (ii) the redemption of any Public Shares (as defined in Note 3) properly submitted in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation (a) to modify the substance or timing of the Company’s obligation to provide its public stockholders the right to have their Public Shares redeemed in connection with an initial Business Combination or to redeem 100 % of the Public Shares if the Company does not complete the initial Business Combination within the Combination Period (as defined below) or (b) with respect to any other provision relating to stockholders’ rights or pre-initial Business Combination activity, and (iii) the redemption of the Company’s Public Shares if the Company is unable to complete the initial Business Combination within 18 months from December 14, 2021 or during any extended time that the Company has to consummate its initial Business Combination beyond such 18-month period (the “Combination Period”).
Risks and Uncertainties
Management is currently evaluating the impact of the COVID-19 pandemic, the Russia-Ukraine war and the recent proposal by the Securities and Exchange Commission (the “SEC”) for new rules and amendments affecting special purpose acquisition corporations like the Company and has concluded that while it is reasonably possible that such matters could have a negative effect on the Company’s financial position, cash flows, results of its operations and/or search for a target company, the specific impacts are not readily determinable as of December 31, 2022. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Going Concern
As of December 31, 2022, the Company had cash of $ 50,858 and a working capital deficit of $ 929,527 . The Company has incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of time within one year after the date that these financial statements are issued. Management plans to address this uncertainty through working capital loans whereby, the Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors can, but are not obligated to, loan the Company funds as
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may be required (see Note 6). However, there is no assurance that the Company’s plans to raise capital or to consummate a Business Combination will be successful or successful within the Combination Period. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2. Restatement of Previously Issued Financial Statements
In connection with the preparation of the Company’s financial statements as of December 31, 2022, management identified errors made in its historical financial statements where, on the Statement of Cash Flows for the nine months ended September 30, 2022, dividends earned and reinvested were incorrectly presented within the cash flows from operating activities section and a sale and purchases of marketable securities held in the Trust Account were not presented. Additionally, the Company reclassified amounts from unrealized gain on marketable securities held in the Trust Account to dividend income on marketable securities held in the Trust Account on the Statement of Operations to correctly state the character of earnings from the Trust Account for the three and nine months ended September 31, 2023. The Company restated the Condensed Statements of Operations and Condensed Statements of Cash Flows by presenting dividends earned and reinvested within the cash flows from investing activities section of the Statement of Cash Flows, presenting the sale and purchases of marketable securities held in the Trust account within the cash flows from investing activities section of the Statement of Cash Flows, and reclassifying amounts from unrealized gain on marketable securities held in the Trust Account to dividend income on marketable securities held in the Trust Account on the Statement of Operations.
The impact of the revision on the Company’s Condensed Statements of Cash Flows is reflected in the following table:
As Previously Reported
As Restated
(unaudited)
Adjustment
(unaudited)
Statement of Operations
For the three months ended September 30, 2022
Dividend income on marketable securities held in Trust Account
408,362
657,605
1,065,967
Unrealized gain on marketable securities held in Trust Account
657,605
( 657,605 )
—
For the nine months ended September 30, 2022
Dividend income on marketable securities held in Trust Account
408,362
990,869
1,399,231
Unrealized gain on marketable securities held in Trust Account
990,869
( 990,869 )
—
Statement of Cash Flows
For the nine months ended September 30, 2022
Cash Flows from Operating Activities:
Unrealized gain on marketable securities held in Trust Account
( 990,869 )
990,869
—
Accrued dividends on marketable securities held in Trust Account
—
( 990,869 )
( 990,869 )
Dividend income on marketable securities held in Trust Account
( 408,362 )
408,362
—
Net Cash Used in Operating Activities
( 1,860,737 )
408,362
( 1,452,375 )
Cash Flows from Investing Activities:
Purchase of marketable securities held in Trust Account
—
( 235,564,634 )
( 235,564,634 )
Sale of marketable securities held in Trust Account
—
235,156,272
235,156,272
Net Cash Used in Investing Activities
—
( 408,362 )
( 408,362 )
There is no impact to the reported amounts for total assets, total liabilities, or net income.
Note 3. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC.
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Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had $ 50,858 and $ 1,950,543 of cash and no cash equivalents as of December 31, 2022 and 2021.
Marketable Securities Held in Trust Account
Following the closing of the IPO on December 14, 2021, an amount of $ 234,600,000 from the net proceeds of the sale of the Units in the IPO and the sale of the Private Placement Warrants was placed in the Trust Account and may be invested only in U.S. government securities with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. The Trust Account is intended as a holding place for funds pending the earliest to occur of: (i) the completion of the initial Business Combination; (ii) the redemption of any public shares properly tendered in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation (A) to modify the substance or timing of the Company’s obligation to provide its public stockholders the right to have their Public Shares redeemed in connection with an initial Business Combination or to redeem 100 % of the Public Shares if the Company does not complete the initial Business Combination within the Combination Period or (B) with respect to any other provision relating to stockholders’ rights or pre-initial Business Combination activity; and (iii) the redemption of the Company’s Public Shares if the Company is unable to complete the initial Business Combination within the Combination Period.
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Offering Costs Associated with IPO
The Company complies with the requirements of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 340-10-S99-1 – “Other Assets and Deferred Costs” and SEC Staff Accounting Bulletin (“SAB”) Topic 5A— “Expenses of Offering”. Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the IPO. Offering costs are charged to stockholders’ equity or the statement of operations based on the relative value of the Public Warrants (defined below) and the Private Placement Warrants to the proceeds received from the Units sold upon the completion of the IPO. Accordingly, on December 14, 2021, offering costs totaling $ 13,935,218 (consisting of $ 4,600,000 of underwriting fee, $ 8,050,000 of deferred underwriting fee, and $ 1,285,218 of actual offering costs) were recognized with $ 609,514 included as an expense in transaction costs allocated to the warrant issuance as an allocation for the Public Warrants (defined below) and the Private Placement Warrants, and $ 13,325,704 included in additional paid-in capital.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurement” (“ASC 820”), approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
● Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date. As of December 31, 2022 and 2021, derivative liabilities are comprised of the warrant liability of $ 527,050 and $ 17,216,000 , respectively.
Warrant Liability
The Company accounts for warrants for the Company’s common stock that are not indexed to its own shares as liabilities at fair value on the balance sheet. The warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized as a component of other income (expense), net on the statement of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the common stock warrants. At that time, the portion of the warrant liability related to the common stock warrants will be reclassified to additional paid-in capital.
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Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, at December 31, 2022, 23,000,000 shares of Class A common stock subject to possible redemption is presented, at redemption value, as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Such changes are reflected in additional paid-in capital, or in the absence of additional capital, in accumulated deficit. For the year ended December 31, 2022, the Company has recorded accretion of $ 3,383,823 to remeasure the value of Class A common stock subject to possible redemption value of $ 237,984,513 .
As of December 31, 2022 and 2021, the Class A common stock, classified as temporary equity in the balance sheets reconciled in the following table:
Gross proceeds from initial public offering
$
230,000,000
Less:
Proceeds allocated to Public Warrants
(10,060,000)
Offering costs allocated to Class A common stock subject to possible redemption
( 13,325,704 )
Add:
Remeasurement of Class A common stock subject to possible redemption
27,986,394
Class A common stock subject to possible redemption, December 31, 2021
$
234,600,690
Add:
Remeasurement of Class A common stock subject to possible redemption
3,383,823
Class A common stock subject to possible redemption, December 31, 2022
$
237,984,513
Income taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2022 and 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position, other than penalties and interest related to late filing of the Company’s income tax returns (see Note 12).
Net Income Per Common Stock
The Company complies with accounting and disclosure requirements of ASC Topic 260, “Earnings Per Share”. The condensed statements of operations include a presentation of income per Class A redeemable common stock and loss per non-redeemable common stock following the two-class method of income per common stock. In order to determine the net income
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attributable to both the Class A redeemable common stock and non-redeemable common stock, the Company first considered the total income allocable to both sets of stock. This is calculated using the total net income less any dividends paid. For purposes of calculating net income per share, any remeasurement of the Class A common stock subject to possible redemption was treated as dividends paid to the public stockholders. Subsequent to calculating the total income allocable to both sets of stock, the Company split the amount to be allocated using a ratio of 80 % for the Class A redeemable common stock and 20 % for the non-redeemable common stock for the year ended December 31, 2022, reflective of the respective participation rights.
The following table reflects the calculation of basic and diluted net income per common stock (in dollars, except per share amounts):
For the Year Ended
December 31, 2022
Net income
$
18,132,948
Less: Remeasurement of Class A redeemable shares to redemption value
( 3,383,823 )
Net income including accretion of Class A redeemable shares to redemption value
$
14,749,125
For the Year Ended
December 31, 2022
Class A
Class B
Total
Total number of shares
23,000,000
5,750,000
28,750,000
Ownership percentage
80
%
20
%
100
%
Net income allocated based on ownership percentage
$
14,506,359
$
3,626,589
$
18,132,948
Less: Accretion allocation based on ownership percentage
( 2,707,058 )
( 676,765 )
( 3,383,823 )
Plus: Accretion applicable to Class A redeemable shares
3,383,823
—
3,383,823
Total income based on ownership percentage
$
15,183,124
$
2,949,824
$
18,132,948
Weighted average shares outstanding
23,000,000
5,750,000
Basic and diluted net income per share
$
0.66
$
0.51
For the period from
April 13, 2021
(inception) through
December 31, 2021
Net loss from inception to date of initial public offering
$
( 2,226 )
Net income from date of initial public offering to year-end
2,327,918
Total income from inception to date
2,325,692
Less: Accretion of Class A redeemable shares to redemption value
( 27,986,394 )
Net loss including accretion of Class A redeemable shares to redemption value
$
( 25,660,702 )
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For the period from
April 13, 2021
(inception) through
December 31, 2021
Class A
Class B
Total
Total number of shares
23,000,000
5,750,000
28,750,000
Ownership percentage
80
%
20
%
100
%
Total loss allocated based on ownership percentage
$
1,862,335
$
463,357
$
2,325,692
Less: Accretion allocation based on ownership percentage
( 22,410,545 )
( 5,575,849 )
( 27,986,394 )
Plus: Accretion applicable to Class A redeemable shares
27,986,394
—
27,986,394
Total income (loss) based on ownership percentage
$
7,438,184
$
( 5,112,492 )
$
2,325,692
Weighted average shares outstanding
1,580,153
5,777,433
Basic and diluted net Income (loss) per share
$
4.71
$
(0.88)
Related Parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. At December 31, 2022 and 2021, the Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 became effective on January 1, 2022, with early adoption permitted. The Company did not early adopt ASU 2020-06. Management has evaluated and determined that there is not a material impact on its financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
Note 4. Initial Public Offering
At the closing of the IPO on December 14, 2021 the Company sold 23,000,000 Units at a price of $ 10.00 per Unit. Each Unit consists of one share of the Company’s Class A common stock, $ 0.0001 par value (each a “Public Share”), and one -half of one warrant of the Company (each a “Public Warrant”). Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $ 11.50 per share, subject to adjustment (see Note 7).
Upon the closing of the IPO on December 14, 2021, $ 234,600,000 ($ 10.20 per Unit sold in the IPO) from the net proceeds of the sale of the Units in the IPO and the sale of the Private Placement Warrants was placed in the Trust Account. The amounts held in the Trust Account will be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market
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fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company. As of December 14, 2021, only $ 234,600,000 was held in the Trust Account. In addition, as of December 14, 2021, $ 2,034,324 of cash was not held in the Trust Account and is available for working capital purposes.
Transaction costs of the IPO amounted to $ 13,935,218 consisting of $ 4,600,000 of underwriting discount, $ 8,050,000 of deferred underwriting discount and $ 1,285,218 of actual offering costs. On August 22, 2022, the underwriter delivered a letter to the Company pursuant to which the underwriter waived its entitlement to the payment of the deferred underwriting fee.
Note 5. Private Placement
The Sponsor purchased an aggregate of 11,700,000 Private Placement Warrants at a price of $ 1.00 per warrant ($ 11,700,000 in the aggregate) in a private placement that closed simultaneously with the closing of the IPO.
Each Private Placement Warrant is exercisable for one whole Class A common stock at a price of $ 11.50 per share, subject to adjustment. $ 9,200,000 of the proceeds from the sale of the Private Placement Warrants was added to the proceeds from the IPO placed in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the Private Placement Warrants and the underlying securities will expire worthless. The Private Placement Warrants are non-redeemable (except as described in Note 8 below under “—Redemption of warrants for Class A common stock when the price per Class A common stock equals or exceeds $ 10.00 ”) and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees.
Note 6. Related Party Transactions
Founder Shares
On May 27, 2021, the Company issued an aggregate of 7,187,500 shares of Class B common stock to the Sponsor for a purchase price of $ 25,000 . On November 24, 2021, the Sponsor surrendered 1,437,500 shares of the Company’s Class B common stock for no consideration, resulting in there being an aggregate of 5,750,000 shares of the Company’s Class B common stock outstanding (the “Founder Shares”), up to 750,000 of which were then subject to forfeiture to the extent that the over-allotment option is not exercised in full by the underwriter for the IPO. On December 13, 2021, the underwriter for the IPO exercised its over-allotment option in full, with the related closing of the additional 3,000,000 Units covered by the option occurring on December 14, 2021. Accordingly, no Founder Shares remain subject to forfeiture.
The Sponsor agreed, subject to certain limited exceptions, not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination or (B) the date on which the Company completes a liquidation, merger, capital stock exchange or similar transaction that results in the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property. Notwithstanding the foregoing, if the closing price of the Company’s Class A common stock equals or exceeds $ 12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 -trading day period commencing at least 150 days after the Business Combination, the Founder Shares will be released from the lock-up.
Related Party Loans
The Sponsor agreed to loan the Company an aggregate of up to $ 350,000 to cover expenses related to the IPO pursuant to a promissory note (the “Note”). The Note was non-interest bearing and was payable on the completion of the IPO. The Company fully repaid the outstanding balance on the Note on December 14, 2021.
In addition, in order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Company’s Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (the “Working Capital Loans”). The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $ 1,500,000 of such Working Capital Loans may be convertible into warrants, at a price of $ 1.00 per warrant. If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the
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Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. As of December 31, 2022 and 2021, no Working Capital Loans were outstanding.
Due to and due from Related Party
The Sponsor has made tax payments and payments to various vendors on behalf of the Company. As of December 31, 2022 and December 31, 2021, the Company owed $ 244,550 and $ 0 , respectively. The Company made excess reimbursements to the Sponsor. As of December 31, 2022 and December 31, 2021, the Company was owed $ 0 and $ 83,581 , respectively from the Sponsor. The Sponsor repaid the amount in March 2022.
Administrative Support Agreement
Commencing on December 10, 2021 and until completion of the Company’s initial Business Combination or liquidation, the Company is required to pay the Sponsor $ 15,000 per month for administrative support and services. The Company pays the Sponsor for rent and costs incurred under the administrative support and services agreement and waives the excess amounts under the agreement. For the year ended December 31, 2022 and for the period from April 13, 2021 (inception) through December 31, 2021, the Company incurred $ 149,435 and $ 6,773 under the agreement, respectively and paid $ 156,208 and zero during the year ended December 31, 2022, and for the period from April 13, 2021 (inception) through December 31, 2021, respectively.
Note 7. Stockholders’ Deficit
Preferred stock — The Company is authorized to issue up to 1,000,000 shares of preferred stock with a par value of $ 0.0001 per share. At December 31, 2022 and 2021, there were no preferred stock issued or outstanding.
Class A common stock — The Company is authorized to issue up to 200,000,000 shares of Class A common stock with a par value of $ 0.0001 per share. Holders of Class A common stock are entitled to one vote for each share. At December 31, 2022 and 2021, there were 23,000,000 shares of Class A common stock issued and outstanding, subject to possible redemption.
Class B common stock — The Company is authorized to issue up to 20,000,000 shares of Class B, $ 0.0001 par value, common stock. Holders of the Company’s common stock are entitled to one vote for each share. On May 27, 2021, the Company issued an aggregate of 7,187,500 shares of Class B common stock to the Sponsor for a purchase price of $ 25,000 . On November 24, 2021, the Sponsor surrendered 1,437,500 shares of Class B common stock for no consideration, resulting in there being an aggregate of 5,750,000 shares of Class B common stock outstanding. As of December 31, 2022 and 2021, as a result of the above surrender, there were 5,750,000 shares of Class B common stock issued and outstanding.
The shares of Class B common stock will automatically convert into shares of the Company’s Class A common stock at the time of the Business Combination on a one -for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like. In the case that additional shares of the Company’s Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts sold in the IPO and related to the closing of an initial Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as converted basis, 20 % of the sum of the total number of all shares of the Company’s common stock outstanding upon the completion of the IPO plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with an initial Business Combination (net of the number of shares of Class A common stock redeemed in connection with an initial Business Combination), excluding any shares or equity-linked securities issued, or to be issued, to any seller in the Business Combination and any warrants issued upon the conversion of Working Capital Loans. Holders of shares of Class B common stock may also elect to convert their shares of Class B common stock into an equal number of shares of Class A common stock, subject to adjustment as provided above, at any time prior to a Business Combination.
The Company may issue additional common stock or preferred stock to complete its Business Combination or under an employee incentive plan after completion of its Business Combination.
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Note 8. Warrants
The Company accounts for 23,200,000 warrants issued in connection with the IPO ( 11,500,000 Public Warrants and the 11,700,000 Private Placement Warrants) in accordance with the guidance contained in ASC 815-40. Such guidance provides that because the warrants do not meet the criteria for equity treatment thereunder, each warrant must be recorded as a liability. Accordingly, the Company classifies each warrant as a liability at its fair value. Offering costs were allocated to the Class A common stock and Public Warrants, and the amounts allocated to the Public Warrants was expensed immediately. This liability is subject to re-measurement at each balance sheet date. With each such re-measurement, the warrant liability will be adjusted to fair value, with the change in fair value recognized in the Company’s statement of operations.
Warrants – Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable 30 days after the consummation of a Business Combination. The Public Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or the Company’s liquidation.
The Company is not obligated to deliver any Class A common stock pursuant to the exercise of a Public Warrant and will have no obligation to settle such Public Warrant exercise unless a registration statement under the Securities Act covering the issuance of the Class A common stock issuable upon exercise of the Public Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from registration is available. No Public Warrants are exercisable for cash or on a cashless basis, and the Company is not obligated to issue any shares of Class A common stock to holders seeking to exercise their Public Warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of residence of the exercising holder, or an exemption from registration is available.
The registration statement for the IPO (the “IPO Registration Statement”) registered the sale for the shares of Class A common stock issuable upon exercise of the Public Warrants. The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, it will use its commercially reasonable efforts to file a post-effective amendment to the IPO Registration Statement or a new registration statement, in the Company’s discretion, with the SEC, under the Securities Act covering the sale of the Class A common stock issuable upon exercise of the Public Warrants. The Company will use its commercially reasonable efforts to cause such post-effective amendment or new registration statement, as the case may be, to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the Public Warrants is not effective by the 60 th business day after the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption.
Redemption of warrants when the price per share of Class A common stock equals or exceeds $ 18.00 . Once the Public Warrants become exercisable, the Company may redeem the outstanding Public Warrants for redemption:
● in whole and not in part;
● at a price of $ 0.01 per Public Warrant;
● upon a minimum of 30 days ’ prior written notice of redemption to each warrant holder; and
● if, and only if, the last reported sale price of the Class A common stock equals or exceeds $ 18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 - trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders.
Redemption of warrants when the price per Class A common stock equals or exceeds $ 10.00 . Once the warrants become exercisable, the Company may redeem the outstanding warrants:
● in whole and not in part;
● at a price of $ 0.10 per warrant;
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● upon a minimum of 30 days ’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares of Class A common stock determined by reference to an agreed table based on the redemption date and the “fair market value” of Class A common stock;
● if, and only if, the last reported sale price of the Class A common stock equals or exceeds $ 10.00 per Public Share (as adjusted) for any 20 trading days within the 30 - trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders; and
● if the last reported sale price of the Class A common stock for any 20 trading days within a 30 - trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders is less than $ 18.00 per share (as adjusted), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above.
The Company will not redeem the warrants as described above unless a registration statement under the Securities Act covering the sale of the shares of Class A common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available throughout the 30 -day redemption period (or, in the case of a redemption described above under “Redemption of warrants when the price per share of Class A common stock equals or exceeds $ 18.00 ,” the Company requires or permits the Public Warrants to be exercised on a cashless basis as described below), except, in the case of a redemption described above under “Redemption of warrants when the price per Class A common stock equals or exceeds $ 10.00 ,” if the sale of those shares of Class A common stock pursuant to the cashless exercise of the warrants is exempt from registration under the Securities Act. If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if the sale of the shares of Class A common stock upon exercise of the warrants is not exempt from registration or qualification under applicable state securities laws or the Company is unable to effect such registration or qualification.
If the Company calls the Public Warrants for redemption, the Company’s management will have the option to require or permit all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of common stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such warrants. Accordingly, the warrants may expire worthless.
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at an issue price or effective issue price of less than $ 9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, (i) in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance, and (ii) without taking into account the transfer of Founder Shares or Private Placement Warrants (including if such transfer is effectuated as a surrender to the Company and subsequent reissuance by the Company) by the Sponsor in connection with such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60 % of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination on the date of the consummation of such initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s Class A common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $ 9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115 % of the higher of the Market Value and the Newly Issued Price, the $ 18.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to 180 % of the greater of the Market Value and the Newly Issued Price and the $ 10.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to the greater of the Market Value and the Newly Issued Price.
The Private Placement Warrants are identical to the Public Warrants included in the Units sold in the IPO, except that the Private Placement Warrants and the shares of common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or saleable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be non-redeemable in certain redemption scenarios and exercisable on a cashless basis so long as they are held by the initial purchasers thereof or their permitted transferees. If the Private Placement Warrants are held
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by someone other than the initial purchasers thereof or their permitted transferees, the Private Placement Warrants will be redeemable by the Company in all redemption scenarios and exercisable by such holders on the same basis as the Public Warrants.
If a tender offer, exchange or redemption offer shall have been made to and accepted by the holders of the Class A common stock and upon completion of such offer, the offeror owns beneficially more than 50% of the outstanding Class A common stock, the holder of the warrant shall be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have been entitled as a stockholder if such warrant had been exercised, accepted such offer and all of the Class A common stock held by such holder had been purchased pursuant to the offer. If less than 70% of the consideration receivable by the holders of the Class A common stock in the applicable event is payable in the form of common equity in the successor entity that is listed on a national securities exchange or is quoted in an established over-the-counter market, and if the holder of the warrant properly exercises the warrant within thirty days following the public disclosure of the consummation of the applicable event by the Company, the warrant exercise price shall be reduced by an amount equal to the difference (but in no event less than zero) of (i) the warrant price in effect prior to such reduction minus (ii) (A) the Per Share Consideration (as defined in the warrant agreement) minus (B) the value of the warrant based on the Black-Scholes Warrant Value for a Capped American Call on Bloomberg Financial Markets.
The Company expects to account for the Public Warrants and Private Placement Warrants as liabilities in accordance with the guidance contained in ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity. Because the Company does not control the occurrence of events, such as a tender offer or exchange, that may trigger cash settlement of the warrants where not all of the stockholders also receive cash, the warrants do not meet the criteria for equity treatment thereunder, as such, the warrants must be recorded as derivative liability.
Additionally, certain adjustments to the settlement amount of the Private Placement Warrants are based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under ASC 815-40, and thus the Private Placement Warrants are not considered indexed to the Company’s own stock and not eligible for an exception from derivative accounting.
The accounting treatment of derivative financial instruments requires that the Company record a derivative liability upon the issuance of the warrants at the closing of this offering. Accordingly, the Company expects to classify each warrant as a liability at its fair value. The Public Warrants will be allocated a portion of the proceeds from the issuance of the Units equal to its fair value determined with the assistance of a professional independent valuation firm. The warrant liability is subject to re-measurement at each balance sheet date. With each such re-measurement, the warrant liability will be adjusted to fair value, with the change in fair value recognized in the Company’s statement of operations. The Company will reassess the classification of the warrants at each balance sheet date. If the classification changes as a result of events during the period, the warrants will be reclassified as of the date of the event that causes the reclassification.
Note 9. Commitments and Contingencies
Registration rights
The holders of the Founder Shares, Private Placement Warrants and any warrants that may be issued upon conversion of the Working Capital Loans (and in each case holders of the underlying securities thereof, as applicable) are entitled to registration rights pursuant to a registration rights agreement signed on December 9, 2021, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to our Class A common stock). The holders of these securities are entitled to make up to three demands, excluding short form registration demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the Company’s consummation of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that the Company is not required to effect or permit any registration or cause any registration statement to become effective until termination of the applicable lock-up period with respect to such securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriter a 45-day option from the date of the IPO to purchase up to 3,000,000 additional Units to cover over-allotments, if any, at the IPO price less the underwriting discount. On December 13, 2021, the underwriter exercised the option in full, closing the sale of the 3,000,000 additional Units on December 14, 2021. The underwriter was paid an underwriting
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commission of $ 4,600,000 upon the closing of the IPO. In addition, the underwriter is entitled to a deferred fee of $ 0.35 per Unit, or $ 8,050,000 in the aggregate. The deferred fee is payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement. On August 22, 2022, the underwriter delivered a letter to the Company pursuant to which the underwriter waived its entitlement to the payment of the deferred underwriting fee. The $ 8,050,000 waived fee was recorded to accumulated deficit.
Note 10. Fair Value Measurements
The following table presents information about the Company’s assets and liabilities that are measured at fair value at December 31, 2022 and 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
December 31, 2022
(Level 1)
(Level 2)
(Level 3)
Assets
Cash and marketable securities held in trust account
$
237,984,513
$
—
$
—
Liabilities
Public Warrants
$
261,050
$
—
$
—
Private Placement Warrants
$
—
$
266,000
$
—
December 31,2021
(Level 1)
(Level 2)
(Level 3)
Assets
Cash and marketable securities held in trust account
$
234,600,690
$
—
$
—
Liabilities
Public Warrants
$
—
$
—
$
8,521,000
Private Placement Warrants
$
—
$
—
$
8,695,000
At December 31, 2022 and 2021, the Company’s warrant liability was valued at $ 527,050 and $ 17,216,000 , respectively. Under the guidance in ASC 815-40, the Public Warrants and the Private Placement Warrants do not meet the criteria for equity treatment. As such, the Public Warrants and the Private Placement Warrants must be recorded on the balance sheet at fair value. This valuation is subject to re-measurement at each balance sheet date. With each re-measurement, the valuations will be adjusted to fair value, with the change in fair value recognized in the Company’s statement of operations.
The following table presents fair value information as of December 31, 2022 and 2021, of the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. The Company’s warrant liability is based on a valuation model utilizing management judgment and pricing inputs from observable and unobservable markets with less volume and transaction frequency than active markets. Significant deviations from these estimates and inputs could result in a material change in fair value. The Company transferred the fair value of the Public Warrant liability from Level 3 to Level 1 of the fair value hierarchy as the Company’s Public Warrants detached and commenced separate public trading (PORT.W) on the New York Stock Exchange on January 31, 2022. The fair value of the Private Placement Warrant liability was transferred from Level 3 to Level 2 of the fair value hierarchy as they are identical to the Public Warrants.
Private
Public
Placement
Warrant
Warrants
Warrants
Liability
Derivative warrant liabilities at April 13, 2021 (inception)
$
—
$
—
$
—
Initial fair value at issuance of Public and Private Placement Warrants
10,060,000
10,320,000
20,380,000
Change in fair value
( 1,539,000 )
( 1,625,000 )
( 3,164,000 )
Level 3 derivative warrant liabilities as of December 31, 2021
$
8,521,000
$
8,695,000
$
17,216,000
Transfer of Public Warrants to Level 1 measurement
( 8,521,000 )
—
( 8,521,000 )
Transfer of Private Placement Warrants to Level 2 measurement
—
( 8,695,000 )
( 8,695,000 )
Level 3 derivative warrant liabilities as of December 31, 2022
$
—
$
—
$
—
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Measurement
The Company established the initial fair value for the warrants on December 14, 2021, the date of the consummation of the Company’s IPO. The Company used a Black-Scholes-Merton formula to value the warrants. The Company allocated the proceeds received from (i) the sale of Units (which is inclusive of one share of Class A common stock and one-half of one Public Warrant), (ii) the sale of Private Placement Warrants, and (iii) the issuance of Class B common stock, first to the warrants based on their fair values as determined at initial measurement, with the remaining proceeds allocated to Class A common stock subject to possible redemption (temporary equity), Class A common stock (permanent equity) and Class B common stock (permanent equity) based on their relative fair values at the initial measurement date. As of December 31, 2022, the Public Warrants have detached from the Units and are separately tradable on the New York Stock Exchange (PORT.W). The closing price of the Public Warrants was utilized in determining the fair value of the Public Warrants as of December 31, 2022.
The key inputs into the Monte Carlo simulation model formula were as follows at December 31, 2021:
Private
Public
Placement
Inputs:
Warrants
Warrants
Common stock price
$
9.63
$
9.63
Exercise price
$
11.50
$
11.50
Risk-free rate of interest
1.35
%
1.35
%
Volatility
13.24
%
13.27
%
Term
6.00
6.00
Warrant to buy one share (adjusted for the probability of dissolution)
$
0.74
$
0.74
Dividend yield
0.00
%
0.00
%
Note 11. Income Taxes
The Company’s net deferred tax assets at December 31, 2022 and 2021 is as follows:
December 31,
December 31,
2022
2021
Capitalized start-up costs
$
579,901
$
179,006
Accrued dividends on marketable securities
( 368,014 )
( 178 )
Net operating loss carryforward
—
36,953
Total deferred tax assets
211,887
215,781
Valuation allowance
( 211,887 )
( 215,781 )
Deferred tax assets
$
—
$
—
The income tax provision for the years ended December 31, 2022 and 2021 consists of the following:
December 31,
December 31,
2022
2021
Current expense (benefit)
Federal
$
362,282
$
—
State
—
—
Deferred expense (benefit)
Federal
17,037
( 176,045 )
State
( 13,143 )
( 39,736 )
Change in Valuation Allowance
( 3,894 )
215,781
Income tax provision
$
362,282
$
—
As of December 31, 2022 and 2021, the Company has federal net operating loss carryforwards of $ 0 and $ 143,562 , respectively, that may be carried forward indefinitely. As of December 31, 2022 and 2021, the Company has gross state NOL carryforwards of $ 0 and $ 143,562 , respectively, which begin to expire in 2041.
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In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the years ended December 31, 2022 and 2021, the change in the valuation allowance was $ 3,894 and $ 215,781 , respectively.
A reconciliation of the federal income tax rate to the Company’s effective tax rate at December 31, 2022 and 2021 is as follows:
December 31,
December 31,
2022
2021
Statutory federal income tax rate
21.00
%
21.00
%
State taxes, net of federal tax benefit
( 0.07 )
%
( 1.71 )
%
Change in fair value of warrant liabilities
( 18.95 )
%
( 28.57 )
%
Change in valuation allowance
( 0.02 )
%
9.28
%
Income tax provision
1.96
%
—
The Company’s effective tax rates for the periods presented differ from the expected (statutory) rates due to changes in fair value in warrants and the recording of full valuation allowances on deferred tax assets.
The Company files income tax returns in the U.S. federal jurisdiction and is subject to examination by the various taxing authorities. The Company’s tax returns for the years ended December 31, 2022 and 2021 remain open and subject to examination. The Company considers Delaware to be a significant state tax jurisdiction.
Note 12. Subsequent Events
The Company’s 2022 income tax returns were filed and accepted on May 22, 2023. As the Company did not timely file their fiscal year 2022 federal and state income tax returns, the Company may be subject to penalties and interest as a result.
As previously disclosed in the definitive proxy statement filed by the Company with the SEC on May 22, 2023, the Company expects to hold a special meeting of stockholders (the “Special Meeting”) to consider and approve an extension of time for the Company to consummate an initial business combination from June 14, 2023 to September 14, 2023, or at the election of the board of directors of the Company, March 14, 2024, in six separate additional one-month extensions (the “Extension” and such proposal, the “Extension Proposal”).
On May 25, 2023, the Company and the Sponsor entered into voting and non-redemption agreements (the “Non-Redemption Agreements”) with unaffiliated third parties in exchange for such third parties agreeing (i) not to redeem an aggregate of 4,000,000 shares of Class A common stock sold in its initial public offering (the “Non-Redeemed Shares”) in connection with the Special Meeting and (ii) to vote in favor of the Extension Proposal and the Extension at the Special Meeting (other than with respect to certain shares acquired or to be acquired pursuant to the Non-Redemption Agreements). In exchange for the foregoing commitments, the Sponsor has agreed to transfer to such third parties an aggregate of up to 1,499,996 shares of Class B common stock held by the Sponsor, with 500,000 of such shares to be transferred to such third parties promptly upon consummation of the Extension, and an additional 166,666 shares to be transferred to such third parties monthly beginning on September 14, 2023 and up to, and including, February 14, 2024, if the board of directors of the Company elects to further extend the deadline to consummate an initial business combination at or prior to such date, in each case, if such third parties continue to hold such Non-Redeemed Shares through the Special Meeting.
On May 25, 2023, pursuant to the terms of the amended and restated certificate of incorporation of the Company, the Sponsor converted 4,200,000 shares of the Company’s Class B common stock held by it on a one-for-one basis into shares of the Company’s Class A common stock. Following such conversion, the Company will have an aggregate of 27,200,000 shares of Class A common stock issued and outstanding and 1,550,000 shares of Class B common stock issued and outstanding.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
May 30, 2023
Southport Acquisition Corporation
By:
/s/ Jeb Spencer
Name: Jeb Spencer
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Jeb Spencer
Chief Executive Officer and Director
Jeb Spencer
(Principal Executive Officer and Principal Financial and Accounting Officer)
May 30, 2023
/s/ Jared Stone
Chairman of the Board of Directors
May 30, 2023
Jared Stone
/s/ Sigmund Anderman
Director
May 30, 2023
Sigmund Anderman
/s/ Matthew Hansen
Director
May 30, 2023
Matthew Hansen
/s/ Jennifer Nuckles
Director
May 30, 2023
Jennifer Nuckles
/s/ Cathleen Schreiner Gates
Director
May 30, 2023
Cathleen Schreiner Gates
/s/ David Winfield
Director
May 30, 2023
David Winfield
70
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.