UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 1-K

ANNUAL REPORT

ANNUAL REPORT PURSUANT TO REGULATION A OF THE SECURITIES ACT OF 1933

For the fiscal year ended December 31, 2021

Angel Studios, Inc.

(Exact name of registrant as specified in its charter)

Delaware	46-5217451
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
295 W Center St. Provo, Utah	84601
(Address of principal executive offices)	(Zip Code)

(760) 933-8437

Registrant’s telephone number, including area code

Part II.

STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

We make statements in this annual report on Form 1-K, or the Annual Report, that are forward-looking statements within the meaning of the federal securities laws. The words “believe,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “seek,” “may,” “might,” and similar expressions or statements regarding future periods are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any predictions of future results, performance or achievements that we express or imply in this annual report or in the information incorporated by reference into this Annual Report.

The forward-looking statements included in this Annual Report are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, the impact of the ongoing novel coronavirus (COVID-19) pandemic, and the impact of the war in Ukraine all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements.

Any of the assumptions underlying forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements included in this Annual Report. All forward-looking statements are made as of the date of this Annual Report and the risk that actual results will differ materially from the expectations expressed in this Annual Report will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this Annual Report, whether as a result of new information, future events, changed circumstances or any other reason. Given the significant uncertainties inherent in the forward-looking statements included in this Annual Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Annual Report will be achieved.

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Item 1. Business

As used herein, “we”, “us”, “our”, “our Company”, “the Company”, “VidAngel, or “Angel Studios” and similar terms include Angel Studios, Inc. and its subsidiaries, unless the context indicates otherwise.

General

History

The Company was founded by four brothers, Neal, Daniel, Jeffrey, and Jordan Harmon, in 2013. As fathers of children aged newborn to ten, they were searching for a better way to watch quality content with their kids. The Company was originally founded as a way to give viewers greater personal control over the movies and television programs they watched at home. In 2016, we launched a new studio concept that gives the audience more control over what content is ultimately funded and produced. This endeavor has become the primary focus of the Company, which was later renamed Angel Studios. The first project launched under the new studio concept was Dry Bar Comedy. Several hundred episodes later, Dry Bar Comedy is now one of the largest collections of clean comedy in the world and can be enjoyed by audiences of all ages. Shortly thereafter, we partnered with The Chosen, LLC, or The Chosen, to produce a new type of television series where each season is funded by the audience. The Chosen went on to become the largest crowdfunded media project of all time.

Building on our early successes, we have launched several new initiatives that focus on content in markets currently underserved by the traditional studio system. We are regularly testing, introducing, and building new and exciting community-based features to help us achieve the goal of sharing stories with the world that amplify light.

Bankruptcy Reorganization

The Company reorganized under Chapter 11 of the Bankruptcy Code, with our reorganization plan becoming effective September 30, 2020. More information on this can be found in the section entitled “Bankruptcy Proceedings” under Item 1, of our Form 1-K filed April 30, 2021, which is incorporated herein by reference.

General Corporate Matters

On February 22, 2021, the Company amended its certificate of incorporation to change the allocation of Class A and Class B common stock. More information on this can be found in the section entitled “General Corporate Matters” under Item 1, of our Form 1-SA filed September 28, 2021, which is incorporated herein by reference.

On August 16, 2021, the Amended and Restated Stockholders Agreement (the “Amended Agreement”) was approved and adopted by holders of the Company’s Class B common stock (the “Class B Stockholders”). More information on this can be found in the section entitled “General Corporate Matters” under Item 1, of our Form 1-SA filed September 28, 2021, which is incorporated herein by reference. A copy of the Amended Agreement was filed as Exhibit 3.1 to our Form 1-U filed on August 18, 2021, and is incorporated by reference into this Annual Report on Form 1-K.

On September 24, 2021, pursuant to the recommendation of the Company’s Board of Directors (the “Board”), and upon receipt of the requisite stockholder consent, the Company amended and restated each of its Certificate of Incorporation and Bylaws. The following is a summary of the changes made

· The Company created additional classes of Common Stock

· The Company expanded the voting powers of its classes of Common Stock

· The Company expanded the potential size of its Board or Directors and set forth certain requirements for representation of each class of Common Stock.

· The Company added a clause that, subject to certain limited exceptions, causes its common stock to automatically convert to Class C common stock in the event of a transfer or sale.

· The Company made certain other changes to the language in the Amended Certificate to ease the burden of bringing in additional capital or entering new markets for capital.

· The Company made changes to its Bylaws that clarifies certain rights of first refusal in connection with transfers of the Company’s capital stock.

The foregoing is a summary of the changes made and is not intended to be a complete description of the terms of the Amended and Restated Certificate of Incorporation (the “Amended Certificate”) or Bylaws, and is qualified in its entirety by the Amended Certificate and the Bylaws, filed as Exhibits 3.1 and 3.2 of our Form 1-U filed on October 6, 2021, and incorporated by reference into this Annual Report on Form 1-K.

On January 20, 2022, the Board voted to increase the size of the Board of Directors from three, to five members. The Board then appointed Stephen Oskoui to serve as a Director of the Company. The Board subsequently reduced the size of the Board of Directors to four members. The Board also appointed Patrick Reilly, the Company’s Chief Financial Officer, to serve as Secretary of the Company.

Regulation Crowdfunding Offering

The Company conducted a Regulation CF offering in March 2021. More information on this can be found in the section entitled “Regulation Crowdfunding Offering” under Item 1, of our Form 1-SA filed September 28, 2021.

Tender Offer

On October 1, 2021, the Company launched a tender offer for up to 1,424,734 shares of our outstanding common stock at a purchase price of $8.90 per share in cash. The tender offer resulted in the Company purchasing an aggregate of 948,822 shares of its common stock, or 431,425 shares of its Class A common stock and 517,397 shares of its Class B common stock. This transaction represented the repurchase of 3.87% of our outstanding common stock, or 2.09% of our outstanding Class A common stock and 13.38% of our outstanding Class B common stock.

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2021 Stock Transactions

On October 18, 2021, the Company sold 1,685,392 shares of its Class A common stock at the average price of $9.28 per share. The Company received $4,999,993 in cash, and the equivalent value of $10,649,895 in bitcoin for the shares. The shares were issued in reliance on the exemption from registration requirements of the Securities Act of 1933, as amended, by Section 4(a)(2) and/or Rule 506 of Regulation D thereunder. This transaction represented an issuance of 8.2% of our outstanding Class A common stock as of its completion.

On November 18, 2021, the Company sold 277,181 shares of its Class A common stock at the price of $8.90 per share. The Company received $2,466,911 in cash for the shares. The shares were issued in reliance on the exemption from registration requirements of the Securities Act of 1933, as amended, by Section 4(a)(2) and/or Rule 506 of Regulation D thereunder. This transaction represented an issuance of 1.33% of our outstanding Class A common stock as of its completion.

Current Operations

We currently operate by offering and producing our own original content, distributing original content, consulting with content creators, maintaining engagement with our existing users, conducting research and development to create new intellectual property, and devising new methods to monetize existing intellectual property.

Original Content

We announced the “Angel Studios” concept in December 2016, and immediately began accepting submissions for digital distribution, applications to perform comedy routines for the Dry Bar Comedy series, and applications from creators interested in helping us produce original content.

We have received hundreds of inquiries and applications to partner on various projects. As of the date of this filing, we have produced and filmed hundreds of original comedy specials from various up-and-coming comedians. We have also licensed several motion pictures for exclusive digital distribution.

Why are we making our own content? - We are not your typical media and entertainment company. We are guided by our “North Star” principle, which is to share stories with the world that amplify light. We do this by aligning our interests with those of the creators and the audience and utilizing the wisdom of crowds to help guide decisions on the content that gets created. In times of stress and worry, our original content has already helped hundreds of millions of people laugh out loud more than a billion times and provided tens of millions with hope during years of dark and uncertainty. We believe there has never been a better time to build a different media and entertainment company that allows You to “Be part of stories that matter.”

Marketing and Advertising

We utilize a broad mix of marketing and public relations programs, including social media sites such as Facebook, YouTube and Twitter, to promote our service to potential users. We also rely extensively on word-of-mouth advertising, and on the marketing services of Harmon Brothers LLC, or Harmon Brothers, which offers Internet-based and multi-media promotional and marketing services, including the design, implementation and execution of promotional and Web-based advertising campaigns. See “Interest of Management and Others in Certain Transactions—Affiliated Transactions.”

Intellectual Property

We regard our trademarks, service marks, copyrights, patents, domain names, trade dress, trade secrets, proprietary technologies, and similar intellectual property as important to our success. In addition, we rely on a combination of patent, copyright, trademark and trade secret laws in the United States and other jurisdictions, as well as license agreements and other contractual documents, to protect our proprietary technologies. We also seek to protect our intellectual property rights by requiring all employees and independent contractors involved in developing intellectual property on our behalf to execute acknowledgments that all intellectual property generated or conceived by them on our behalf or related to the work they perform for us is our property, and assigning to us any rights, title, and interest, including intellectual property rights, they may claim or have in those works or property, to the extent allowable under applicable law.

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Despite our best efforts to protect our technology and proprietary rights by enforcing our intellectual property rights, licenses, and other contractual rights, unauthorized parties might still copy or otherwise obtain and use our software and other technology. As we continue to expand our operations, effective intellectual property protection, including copyright, trademark and trade secret protection might not be available or might be limited in foreign countries. Significant impairment of our intellectual property rights could harm our business or our ability to compete. Further, companies in the communications and technology industries frequently own large numbers of patents, copyrights and trademarks and might threaten litigation or sue us based on alleged infringement or other violations of intellectual property laws. We are currently subject to, and expect to face in the future, allegations that we have infringed the intellectual property rights of third parties, including our competitors and non-practicing entities. See Legal Proceedings.” 

Management Teams

Under the direction of our Chief Executive Officer, Neal Harmon, we currently operate with four management teams: the Product team, the Marketing and Content team, the Operations team, and the Finance team.

With the departure of Abinash Tripathy, our Product team is led by Neal Harmon, who oversees product strategy and the engineering team creating the technologies to facilitate the distribution and monetization of our original content.

The Marketing and Content team is led by our Chief Content Officer, Jeffrey Harmon, who’s primary responsibilities include, the identification and sourcing of new projects, the development and execution of marketing strategy, and assisting Creators in reaching their primary audience.

The Operations team is led by our Chief Operations Officer, Liz Ellis, who oversees strategy and execution surrounding the distribution and monetization of original content.

The Finance team is led by our Chief Financial Officer, Patrick Reilly, who oversees all finance and accounting activities for the Company.

Competition

Over-the-top, or OTT, media services has been one of the fastest growing segments in the media and entertainment industry. The OTT market was valued at approximately $65 billion in 2021, and is projected to reach approximately $94 billion by 2025, according to a study conducted by PWC. The global pandemic in 2020, and the resulting shutdowns around the world, sent people to their homes, tanked theater ticket sales, and accelerated the adoption of streaming services and technology by consumers. Before the pandemic, cord cutting was already a macro trend as people cancelled their subscriptions to cable tv and began watching more movies at home rather than the theater. These dynamics are creating a highly competitive marketplace.

The market for video entertainment is intensely competitive and subject to rapid change. As the industry continues to evolve, we will continue to face strong competition in every aspect of our business. We compete against much larger companies that have resources and brand recognition that pose significant competitive challenges. Our success depends on our ability to differentiate how we identify, fund, and distribute our original content.

We compete against other entertainment video providers, such as multichannel video programming distributors (“MVPDs”), streaming entertainment providers (including those that provide pirated content), and more broadly against other sources of entertainment that our customers could choose in their moments of free time. We also compete against streaming entertainment providers and content producers in obtaining content for our service.

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While consumers may maintain simultaneous relationships with multiple entertainment sources, we strive for consumers to choose us in their moments of free time. By aligning the desires of the consumer with that of the creator, we believe that the audience can play a much larger role in shaping the future of content and are working to create better ways for creators to leverage the wisdom of the crowd in their creative process.

Research and Development

During the fiscal years ended December 31, 2021, and 2020, we spent $4,939,002 and $2,202,012, respectively, on research and development activities related to our technology.

Employees

As of December 31, 2021, we employed 119 persons full time and 2 persons part time. None of our employees are covered by a collective bargaining agreement.  

Legal Proceedings

We currently are, and from time to time might again become, involved in litigation. Litigation has the potential to cause us to incur unexpected losses, some of which might not be covered by insurance but can materially affect our financial condition and our ability to continue business operations.

ClearPlay Litigation

In 2014, we responded to a contention by ClearPlay that we (VidAngel) infringed on certain ClearPlay patents by suing ClearPlay in the United States District Court for the Central District of California (the case was later transferred to Utah). In doing so, we requested judicial determinations that our technology and service did not infringe eight patents owned by ClearPlay and that the patents were invalid. In turn, ClearPlay counterclaimed against us alleging patent infringement. On February 17, 2015, the case was stayed pending inter partes review by the United States Patent and Trademark Office, or the USPTO, of several of ClearPlay’s patents. We were not party to or involved in the USPTO’s review of those patents. Owing to those proceedings, on May 29, 2015, the Utah trial court closed the case without prejudice to the parties’ rights to reassert any or all claims later. In July and August 2015, many of ClearPlay’s patent claims, including many of the claims asserted against us, were invalidated by the USPTO. Some of ClearPlay’s other patent claims were upheld and still others were never challenged in the USPTO. Following the USPTO’s rulings, ClearPlay appealed some of the USPTO’s invalidity decisions to the United States Court of Appeals for the Federal Circuit. The findings of invalidity were all affirmed by the Federal Circuit on August 16, 2016. On October 31, 2016, the magistrate judge, Brooke C. Wells, conducted telephonic status conferences in this and a related case brought by ClearPlay against DISH Network and ordered that both cases be re-opened. ClearPlay then requested, and we stipulated, to continue the time for the parties to file their proposed scheduling order to December 5, 2016. We subsequently accepted the dates proposed by ClearPlay for inclusion in the proposed scheduling order. ClearPlay, however, twice requested, and we twice stipulated to allow for, additional time to consider the dates it had proposed. On January 18, 2017, ClearPlay reneged on its agreement to enter into the proposed scheduling order and, instead, moved to stay all proceedings involving us. On January 19, 2017, we brought our own motion seeking entry of the proposed scheduling order. On February 2, 2017, we filed our opposition to the stay motion and, on February 15, 2017, ClearPlay filed its reply brief in support of its stay motion. On February 16, 2017, we filed our reply brief in support of our request for entry of a scheduling order. Magistrate Judge Wells granted ClearPlay’s motion to stay the litigation at least until a decision is rendered on the preliminary injunction by the Ninth Circuit. On October 12, 2017, the magistrate judge ordered the case stayed again, this time until a final decision is rendered in the Disney Litigation. On February 14, 2018, Clearplay filed a claim in our chapter 11 proceeding seeking an unliquidated sum. On April 14, 2020, the Trustee filed an objection to the claim in the Bankruptcy Court seeking an order to disallow the claim in its entirety. On October 21, 2020, the Bankruptcy Court issued an order converting the Trustee’s objection to Clearplay’s claim in the Bankruptcy case to an adversary proceeding. The case was transferred to the United States District Court for the Central District of Utah.

On April 20, 2021, the court lifted the stay as the final decision in the Disney Litigation had been determined and we were no longer in bankruptcy. On November 4, 2021, we informed that court that we sold VidAngel and VidAngel Entertainment is the successor. On January 14, 2022, ClearPlay filed a response stating Angel Studios and VidAngel Entertainment is liable for past infringement as they are successor to VidAngel. The Court has not yet addressed this issue.

On December 20, 2021 we served non-infringement and invalidity contentions concerning the patents asserted in this case. On January 7, 2022, ClearPlay filed a motion seeking to add additional causes of action under the Digital Millennium Copyright Act and Utah state law for alleged tortious interference, which we opposed on February 4, 2022. The motion is currently pending. We continue to pursue, contest, and defend this case vigorously, but as a result of the stays that have been entered in this case, the case remains in its early stages.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of our operations together with our financial statements and related notes appearing at the end of this Annual Report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements.

Overview

In 2020, we sold a monthly subscription service for access to technology that permitted a user to skip or mute limited portions of motion pictures. We entered into an asset purchase agreement on March 1, 2021, agreeing to sell and assign substantially all the assets and certain liabilities of our content filtering service.

On January 20, 2017, we filmed our very first episode of Dry Bar Comedy. To date, we have produced hundreds of original comedy specials, spanning 9 seasons. Dry Bar Comedy has become one of the largest collections of clean comedy that can be enjoyed by everybody. We are continuing our efforts to develop new and innovative ways to engage audiences with content in the manner that best fits their individual lifestyle and preference.

We continue to produce our own original content and seek relationships with artists, and other content creators. In 2018, we partnered with The Chosen to provide them with the technology and know-how necessary to raise capital using Tier 2 of Regulation A of the Securities Act of 1933, as amended. The Chosen successfully raised nearly $10M in capital to produce, it says, the first multi-season television series about the life of Jesus Christ. The first season of The Chosen was released publicly in November 2019, with us as its exclusive global distribution partner. We have since partnered with several other creators, who are at various stages at either raising capital, creating content, and/or already streaming on the Angel Studio Platform.  

Results of Operations

The following represents our performance highlights:

	For the Year Ended December 31,				Change
	2021		2020		2021 vs. 2020
Revenues:
Revenues	$	122,793,064	$	46,942,397	$	75,850,667		162	%
Operating Expenses:
Cost of revenues	$	77,129,092	$	25,542,998	$	51,586,094		202	%
Sales and marketing		15,940,749		8,643,129		7,297,620		84	%
General and administrative		11,770,089		3,754,605		8,015,484		213	%
Research and development		4,939,002		2,202,012		2,736,990		124	%
Write-down of digital assets		2,737,658		-		2,737,658		100	%
Settlement from litigation and legal expenses		585,444		6,611,305		(6,025,861	)	-91	%
Total Operating Expenses:	$	113,102,034	$	46,754,049	$	66,347,985		142	%

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Revenues

Our primary source of revenue is the sale of digital and physical products related to content we either produce ourselves or distribute for third parties. In 2021, the significant increase in revenues was due to the sale of licensed content related to The Chosen. We saw a significant increase in sales of both digital and physical products related to The Chosen. The sale of licensed content related to The Chosen accounted for more than 94.5% of our total revenue in FY 2021.

Our content filtering service was sold as a monthly subscription and launched June 13, 2017. At release, all new customers were given a 30-day free trial of the service. In 2020 and 2021, we charged a monthly subscription fee of $1.99 - $14.99 for the service. All licensed content was made available to customers who subscribed to the service. This subscription service was discontinued with the sale of the filtering business in March 2021.

Operating Expenses

Our cost of revenues increased significantly in 2021 as the increased revenues resulted in greater licensing and royalty costs, higher website hosting and server related expenses, higher cost of goods sold on merchandise, and higher transaction processing costs.

The increase in sales and marketing expense was primarily due to an increase in advertising costs.

Higher general and administrative costs were related to the increased support staff necessary to manage the increase in revenues, while higher research and development costs were due to the addition of headcount necessary to continue our focus on improving existing products, optimizing existing services, and developing new technology to better meet the needs of our customers and partners.

In 2021, we invested an aggregate of approximately $10,600,000 in bitcoin to further diversify returns on cash and cash equivalents balances that are not required to maintain adequate operating liquidity. As of December 31, 2021, the current carrying value of the digital assets exceeded the fair value based on open markets and as such we recorded an impairment loss of $2,737,658 on the digital assets.

A one-time expense of $5,297,359 was booked in 2020 relating to the settlement agreement agreed to as part of our Reorganization Plan and associated settlement agreement with the Plaintiffs. Additional legal expenses were incurred in early efforts to reorganize that helped establish the justification and framework for the eventual outcome. No similar costs were booked in 2021. 

Liquidity and Capital Resources

Operating and Capital Expenditure Requirements

	For the Year Ended December 31,				Change
	2021		2020		2021 vs. 2020
Cash and cash equivalents	$	24,258,513	$	11,022,292	$	13,236,221		120	%
Accrued settlement costs		5,064,232		5,253,007		(188,775	)	-4	%

Cash and cash equivalents increased $13.24 million in the twelve months ended December 31, 2021, primarily due to an increase in sales. The increase in cash and cash equivalents was also due to net proceeds received from the sale of our Class A and Class B common stock, offset by the cost to repurchase shares of common stock in a tender offer the Company made to its stockholders.

Regulation CF Offering

On March 18, 2021, the Company commenced an offering pursuant to Regulation CF of the Securities Act of 1933, as amended (the “Regulation CF Transaction”). The Company sold 561,797 shares of our Class B common stock at a price of $8.90 per share. The Regulation CF Transaction was conducted through VAS Portal, LLC (the “Intermediary”). The Intermediary received 5% of the total amount raised in the transaction (the “Intermediary Fee”). Net of the Intermediary Fee and other associated fees, the Company received $4,611,328 of net proceeds from the Offering.

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Tender Offer

On October 1, 2021, the Company commenced a tender offer for up to 1,424,734 shares of our outstanding common stock at a purchase price of $8.90 per share in cash. The tender offer resulted in the Company purchasing an aggregate of 948,822 shares of its common stock for a total of $8,444,516 in cash.

Secondary Stock Transactions

On October 18, 2021, the Company sold 1,685,392 shares of its Class A common stock at the average price of $9.28 per share. The Company received $4,999,993 in cash, and the equivalent value of $10,649,895 in bitcoin for the shares.

On November 18, 2021, the Company sold 277,181 shares of its Class A common stock at the price of $8.90 per share. The Company received $2,466,911 in cash for the shares.

To date, we have funded our operations through private and public offerings of common stock. As of December 31, 2021, we had cash on hand of $24,258,513. We have accrued settlement costs in the amount of $9,016,072, payable over fifty-one (51) remaining equal quarterly installments of $176,786. The expense was recorded at the present value of the obligation with an imputed interest rate of 10%. The short-term obligation related to these settlement costs as of December 31, 2021, was $208,373, and the long-term portion is $4,855,859. We project that our existing capital resources will be sufficient to meet our operating requirements for at least the next 12 months.

We may need to raise additional funds to invest in growth opportunities, product development, sales and marketing, and other purposes. Our future capital requirements will depend on many factors, including our growth rate; the level of investments we make in product development, sales and marketing activities, and other investments to support the growth of our business, and may increase materially from those currently planned.

We may seek to raise additional funds through equity financing. Any additional equity financing likely would be dilutive to existing stockholders. At this time, we have no commitments for additional capital funds.

COVID-19 Pandemic

The COVID-19 pandemic and resulting global disruptions have affected our business in various ways.

· We restarted the filming of our Dry Bar Comedy Live performances at the end of 2020. We are following all local government and health department rules and regulations to increase the level of safety for both our employees and customers. As we typically film shows up to 6-months in advance of release, incurring expenses related to their production up-front, the cancellations related to the pandemic are not expected to impact our ability to deliver new episodes of Dry Bar Comedy moving forward.

· Season 2 of The Chosen was released in April 2021. The number of people who have viewed an episode continues to increase significantly, with the majority of all episodes watched having occurred after the outbreak was officially characterized a pandemic by the World Health Organization. Initially, we believe that a combination of quarantine measures and lower digital advertising costs, helped lead to a significant increase in sales, but these effects were short lived, and we don’t expect the end of the pandemic to have an effect on sales in the future.

The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on a number of factors that we do not control and may not be able to accurately predict. We will continue to assess the situation as it progresses and take any action required by federal, state, or local authorities under the law, or that we determine is in the best interests of our employees, customers, and stockholders.

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Trends and Key Factors Affecting Our Performance

Our business currently generates a significant portion of our total revenue from distribution activities related to our agreement with The Chosen, LLC. (“The Chosen”). The associated Video-On-Demand and Subscription Video-On-Demand License Agreement between Angel Studios, Inc. (formerly VidAngel, Inc.) and The Chosen (the “Chosen Agreement”), attached as Exhibit 6.2 of this Annual Report on Form 1-K, and incorporated by reference, outlines the current contractual arrangement between the parties.

We expect the revenue from distribution activities related to the Chosen Agreement to account for a large percentage of our revenue for the near future. While we are working with several new creators on new and exciting projects, there is no guarantee that we will be able to earn as much revenue from these projects as we do from The Chosen. If we are unable to successfully monetize other projects besides The Chosen, this may have a material adverse impact on our business, results of operations, and financial condition.

Furthermore, our ability to monetize the content we distribute is heavily reliant on factors currently outside of our control, including, but not limited to, the potential loss of key talent, the potential for budget overruns, the quality of the content produced, the timeliness of the production and subsequent release schedule, and the relationship of the creator with the audience. If we are unable to find ways to mitigate the risks associated with these external factors, it may have a material adverse impact on our business, results of operations, and financial condition.

Item 3. Directors and Officers

Subject to our stockholders’ rights to consent to certain transactions, our business and affairs are controlled by, and all powers are exercised by, our Board. The Board must consist of not fewer than three (3) nor more than five (5) directors, the exact number of whom is to be set from time to time by the Board. We currently have four directors: Neal Harmon, Paul Ahlstrom, Dalton Wright, and Steve Oskoui. The Board members are elected each year, at the annual meeting of stockholders, to hold office until the next annual meeting and until their successors are elected and qualified. Any newly created directorships resulting from an increase in the authorized number of directors, and any vacancies occurring in the Board, may be filled by the affirmative vote of a majority of the remaining directors. A director may resign at any time, and the stockholders may remove any director or the entire Board at any time, with or without cause, by the affirmative vote of a majority of stockholders voting in such decision.

The Board has retained our executive officers to manage the day-to-day operations, our intellectual property and other investments, subject to the supervision of the Board. Neal Harmon is currently our Chief Executive Officer, Elizabeth Ellis is currently our Chief Operations Officer, Jeffrey Harmon is currently our Chief Content Officer, and Patrick Reilly is currently our Chief Financial Officer. Our executive officers have accepted their appointment on the basis of the compensation to be paid to them. See “COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS – Remuneration of Executive Officers and Managers of Our Company” for more information. Our executive officers will serve for such period as the Board determines, subject to the terms of any employment agreements we enter into with them, of which there are none as of the date of this report, or their earlier death, resignation or removal. The Board may remove our executive officers subject to the terms of any employment agreements we enter into with them.

The individuals listed below are our executive officers and directors. The following table and biographical descriptions set forth certain information with respect to the individuals who currently serve as our directors and executive officers:

Name	Position	Age	Term of Office	Hours/Year (for part-time employees)
Neal Harmon*	Chief Executive Officer, Director	44	October 2013	n/a
Elizabeth Ellis	Chief of Operations	45	June 2015	n/a
Jeffrey Harmon*	Chief Content Officer	39	October 2013	n/a
Patrick Reilly	Chief Financial Officer	41	March 2014	n/a
Paul Ahlstrom	Director	58	February 2014	n/a
Dalton Wright	Director	41	February 2014	n/a
Stephen Oskoui	Director	42	January 2022	n/a

*Neal Harmon and Jeffrey Harmon are brothers.

Biographical Information

Biographical information regarding our directors and executive officers is set forth below.

Neal Harmon, Chief Executive Officer, Director. Neal has served as our Chief Executive Officer since he helped co-found the Company in 2013. Neal is also a member of Harmon Ventures LLC, a Utah limited liability company, our largest stockholder. He is also a managing member of Harmon Brothers, LLC, a Utah limited liability company, a marketing agency he co-founded with his brothers. Neal worked for Orabrush, Inc. from 2009 to 2013, a company he co-founded, where he served in such capacities as Chief Operating Officer and as a member of the board. Since 2005, Neal has also worked for the Neal S Harmon Company, a Utah corporation, as a consultant, entrepreneur and investor, engaging in various activities such as designing and creating a trucking logistics dashboard, to connect shippers and private fleets. Neal received his master’s degree from Brigham Young University in Instructional Psychology and Technology in 2002, and his undergraduate degree from Brigham Young University in American Studies in 2001. 

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Jeffrey Harmon, Chief Content Officer. Jeffrey is a co-founder and our Chief Content Officer. Jeffrey is also a member of Harmon Ventures LLC, a Utah limited liability company, our largest stockholder. He is also a managing-member of Harmon Brothers, LLC, a Utah limited liability company, which is an online-focused advertising and marketing company he co-founded with his brothers. Jeffrey co-founded Orabrush, Inc. in 2009 and served as its CEO from 2009-2010. He continued to serve as Chief Marketing Officer and Co-Founder of Orabrush from 2010 to 2013. He is currently active with other start-up companies and concepts. He attended Brigham Young University from 2006 to 2008, where he studied business marketing, traditional marketing, internet marketing and business administration.

Elizabeth Ellis, Chief of Operations. Liz Ellis is our Chief of Operations. Her duties include overseeing all operating, distribution, domestic and international operations, public relations, and human resources. She is an ICF Professional Certified Coach, and a Gallup-Certified Strengths Coach. From 2009 until she joined us, Liz was the Director of Human Relations and Office Manager at Orabrush, Inc., where she oversaw personnel and was responsible for various operational tasks. Liz holds a B.S. from Brigham Young University.

Patrick Reilly, Chief Financial Officer. Patrick began providing consulting services in March 2014 and joined as the Director of Finance in February 2016. Patrick oversees all accounting and finance aspects of the business, including but not limited to budgeting, forecasting, auditing, financial statement preparation and funding. Patrick is a seasoned veteran of tech startups. Prior to joining us, Patrick served as the Financial Controller at Moki Mobility, Inc. a computer software company, from 2013 to February 2016, where he was responsible for all finance and accounting duties. From 2009 to 2013, Patrick was the Vice President of Finance and Financial Controller at Allegiance, Inc. (now Maritz CX), where he was responsible for all finance and accounting duties of the company. Patrick graduated from the University of Utah with his M.B.A in 2020 and holds a B.S. in Business Administration from Utah Valley University.

Paul Ahlstrom, Director. Paul joined as our director in 2014. Paul has served as Managing Director of Alta Ventures Mexico Fund I, LP since 2010, where his responsibilities include all aspects of investor relations, evaluating a business’s products or services for potential investment opportunity, creating deal flow, negotiating the terms and conditions in financing rounds, serving as a board member of portfolio companies, and preparing financial statements and financial analysis. Over his career, Paul has directly participated in more than 125 venture capital investments and previously represented vSpring Capital on the boards of Ancestry.com, which was sold in 2007 to a private equity firm and went public in 2009 (NASDAQ:ACOM), Senforce, which was sold to Novell (NASDAQ: NOVL), and Altiris (NASDAQ:ATRS), which went public and was then sold to Symantec (NASDAQ: SYMC), GlobalSim and Aeroprise. Mr. Ahlstrom has also served as an advisor and board to many successful venture-backed startups including Rhomobile sold to Motorola, SpaceMonkey, SendMi, Convert.com and Jott. Paul is the author of the popular book related to business startups, Nail It Then Scale It, and received his B.A. in Communications from Brigham Young University. 

Dalton Wright, Director. Dalton joined as our director in 2014. Dalton has been a partner at Kickstart Seed Fund, L.P. since 2013, a seed-stage investment fund that develops close relationships with universities, angel groups and entrepreneurs to launch high-growth start-ups in both Utah and the Mountain West. Dalton serves as a director of numerous other corporate boards. From 2009 to 2012, Dalton was Senior Associate and Founding Team Member at Alta Ventures Mexico, a seed, venture, and growth capital fund targeting high growth companies in Mexico. Dalton graduated from the Wharton Business School at the University of Pennsylvania with his M.B.A. in 2014 and holds a B.A. in finance from the University of Utah.

Stephen Oskoui, Director. Stephen joined as our director in 2022.  Stephen is Cofounder and Managing Partner of Gigafund. Before cofounding Gigafund, Stephen was a Venture Partner at Founders Fund. Prior to that, Stephen was Founder and CEO of Smiley Media. In his role as Managing Partner of Gigafund, Stephen has made significant investments in SpaceX, Neuralink, and the Boring Company. He is a board member at Bloom Institute of Technology, Veryable, Sana Benefits, Sunroom Rentals, Othram, and Cover, as well as a board observer at Luminous Computing and Last Energy.”

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 COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Messrs. Harmon, Ms. Ellis, and Mr. Reilly, receive compensation for acting in their capacities as our executive officers. We reimburse Messrs. Ahlstrom and Wright for their expenses incurred in acting in their capacity as a director. See – Remuneration of Executive Officers and Directors of the Company” below for more detailed information. 

Remuneration of Executive Officers and Directors of the Company

Set forth below is a table of remuneration that our executive officers and directors received for our fiscal year ended December 31, 2021.

Name	Capacity in which Compensation was Received	Cash Compensation ($)		Other Compensation ($)			Total Compensation ($)
Neal Harmon	Chief Executive Officer	$	205,591	$	10,696	(1)	$	216,287
Elizabeth Ellis	Chief Operating Officer		250,230		17,907	(2)		268,137
Jeffrey Harmon	Chief Content Officer		207,643		10,696	(3)		218,339
Patrick Reilly	Chief Financial Officer		256,900		20,628	(4)		277,528
Paul Ahlstrom	Director		n/a		n/a			n/a
Dalton Wright	Director		n/a		n/a			n/a
Stephen Oskoui	Director		n/a		n/a			n/a

(1)	On March 16, 2021 and November 2, 2021, Mr. Neal Harmon was granted stock incentive options exercisable for 13,158 and 7,000 shares of our Class A common stock, respectively, with an option price of $3.42 and $8.90 per share, respectively. All grants were made pursuant to the terms and conditions of our Stock Incentive Plan. The March 16, 2021 options will vest in equal monthly increments over one year, and the November 2, 2021 options will vest in substantially equal annual increments over a four-year period from the grant date.
(2)	On December 14, 2018, March 16, 2021, and September 3, 2021, Ms. Elizabeth Ellis was granted stock incentive options exercisable for 20,000, 11,718, and 50,035 shares of our Class A common stock, respectively, with an option price of $0.32, $3.42, and $8.63 per share, respectively. All grants were made pursuant to the terms and conditions of our Stock Incentive Plan. The March 16, 2021 options will vest in equal monthly increments over one year, and the remaining options will vest in substantially equal annual increments over a four-year period from the grant date.
(3)	On March 16, 2021 and November 2, 2021, Mr. Jeffrey Harmon was granted stock incentive options exercisable for 13,158 and 7,000 shares of our Class A common stock, respectively, with an option price of $3.42 and $8.90 per share, respectively. All grants were made pursuant to the terms and conditions of our Stock Incentive Plan. The March 16, 2021 options will vest in equal monthly increments over one year, and the November 2, 2021 options will vest in substantially equal annual increments over a four-year period from the grant date.
(4)	On December 14, 2018, March 16, 2021, and September 1, 2021, Mr. Patrick Reilly was granted stock incentive options exercisable for 20,000, 11,864 and 65,907 shares of our Class A common stock, respectively, with an option price of $0.32, $3.42 and $8.63 per share, respectively. All grants were made pursuant to the terms and conditions of our Stock Incentive Plan. The March 16, 2021 options will vest in equal monthly increments over one year, and the remaining options will vest in substantially equal annual increments over a four-year period from the grant date.

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Stock Incentive Plan

In effort to further our long-term stability and financial success by attracting and retaining personnel, including employees, directors, and consultants, we adopted the 2014 Stock Incentive Plan, or our Stock Incentive Plan, in February 2014. The Stock Incentive Plan was amended and restated in August 2016, again in July 2020, and again in February 2021. The plan reserves a total of 5,775,000 shares of Class A common stock for issuance through our Stock Incentive Plan with the condition that the number of options issued under the plan does not exceed 16.5% of the fully diluted outstanding shares of the Company. As of December 31, 2021, there were 4,587,956 shares of Class A common stock authorized for issuance through our Stock Incentive Plan. As of December 31, 2021, options exercisable for 2,291,628 shares of our Class A common stock have been granted, and are outstanding, under our Stock Incentive Plan, and options exercisable for 1,360,227 shares of Class A common stock have been exercised. Through the use of stock incentives, the Stock Incentive Plan will stimulate the efforts of those persons upon whose judgment, interest and efforts we will largely depend on for the successful conduct of our business and further align those persons’ interests with the interests of our stockholders. 

The Stock Incentive Plan is administered by our Board. The Board has the power and sole discretion to grant or award a stock incentive, or an Award, to any employee of, director of, or consultant to the Company, each a Participant, who in the sole judgment of our Board, has contributed, or can be expected to contribute, to our profits or growth. The Board also has the power and sole discretion to determine the size, terms, conditions and nature of each Award to achieve the objectives of the Award and the Stock Incentive Plan. This includes, without limitation, the Board’s ability to determine: (i) which eligible persons shall receive an Award and the nature of the Award, (ii) the number of securities to be covered by each Award, (iii) the fair market value of such securities, (iv) the time or times when an Award shall be granted, (v) whether an award shall become vested over a period of time, according to a performance-based or other vesting schedule or otherwise, and when it shall be fully vested, (vi) the terms and conditions under which restrictions imposed upon an Award shall lapse, (vii) whether a change of control exists, (viii) factors relevant to the satisfaction, termination or lapse of restrictions on certain Awards, (ix) when certain Awards may be exercised, (x) whether to approve a Participant’s election with respect to applicable withholding taxes, (xi) conditions relating to the length of time before disposition of securities received in connection with an Award is permitted, (xii) notice provisions relating to the sale of securities acquired under the Stock Incentive Plan, and (xiii) any additional requirements relating to Awards that the Board deems appropriate.

Item 4. Security Ownership of Management and Certain Security holders

Principal Shareholders

We currently have 85,000,000 shares of common stock par value $0.001 per share, authorized, of which 27,500,000 shares have been designated as Class A common stock, 4,000,000 shares have been designated as Class B common stock, 38,000,000 shares have been designated as Class C common stock, and 15,500,000 have been designated as Class F common stock. We authorized additional Class A common stock to allow for the conversion of existing Class A common stock to Class F common stock at a later date. We also authorized sufficient Class C common stock to allow for the conversion of Class A, Class B, and Class F common stock into Class C common stock as required, and/or permitted, under the amended and restated articles of incorporation of the Company.

As of December 31, 2021, we had 20,842,227 shares of our Class A common stock issued and outstanding, 3,349,017 shares of our Class B common stock issued and outstanding, 508,420 shares of our Class C common stock issued and outstanding and zero shares of our Class F common stock issued and outstanding.

Capitalization

As of December 31, 2021, Harmon Ventures, LLC, or Harmon Ventures, owned indirectly by our CEO, Mr. Harmon, and two of his brothers, Jeffrey Harmon and Daniel Harmon, owns 8,886,464 shares of our Class A common stock. Gigafund 1, LP, of which our director, Steve Oskoui, is the managing director, owns 3,637,047 shares of our Class A common stock. Alta Ventures Mexico Fund I, LLC, or Alta Ventures Mexico Fund I, of which our director, Paul Ahlstrom, is the managing director, owns 3,160,318 shares of our Class A common stock. Various unaffiliated investors own the remaining shares of Class A common stock, Class B common stock, and Class C common stock. 

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The following table sets forth those executive officers, directors and other security holders that hold 10% or greater of any class of shares, as of December 31, 2021.

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership	Amount and Nature of Beneficial Ownership Acquirable	Percent of Class
Class A common stock	Harmon Ventures, LLC 295 W Center St Provo, UT 84601	8,886,464 shares	N/A	42.64%
Class A common stock	Gigafund 1, LP 555 E. 5th Street # 3127 Austin, TX 78701	3,637,047 shares		17.45%
Class A common stock	Alta Ventures Mexico Fund I, LLC 3315 Mayflower Avenue, Suite #1 Lehi, UT 84043	3,160,318 shares	Option exercisable for 66,000 shares of Class A common stock	15.16%
Class C common stock	Chosen, LLC 4 S. 2600 W., Suite 5 Hurricane, UT 84737	456,364 shares		89.76%
Class C common stock	JK Andrus Investments, LLC 5008 S Marilyn Drive Holladay, UT 84117	52,056 Shares		10.24%

As of December 31, 2021, Harmon Ventures owned 35.98% of our total outstanding shares of capital stock, Gigafund 1, LP owned 13.02% of our total outstanding shares of capital stock, and Alta Ventures Mexico Fund I owned 12.79% of our total outstanding shares of capital stock. See “COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS – Stock Incentive Plan” above. 

Our Board may, from time to time, also cause shares of capital stock to be issued to our directors, officers, employees or consultants or our affiliates as equity incentive compensation under our Stock Incentive Plan, which shares will have all benefits, rights and preferences that our Board may designate as applicable to such shares. 

Item 5. Interest of Management and Others in Certain Transactions

Affiliated Transactions

Promotion and Marketing Services Agreement with Harmon Brothers, LLC.

We entered into a “Promotion and Marketing Services Agreement” (the “HB Marketing Agreement”) with Harmon Brothers, LLC (or “HB”) dated July 23, 2021. Neal Harmon and Jeffrey Harmon own a majority interest in HB.

HB is in the business of providing Internet-based and multi-media promotion and marketing services, including the design, implementation, and execution of promotional and Web-based advertising campaigns. In exchange for the promotion and marketing services provided by HB, we paid $239,275 to HB in 2021.

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Investor Rights and Voting Agreement

We entered into an Investor Rights and Voting Agreement, or Investor Agreement, dated February 27, 2014, with certain of our investors, including Alta Ventures Mexico Fund I, the manager of which is Paul Ahlstrom, one of our directors. The Investor Agreement requires us to provide certain information and inspection rights, provides for confidentiality, and requires the parties to this agreement to vote their respective shares of common stock in a manner which maintains the number of directors on the Board at no more than five and to elect as a director an individual designated by Alta Ventures Mexico Fund I for so long as it owns at least 1,000,000 shares of our common stock.

Wholly Owned Subsidiaries

We created VAS Portal, LLC, a wholly-owned subsidiary, in 2018. We subsequently loaned VAS Portal, LLC $100,000 in the form of a promissory note, with interest at 2.89%, and due in full on January 2, 2020. The promissory note was subsequently amended to change the maturity date to June 30, 2021. This note was paid in full during 2021. 

On January 2, 2019, we sold VAS Portal, LLC to Harmon Ventures, LLC, which is owned indirectly by our CEO, Mr. Harmon, and two of his brothers, Jeffrey Harmon and Daniel Harmon, for $1. The Company entered into a call option agreement with the related party that gives the Company the right to purchase all of the membership interest of VAS Portal, LLC for $1 at any time beginning upon (i) the occurrence of the confirmation of the plan for reorganization by the Bankruptcy Court or (ii) the termination of the Disney Litigation and the Bankruptcy proceeding and ending one year following the latest to occur of the foregoing. As part of the transaction, VAS Portal, LLC, entered into a Services Agreement with us to provide technology services related to the creation of a website and other assets for VAS Portal, LLC.

On September 28, 2020, we exercised our call option to purchase all of the membership interest of VAS Portal, LLC., from Harmon Ventures, LLC, however, we learned in 2021 that the transaction was not approved by the Financial Industry Regulation Authority, or FINRA, due to the fact that we were unable to provide them with all requested data on the beneficial ownership of the entities that owned significant stakes in Angel Studios, and as such we currently have no ownership over VAS Portal, LLC.

On February 20, 2020, we sold assets related to work done to establish a regulated broker-dealer to Harmon Ventures, LLC. The assets were sold in a transaction negotiated and approved by the trustee appointed in our Bankruptcy Case. On September 28, 2020, we purchased all of the membership interest in Studio Brokerage, LLC. The entity had no operations through December 31, 2021.

We created Skip TV Holdings, LLC., a wholly-owned subsidiary, on September 15, 2020. The assets related to our content filtering business were all transferred and assigned to Skip TV Holdings, LLC. as part of our Reorganization Plan. All related assets and liabilities of Skip TV Holdings, LLC was sold to a third party in March 2021. 

We created VidAngel Studios, LLC., a wholly-owned subsidiary, on September 15, 2020. Any assets not related to our content filtering business were transferred and assigned to VidAngel Studios, LLC. as part of our Reorganization Plan.

We created Angel Studios OF I, LLC., a wholly-owned subsidiary, on July 14, 2021.  This entity was formed to purchase a fifty percent interest in the building and entity we lease our corporate office space in Provo, UT.  This purchase took place in July 2021.  

We are permitted to enter into transactions with, including making loans to and loan guarantees on behalf of, our directors, executive officers and their affiliates, so long as the person or persons approving the transaction on behalf of us acts in good faith and in a manner reasonably believed to be in or not opposed to our best interest and/or those of our stockholder’s. We did not have any outstanding loans or loan guarantees with any related party as of December 31, 2021.

On April 14, 2022, we entered into a promissory note (the “Note”) with our Chief Financial Officer, Patrick Reilly, in the amount of $142,113 which is secured by his Class A common stock. The maturity date on the Note is July 14, 2022.  Interest on the Note will be calculated based on an annual rate of 5%, however if the Note is repaid in full before the maturity date, any interest due will be waived. 

15

Item 6. Other Information

None.

16

Item 7. Financial Statements

 

ANGEL STUDIOS, INC.

Consolidated Financial Statements

As of December 31, 2021 and 2020

and For the Years Then Ended

(Together with Independent Auditors’ Report)

17

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Management of

Angel Studios, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Angel Studios, Inc. and subsidiaries (collectively, the Company) as of December 31, 2021, and the related consolidated statement of income, stockholders’ equity (deficit), and cash flows for the year then ended, 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, 2021, and the results of its operations and its cash flows for each of the one year ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

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 audit. 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 and in accordance with auditing standards generally accepted in the United States of America. 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 audit, 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 audit 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/ Tanner LLC

We have served as the Company’s auditor since 2016.

Salt Lake City, Utah

April 29, 2022

18

To the Board of Directors and Management of

Angel Studios, Inc.

We have audited the accompanying consolidated financial statements of Angel Studios, Inc. and subsidiaries (collectively, the Company), which comprise the consolidated balance sheet as of December 31, 2020, the related consolidated statement of income, stockholders’ deficit, and cash flows for the year then ended, and the related notes to consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to error or fraud.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to error or fraud. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020, and the consolidated results of their operations and their cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America.

/s/ Tanner LLC

Salt Lake City, Utah

April 30, 2021

19

Consolidated Balance Sheets

	As of December 31,
	2021			2020
Assets
Current assets:
Cash and cash equivalents	$	24,258,513		$	11,022,292
Accounts receivable		10,440,538			1,205,520
Physical media inventory		1,869,913			785,888
Movie asset		-			40,000
Notes receivable, current		1,357,117			80,000
Prepaid expenses and other		3,706,963			582,399
Total current assets		41,633,044			13,716,099
Certificate of deposit		152,273			151,134
Property and equipment, net		714,307			165,412
Content, net		798,014			-
Intangibles, net		2,133,089			-
Digital assets, net		7,912,238			-
Investments in affiliates		957,811			-
Notes receivable, net of current portion		4,962,617			131,818
Other long-term assets		45,095			57,415
Total assets	$	59,308,488		$	14,221,878
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable	$	1,266,833		$	4,203,585
Accrued expenses		16,484,098			1,039,112
Deferred revenue		1,682,116			5,481,762
Current portion of accrued settlement costs		208,373			188,776
Total current liabilities		19,641,420			10,913,235
Accrued settlement costs, net of current portion		4,855,859			5,064,231
Deferred income tax liabilities, net		434,946			-
Total liabilities		24,932,225			15,977,466
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $0.001 par value, 85,000,000 and 35,000,000 shares
authorized, respectively; 24,699,664 and 21,569,311 shares issued
and outstanding, respectively		24,699			21,569
Additional paid-in capital		39,538,876			13,563,758
Accumulated deficit		(5,187,312	)		(15,340,915	)
Total stockholders' equity (deficit)		34,376,263			(1,755,588	)
Total liabilities and stockholders' equity (deficit)	$	59,308,488		$	14,221,878

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Income

For the Years Ended December 31,
	2021			2020
Revenues, net	$	122,793,064		$	46,942,397
Operating expenses:
Cost of revenues		77,129,092			25,542,998
Selling and marketing		15,940,749			8,643,129
General and administrative		11,770,089			3,754,605
Research and development		4,939,002			2,202,012
Write-down of digital assets		2,737,658			-
Settlement from litigation and legal expenses		585,444			6,611,305
Total operating expenses		113,102,034			46,754,049
Operating income		9,691,030			188,348
Other income (expense):
Gain on disposal of business		8,275,272			-
Interest expense		(514,385	)		(243,354	)
Interest income		485,873			70,716
Total other income (expense), net		8,246,760			(172,638	)
Income before income tax provision		17,937,790			15,710
Income tax provision		819,179			100
Net income	$	17,118,611		$	15,610
Net income per common share basic	$	0.755		$	0.001
Net income per common share diluted	$	0.702		$	0.001
Weighted average common shares outstanding basic		22,671,810			21,566,260
Weighted average common shares outstanding diluted		24,397,122			22,612,886

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Stockholders’ Equity (Deficit)

For the Years Ended December 31, 2021 and 2020
	Common Stock													Additional						Total Stockholders'
	Class A			Class B			Class C		Class F					Paid-in			Accumulated			Equity
	Shares			Shares			Shares		Shares		Amount			Capital			Deficit			(Deficit)
Balance as of December 31, 2019		18,246,831			3,313,335			-		-	$	21,560		$	13,466,838		$	(15,356,525	)	$	(1,868,127	)
Stock options exercised		9,145			-			-		-		9			2,917			-			2,926
Stock-based compensation expense		-			-			-		-		-			94,003			-			94,003
Net income		-			-			-		-		-			-			15,610			15,610
Balance as of December 31, 2020		18,255,976			3,313,335			-		-	$	21,569		$	13,563,758		$	(15,340,915	)	$	(1,755,588	)
Stock options exercised		1,136,696			-			-		-		1,137			477,309			-			478,446
Issuance of Common Stock, net of issuance costs of $388,665		1,962,573			561,745			456,364		-		2,981			26,785,724			-			26,788,705
Transfer of Common Stock		(52,056	)		-			52,056		-		-			-			-			-
Repurchase of Common Stock		(460,962	)		(526,063	)		-		-		(988	)		(1,818,510	)		(6,965,008	)		(8,784,506	)
Stock-based compensation expense		-			-			-		-		-			530,595			-			530,595
Net income		-			-			-		-		-			-			17,118,611			17,118,611
Balance as of December 31, 2021		20,842,227			3,349,017			508,420		-	$	24,699		$	39,538,876		$	(5,187,312	)	$	34,376,263

See accompanying notes to consolidated financial statements.

22

Consolidated Statements of Cash Flows

For the Years Ended December 31
	2021			2020
Cash flows from operating activities:
Net income	$	17,118,611		$	15,610
Adjustments to reconcile net income to net cash
and cash equivalents provided by operating activities:
Depreciation and amortization		303,706			89,754
Stock-based compensation expense		4,592,235			94,003
Investments in affiliates gain		(12,551	)		-
Impairment of digital assets		2,737,658			-
Gain in disposal of business		(8,275,272	)		-
Settlement from litigation		-			5,297,359
Impairment of movie asset		-			930,372
Change in deferred income taxes		434,946			-
Changes in operating assets and liabilities:
Accounts receivable		(9,235,018	)		(571,939	)
Holdback receivable		-			445,000
Physical media inventory		(1,084,025	)		(679,099	)
Prepaid expenses and other assets		(3,139,659	)		(562,242	)
Content		(820,788	)		-
Deposits		(5,500	)		(9,500	)
Note receivable		-			(104,330	)
Certificate of deposit		(1,139	)		75,038
Accounts payable and accrued expenses		12,508,233			3,427,800
Deferred revenue		141,993			1,400,540
Accrued settlement costs		-			(44,352	)
Net cash and cash equivalents provided by
operating activities		15,263,430			9,804,014
Cash flows from investing activities:
Purchases of property and equipment		(780,435	)		(219,103	)
Purchases of intangible assets		(2,188,489	)		-
Investments in affiliates		(945,260	)		-
Issuance of note receivable		(1,660,891	)		-
Repayments of note receivable		846,318			-
Disposition of business		(880,787	)		-
Purchase of certificate of deposit		-			(150,000	)
Net cash and cash equivalents used in investing activities		(5,609,544	)		(369,103	)
Cash flows from financing activities:
Exercise of stock options		478,446			2,926
Repayment of accrued settlement costs		(188,775	)		-
Issurance of common stock		12,465,834			-
Repurchase of common stock		(8,784,506	)		-
Equity financing fees		(388,664	)		-
Net cash and cash equivalents provided by financing activities		3,582,335			2,926
Net increase in cash and cash equivalents		13,236,221			9,437,837
Cash and cash equivalents at beginning of year		11,022,292			1,584,455
Cash and cash equivalents at end of year	$	24,258,513		$	11,022,292
Supplemental disclosure of cash flow information:
Cash paid for interest	$	518,368		$	132,537
Cash paid for income taxes		2,350,000			100
Supplemental disclosure of noncash financing activities:
Class C share stock issuance	$	4,061,640		$	-

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

1. Description of Organization and Summary of Significant Accounting Policies

Organization and Basis of Presentation

The Company comprises Angel Studios, Inc. and its wholly owned subsidiaries Dry Bar Comedy, LLC (a Utah limited liability company organized on January 20, 2017), Skip TV Holdings, LLC, (a Utah limited liability company organized on September 15, 2020 and sold in March 2021), Angel Studios Licensing, LLC, (a Utah limited liability company organized on September 15, 2020), Angel Studios OF I, LLC, (a Utah limited liability company organized on July 14, 2021) and Studio Brokerage, LLC (a Utah limited liability company organized on October 8, 2019) (collectively, the Company). Angel Studios, Inc. was originally organized as a Utah limited liability company on November 13, 2013. On February 7, 2014, the entity converted to a Delaware corporation. The Company’s mission is to share stories with the world that amplify light. This is done by aligning the Company’s interests with those of the creators and the audience and utilizing the wisdom of crowds to help guide decisions on the content that gets created.

The Company filed for Chapter 11 bankruptcy on October 18, 2017 and operated its business as a debtor in possession under the jurisdiction of the court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the court until August 28, 2019. On that date, the United States Trustee appointed George B, Hofmann to serve as a chapter 11 trustee, and an order was subsequently entered by the court approving it. On September 4, 2020, the court confirmed the Company’s Joint Plan of Reorganization of Trustee and Studios which became effective on September 30, 2020. On November 17, 2020, the court issued a final decree closing the Chapter 11 bankruptcy case and discharging the trustee from his duties.

Principles of Consolidation

The consolidated financial statements include the accounts of Angel Studios, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions that affect reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Key management estimates include the estimate for the allowance for doubtful accounts receivable, estimated economic useful lives of property and equipment, the period of use for capitalized content production costs, intangible assets, valuation allowances for net deferred income tax assets, and valuation of stock-based compensation.

Concentrations of Credit Risk

The Company maintains its cash and cash equivalents in bank deposit accounts which, at times, exceed federally insured limits.

To date, the Company has not experienced a loss or lack of access to its invested cash and cash equivalents; however, no assurance can be provided that access to the Company’s invested cash, restricted cash, and cash equivalents will not be impacted by adverse conditions in the financial markets.

In 2021, the Company choose to further diversify and maximize returns on cash and cash equivalents balances that are not required to maintain adequate operating liquidity. As such, the Company may invest a portion of such cash and cash equivalents in certain specified alternative reserve assets. Thereafter, the Company invested an aggregate of approximately $10,600,000 in bitcoin under this policy as of December 31, 2021. The Company believes their bitcoin holdings are highly liquid. However, digital assets may be subject to volatile market prices, which may be unfavorable at the time when the Company wants or needs to liquidate them. As of December 31, 2021, the Company recorded an impairment of $2,737,658 on the digital assets.

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Major vendors are defined as those vendors having expenditures made by the Company which exceed 10% of the Company’s total cost of revenues. Concentrations of vendors were as follows for the year ended December 31:

	2021		2020
Vendor A		59%		63%
Vendor B		17%		N/A
Vendor C		N/A		10%

No individual customers had revenues that were 10% or more of total revenues for the years ended December 31, 2021 and 2020.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities to the Company of three months or less to be cash equivalents. As of December 31, 2021, and 2020, these cash equivalents consisted of money market accounts.

Accounts Receivable

The Company records its accounts receivable at sales value and establishes specific reserves for those customer accounts identified with collection problems due to insolvency or other issues. The Company’s accounts receivable are considered past due when payment has not been received within 30 days of the invoice date. The amounts of the specific reserves are estimated by management based on various assumptions including the customer’s financial position, age of the customer’s receivables, and changes in payment schedules and histories.

Account balances are charged off against the allowance for doubtful accounts receivable when the potential for recovery is remote. Recoveries of receivables previously charged off are recorded when payment is received. The allowance for doubtful accounts receivable was $0 as of December 31, 2021 and 2020.

Physical Media Inventory

Physical media inventory consists of DVD’s, Blu-ray’s, books and other merchandise purchased for resale, related to content Angel Studios is distributing. Physical media inventory is recorded at average cost. The Company periodically reviews the physical media inventory for excess supply, obsolescence, and valuations above estimated realization amounts, and provides a reserve to cover these items. Management determined that no allowance for physical media inventory was necessary as of December 31, 2021 and 2020.

Movie Asset

Movie asset includes DVD and Blu-Ray discs purchased by the Company for resale. The Company sold the movie asset during 2021 as part of the asset purchase agreement related to the filtering business, see Note 6, and thus wrote down the inventory as of December 31, 2020 to the amount that was movie asset was purchased for which was $40,000. The write down was $930,372 and is included in operating expenses in the consolidated statements of income as of December 31, 2020.

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Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated economic useful lives of the assets or over the related lease terms (if shorter) as follows:

Office and computer equipment	3 years
Production equipment	1 year
Leasehold improvements	1 year
Furniture and fixtures	3 years
Warehouse equipment	3 - 5 years
Computer software	2 years

Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized. Routine maintenance, repairs, and renewal costs are expensed as incurred. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation and amortization are removed from the related accounts and any gain or loss is reflected in the statement of operations.

Content

The Company produces content for Dry Bar Comedy shows that are recorded and streamed through various channels. The Company capitalizes costs associated with the production, including development costs, direct costs and production overhead. The Company amortizes the content assets in cost of revenues on the consolidated statements of income over the period of use, which we estimate to be 10 years, beginning with the month of first availability. The amortization is calculated using the straight-line method.

Intangible Assets

Intangible assets consist of domain names the company has acquired and is stated at cost less accumulated amortization. Amortization is calculated using the straight-line method over the estimated economic useful lives of the domain names of approximately 30 years.

Digital Assets

The Company holds bitcoin (a “digital asset") and accounts for all digital assets held as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. The digital assets are initially recorded at cost and are subsequently remeasured on the consolidated balance sheets at cost, net of any impairment losses incurred since acquisition.

An analysis is performed each reporting report to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that the digital assets are impaired. In determining if an impairment has occurred, the Company considers the lowest market price of one unit of digital asset quoted on the active exchange since acquiring the digital asset. If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined.

Impairment losses are recognized within write-down of digital assets in the consolidated statements of operations in the period in which the impairment is identified. The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains will not be recorded until realized upon sale(s). In determining the gain to be recognized upon sale, the Company will calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.

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Impairment of Long-Lived Assets

The Company reviews its property and equipment, and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may be impaired. If it is determined that the estimated undiscounted future cash flows are not sufficient to recover the carrying value of the asset, an impairment loss is recognized in the statements of operations for the difference between the carrying value and the fair value of the asset. As of December 31, 2020, the Company recorded an impairment loss to its Movie Asset of $930,372 due to a one-time write down to the estimated liquidation value of the asset. No significant write-downs occurred during 2021.

Investments in Affiliates

Investments in affiliates represent the Company’s investments in a noncontrolling interest real estate joint venture. The Company’s investments where the Company has significant influence, but does not control and joint ventures which are variable interest entities (VIE) in which the Company is not the primary beneficiary, are recorded under the equity method of accounting in the accompanying consolidated financial statements.

Under the equity method, the Company’s investment is stated at cost and adjusted for the Company’s share of net earnings or losses and reduced by distributions. Equity in earnings is recognized based on the Company’s ownership interest in the earnings of the VIE.

Revenue Recognition

The Company recognizes revenue when a customer obtains control of promised products or services. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to receive in exchange for these products or services. To achieve the core principle of Topic 606, the Company applies the following five steps: 1) Identify the contract with

the customer; 2) Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction price to performance obligations in the contract; and 5) Recognize revenue when or as the Company satisfies a performance obligation. The following components represent the most significant portions of revenue being recognized:

Filtering Subscription Revenue

Prior to the sale of VidAngel (see Note 6), the Company offered subscriptions to use its proprietary content filtering technology in conjunction with many of today’s popular streaming services for a monthly fee. Customers subscribe for this service online through the Company’s website. The customer is charged the full price at the start of the subscription period, and monthly thereafter, which amount is initially recognized as deferred revenue and recognized as revenue daily as the subscription service is provided. During the time that the customer owns a subscription, the Company gives the customer access to its patented video streaming technology that permits the customer to direct their individual viewing experience by allowing them to remove certain audio or video segments that contain material that may be considered objectionable by a member of the private household to use in conjunction with other popular video streaming platforms. Access to this technology is available during the entire period of the subscription and is extinguished at the end of the subscription period in which the customer cancels their subscription. Any incentive allowances provided to customers such as credits and free subscription periods are recorded as reductions of revenue. Filtering subscription revenue is recognized over time, typically in daily increments as the customers pay on a monthly basis.

Digital and Physical Media Revenue

The Company has partnered with creators to distribute the creators licensed original content and related merchandise. Digital delivery represents streaming-based delivery of content via the Company’s service. Physical media represents Blu-Ray, DVD discs, various books, and other intellectual property. Revenue is recognized as products are delivered upon streaming, or upon shipment of physical media. Digital and physical media revenue is recognized at a point in time – when streamed digitally, or when physically shipped.

Theatrical Release Revenue

Prior to the digital release of creators content, the Company might provide the option to pay for and watch certain content as part of a theatrical release. Revenue from these events are recognized at a point in time – when the theatrical showing actually takes place.

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Content Licensing

The Company receives content licensing revenue by publishing its content on third-party platforms. The Company grants the third-party platforms a license to display the Company’s content to the customers of the third-party platforms. The third-party platforms are interested in increasing traffic on their platforms, and the third-party platforms pay the Company based on impressions delivered, or the number of actions, such as clicks, taken by users viewing the Company’s content via the third-party platforms. The Company recognizes revenue in the period in which the impressions or actions occur, at a point in time. The third-party platforms provide the Company monthly reports of the Company’s revenue.

The following table presents the Company’s revenue recognized over time or at a point in time (as previously described) for the years ended December 31:

	2021		2020
Over time revenue	$	1,208,979	$	5,255,176
Point in time revenue		121,584,085		41,687,221
Total revenues, net	$	122,793,064	$	46,942,397

Stock-Based Compensation

Stock-based payments made to employees, including grants of employee stock options, are measured using a fair value-based method (see Note 8). The related expense is recorded in the statements of operations over the period of service.

Advertising

Advertising costs are expensed as incurred. Advertising expenses totaled $11,535,158 and $6,943,060 for the years ended December 31, 2021 and 2020, respectively.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the tax bases of assets and liabilities. The deferred taxes represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred income tax assets are reviewed periodically for recoverability, and valuation allowances are provided when it is more likely than not that some or all of the deferred income tax assets may not be realized.

The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open tax years based on an assessment of many factors including experience and interpretations of tax laws applied to the facts of each matter. The Company files income tax returns in the U.S. federal jurisdiction and certain state jurisdictions.

Recent Accounting Pronouncements

In March 2019, the FASB issued ASU 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials, in order to align the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization. ASU 2019-02 is effective for fiscal years beginning after December 15, 2020. The Company prospectively adopted ASU 2019-02 on January 1, 2021 and as such has included all costs for producing the Dry Bar Comedy content on its consolidated balance sheets, beginning with the period of adoption.

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2. Property and Equipment

Property and equipment consisted of the following as of December 31:

	2021			2020
Computer equipment	$	644,869		$	210,242
Production equipment		246,639			185,467
Leasehold improvements		238,280			119,502
Furniture and fixtures		190,801			97,465
Warehouse equipment		25,478			25,477
Computer software		73,004			19,998
		1,419,071			658,151
Less accumulated depreciation and amortization		(704,764	)		(492,739	)
	$	714,307		$	165,412

Depreciation and amortization expense on property and equipment for the years ended December 31, 2021 and 2020 was $225,532 and $89,754, respectively. The company wrote-off approximately $13,507 in assets that were either fully depreciated or sold as part of the VidAngel disposition.

3. Content assets

Content consisted of the following as of December 31:

	2021			2020
Content	$	820,788		$	-
Less accumulated amortization		(22,774	)		-
	$	798,014		$	-

Amortization expense on content for the years ended December 31, 2021 and 2020 was $22,774 and $0, respectively.

4. Intangible assets

Intangible assets consisted of the following as of December 31:

	2021			2020
Domain names	$	2,188,489		$	-
Less accumulated amortization		(55,400	)		-
	$	2,133,089		$	-

Amortization expense on intangible assets for the years ended December 31, 2021 and 2020 was $55,400 and $0, respectively.

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5. Accrued Settlement Costs

In September 2020, the Company recorded an expense on the statement of operations and an accrued settlement cost on the consolidated balance sheets for $5,297,359 as a result of a settlement from a litigation claim. The total amount of the damages awarded in the litigation was $9,900,000, payable over 14 years without interest, which was recorded as an expense of $5,297,359 during the year ended December 31, 2020. The Company recorded the present value of the $9,900,000 with an imputed interest rate of 10%. Payments of $176,786 are due quarterly. As of December 31, 2021, and 2020, the outstanding balance on the consolidated balance sheets is $5,064,232 and $5,253,007, respectively.

If the Company does not have any uncured payment faults and does not default on their settlement promises during the first three years, the Company can elect to pay the remaining balance on the note, less a discount of $2,100,000. The Company can elect to extend this option an additional 2 years.

The following table summarizes the scheduled maturities of the accrued settlement costs for the five years subsequent to December 31, 2021:

Year Ending December 31:	Amount
2022	$	208,373
2023		230,005
2024		253,882
2025		280,238
2026		309,331
Thereafter		3,782,403
	$	5,064,232

6. Disposition of Business

On March 1, 2021, the Company entered into an agreement to sell substantially all the assets and liabilities of the Company’s content filtering service. As part of this transaction, the Company paid cash to the buyer to provide liquidity to the business and the buyer entered into a note with the Company and is required to pay $9,900,000 over 14 years, or $7,800,000 if paid within 5 years. If the buyer defaults under any of its obligation under the agreement, they will be required to transfer and assign all assets and liabilities back to the Company for no consideration. As of December 31, 2021, and 2020, the outstanding balance on the consolidated balance sheets is $5,160,950 and $0, respectively. The Company recognized a gain on the disposal of the business of $8,275,272 as follows:

Assets and liabilities sold:
Movie inventory	$	(40,000	)
Deposits		(32,915	)
Fixed assets		(6,008	)
Deferred revenue		3,941,639
	$	3,862,716
Cash paid	$	(880,787	)
Deferred consideration as notes receivable		5,293,343
Total gain	$	8,275,272

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7. Commitment and Contingencies

Litigation

The Company is involved in legal proceedings from time to time arising in the normal course of business. The Company has received, and may in the future continue to receive, claims from third parties.

Litigation is necessary to defend the Company. The results of any current or future complex litigation matters cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact because of defense and settlement costs, distraction of management and resources, and other factors. Additionally, these matters may change in the future as the litigation and factual discovery unfolds. Legal fees are expensed as incurred. Insurance recoveries associated with legal costs incurred are recorded when they are received.

The Company assesses whether there is a reasonable possibility that a loss, or additional losses beyond those already accrued, may be incurred (Material Loss). If there is a reasonable possibility that a Material Loss may be incurred, the Company discloses an estimate or range of the amount of loss, either individually or in the aggregate, or discloses that an estimate of loss cannot be made. If a Material Loss occurs due to an unfavorable outcome in any legal matter, this may have an adverse effect on the consolidated financial position, results of operations, and liquidity of the Company. The Company records a provision for each liability when determined to be probable, and the amount of the loss may be reasonably estimated. These provisions are reviewed annually and adjusted as additional information becomes available.

The Company is involved in various litigation matters and believes that any reasonably possible adverse outcome of these matters could potentially be material, either individually or in the aggregate, to the Company’s financial position, results of operations and liquidity. As of April 29, 2022, the date the consolidated financial statements were available to be released, management has determined an adverse outcome on one or more of the claims is unlikely and has not accrued any estimated losses related to these matters.

Operating Leases

The Company has a non-cancelable office lease that matures on February 28, 2024, with monthly payments of $30,000 that escalates by 5% in March of each year, and a second non-cancelable warehouse lease that matures on July 31, 2022, with an monthly lease amount of $5,160. The future minimum lease payments under non-cancelable operating leases with terms of one year or more are as follows:

Year Ending December 31:	Amount
2022	$	411,120
2023		393,750
2024		66,150
	$	871,020

Rental expense under operating leases was $393,020 and $229,177 for the years ended December 31, 2021 and 2020, respectively.

8. Stock Options

The Company’s 2014 Stock Incentive Plan (the Plan), originally approved on February 27, 2014, provides for the grant of incentive stock options, nonqualified options, stock appreciation rights, and shares of restricted stock. Under the terms of the Plan, there are 4,587,956, and 2,368,582 shares of Class A common stock authorized for grant to employees, officers, directors and consultants, as of December 31, 2021 and 2020, respectively. The Board of Directors determines the terms of each grant. Generally 25% of the options shall vest on the one-year anniversary of the vesting commencement date, and 1/36 of the remaining options shall vest each month and thereafter, and have a contractual life of ten (10) years. Certain stock options have provisions to accelerate vesting upon the occurrence of certain events. There are 936,101 and 76,647 shares available for grant under the Plan as of December 31, 2021 and 2020, respectively.

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Stock-based compensation expense for the years ended December 31, 2021 and 2020 was $530,595 and $94,003, respectively. As of December 31, 2021 and 2020, the Company had $2,501,080 and $22,650 respectively, of unrecognized stock-based compensation costs related to non-vested awards that will be recognized over a weighted-average period of 3.55 and 2.27 years, respectively. The Company uses an estimated 30% forfeiture rate.

The following sets forth the outstanding common stock options and related activity for the years ended December 31, 2021 and 2020:

	Number of Options			Weighted Average Exercise Price Per Share
Outstanding as of January 1, 2020		1,156,583			0.44
Granted		935,700			0.32
Exercised		(9,145	)		0.32
Forfeited		(43,271	)		0.32
Outstanding as of December 31, 2020		2,039,867			0.39
Granted		2,069,760			5.96
Exercised		(1,108,159	)		0.42
Forfeited		(709,840	)		3.40
Outstanding as of December 31, 2021		2,291,628			4.47

The following summarizes information about stock options outstanding as of December 31, 2021:

Number of Options Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number of Options Exercisable		Weighted Average Exercise Price
	33,311		2.46	$	0.18		33,311	$	0.18
	10,000		2.84		0.30		10,000		0.30
	620,635		7.55		0.32		614,949		0.32
	188,500		3.39		0.50		188,500		0.50
	49,000		4.56		0.82		49,000		0.82
	419,895		9.20		3.42		164,284		3.42
	647,487		9.61		8.63		14,268		8.63
	322,800		9.84		8.90		1,327		8.90
	2,291,628		8.26	$	4.47		1,075,639	$	0.96

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The fair value of each stock-based award granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions as of December 31:

	2021		2020
Risk-free interest rate	0.49% - 1.15%			0.29%
Expected stock price volatility		50%		50%
Expected dividend yield		0%		0%
Expected life of options	5 years		5 years

As of December 31, 2021 and 2020, the aggregate intrinsic value of options outstanding was $24,426,960 and $6,224,051, respectively. As of December 31, 2021 and 2020, the aggregate intrinsic value of options exercisable was $15,328,123 and $5,573,786, respectively.

Expected option lives and volatilities were based on historical data of the Company and comparable companies in the industry. The risk-free interest rate was calculated using similar rates published by the Federal Reserve. The Company has no plans to declare any future dividends.

9. Common Stock

The Company has authorized capital stock consisting of 85,000,000 shares of common stock, par value $0.001 per share, or common stock, of which 27,500,000 shares have been designated as Class A common stock, 4,000,000 have been designated as Class B common stock, 38,000,000 have been designated as Class C common stock, and 15,500,000 have been designated as Class F common stock (collectively, Common Stock).

Voting Rights

The holders of each type of common stock shall vote together as a single class. Each outstanding share of Class A common stock and Class F common stock shall be entitled to five (5) votes on each matter to be voted on by the stockholders of the Company. Each outstanding share of Class B common stock shall be entitled to fifty-five (55) votes on each matter to be voted on by the stockholders of the Company. Each outstanding share of Class C common stock shall be entitled to 1 (one) vote on each matter to be voted on by the stockholders of the Company.

Liquidation Rights

The holders of Common Stock outstanding shall be entitled to receive all of the assets and funds of the Company remaining and available for distribution. Such assets and funds shall be divided among and paid to the holders of Common Stock, on a pro-rata basis, according to the number of shares of Common Stock held by them.

Dividends

Dividends may be paid on the outstanding shares of Common Stock as and when declared by the Board, out of funds legally available, therefore.

Identical Rights

Holders of Common Stock shall have the same rights and privileges and rank equally with, and have identical rights and privileges as, holders of all other shares of the Common Stock, except with regard to voting rights as provided above.

Voluntary and Automatic Conversion into Class C Common Stock

Each one share of Class F common stock, Class A common stock, and Class B common stock shall be convertible into one share of Class C common stock at the option of the holder at any time. Each one share of Class F common stock, Class A common stock, and Class B common stock shall automatically convert into one share of Class C common stock upon certain criteria as defined in the amended and restated certification of incorporation.

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Income per Share

The following table represents the Company's income per share for the years ending December 31:

	2021		2020
Numerator:
Net income	$	17,118,611	$	15,610
Denominator:
Weighted average basic shares outstanding		22,671,810		21,566,260
Effect of dilutive shares		1,725,312		1,046,626
Weighted average diluted shares		24,397,122		22,612,886
Basic earnings per share	$	0.755	$	0.001
Diluted earning per share	$	0.702	$	0.001

The Company reports earnings per share in accordance with Accounting Standards Codification (ASC) 260-10. Basic earnings per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share is calculated similarly to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the common shares were dilutive.

10. Related-Party Transactions

The Company has a marketing services contract with an entity owned by one of the Company’s officers and stockholders. During the years ended December 31, 2021 and 2020, the Company incurred expenses of $276,775 and $0, respectively, to the related party for marketing services.

As of December 31, 2021 and 2020, the Company had a note receivable to an entity owned by one of the Company’s officers and stockholders of approximately $0 and $100,000, respectively. During the years ended December 31, 2021 and 2020, the Company also recognized revenue of $90,000 and $0 from this entity for general and administrative services during the year.

On January 2, 2019, the Company sold its wholly owned subsidiary VAS Portal, LLC to a related party for $1. On September 28, 2020, the Company exercised its option to repurchase VAS Portal, LLC from the related party for $1, however, that transaction was not approved by the Financial Industry Regulation Authority, or FINRA. This entity is not consolidated with the Company as of December 31, 2021 and 2020. During 2021, as part of the issuance of Common Stock, the Company paid $250,000 in issuance costs to this related party.

On February 20, 2020, the Company sold assets, related to its work on establishing a regulated broker-dealer, to a related party. The assets were sold in a transaction approved by the bankruptcy court and negotiated by the bankruptcy trustee. On September 28, 2020, the Company purchased one hundred percent (100%) of the ownership interest in Studio Brokerage, LLC from a related party. The entity that was purchased had no operations during the year ended December 31, 2021 and 2020.

In July 2021, the Company purchased a 50% interest in the entity that owns the building it leases its office space from. Lease payments made during the period of related party ownership was $150,000 for the year ended December 31, 2021.

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11. Income Taxes

The provision for income taxes differs from the amount computed at federal statutory rates as follows for the years ended December 31:

		2021			2020
Federal income tax at statutory rates	$	3,766,936		$	3,299
State income tax at statutory rates		718,762			4,041
Change in valuation allowance		(3,759,340	)		(25,238	)
Other		92,821			17,998
	$	819,179		$	100

Significant components of the Company’s net deferred income tax assets (liabilities) are as follows as of December 31:

	2021			2020
Net operating loss carryforwards	$	-		$	1,486,851
Depreciation and amortization		(117,969	)		43,136
Accrual to cash adjustments		-			2,209,778
Accruals and reserves		155,009			19,575
Deferred gain on sale		(1,153,950	)		-
Digital asset impairment		681,964			-
Valuation allowance		-			(3,759,340	)
	$	(434,946	)	$	-

As of December 31, 2021, the Company has no net operating loss (NOL) carryforwards available to offset future taxable income.

The Company has concluded that there are no significant uncertain tax positions requiring disclosure, and there are no material amounts of unrecognized tax benefits.

12. Subsequent Events

Subsequent events have been evaluated through April 29, 2022, which is the date the consolidated financial statements were available to be issued. There are no subsequent events requiring disclosure. During 2022, the Company entered into a promissory note with a member of management in the amount of $142,113 which is secured by his Class A common stock. The maturity on the note is July 14, 2022. Interest on the note will be calculated based on an annual rate of 5%, however if the note is repaid in full before the maturity date, any interest due will be waived.

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Item 8. Exhibits

INDEX OF EXHIBITS

The following exhibits are filed as part of this Form 1-K.

Exhibit Number	Description
1.1	Amended and Restated Certificate of Incorporation of Angel Studios, Inc., as amended on October 5, 2021, incorporated by reference to Exhibit 3.1 of our Form 1-U filed October 6, 2021.
1.2	Amended and Restated Bylaws of Angel Studios, Inc., as amended on October 5, 2021, incorporated by reference to Exhibit 3.2 of our Form 1-U filed October 6, 2021.
2.1	Investor Rights and Voting Agreement between Angel Studios, Inc. and certain investors, incorporated by reference to Exhibit 3.1 of our Form 1-A filed on September 22, 2016.
2.2	Amended and Restated Class B Stockholders Agreement between Angel Studios, Inc. and our Class B Common Stockholders, incorporated by reference to Exhibit 3.1 of our Form 1-U filed August 18, 2021.
3.1	Joint Plan of Reorganization of Trustee and Studios under Chapter 11 of the Bankruptcy Code, incorporated by reference to Exhibit 1.2 of our Form 1-U filed on September 15, 2020
3.2	Settlement Agreement, incorporated by reference to Exhibit 1.3 of our Form 1-U filed on September 15, 2020
3.3	Asset Purchase Agreement between Angel Studios, Inc. and VidAngel Entertainment, LLC., incorporated by reference to Exhibit 1.1 of our Form 1-U filed on March 5, 2021
6.1	Promotion and Marketing Services Agreement between Angel Studios, Inc. and Harmon Brothers, LLC.
6.2	EXCLUSIVE VIDEO-ON-DEMAND AND SUBSCRIPTION VIDEO-ON-DEMAND LICENSE AGREEMENT BETWEEN ANGEL STUDIOS, INC. AND THE CHOSEN, LLC

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SIGNATURES

Pursuant to the requirements of Regulation A, the issuer has duly caused this Annual Report on Form 1-K to be signed on its behalf by the undersigned, thereunto duly authorized, in Provo, Utah on April 29, 2022. 

Angel Studios, Inc.
By:	/s/ Neal S. Harmon
Name:	Neal S. Harmon
Title:	Chief Executive Officer

Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer in the capacities and on the dates indicated. 

Signature	Title	Date
/s/ Neal S. Harmon	Chief Executive Officer and Director	April 29, 2022
Neal S. Harmon	(Principal Executive Officer)
/s/ Patrick Reilly	Chief Financial Officer	April 29, 2022
Patrick Reilly	(Principal Financial and Accounting Officer)
/s/ Dalton Wright	Director	April 29, 2022
Dalton Wright
/s/ Paul Ahlstrom	Director	April 29, 2022
Paul Ahlstrom

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