Item 1. Business
Item 1.
Business
Overview
TMTG believes free and open communication, particularly political speech, is essential to self-government and
democracy. Free expression allows citizens to keep their government in check and inform themselves as voters. Free speech also enables the discovery of truth through the uninhibited marketplace of ideas. Truth often emerges only when
opposing ideas can compete against each other on a level playing field. TMTG further believes that the ability to freely express core political speech is among the inalienable rights affirmed by the Declaration of Independence that
underlay America’s system of government.
TMTG therefore aspires to build a media and technology powerhouse to rival the liberal media consortium and
promote free expression. TMTG was founded to fight back against the big tech companies—Meta (Facebook, Instagram and Threads), X (formerly Twitter), Netflix, Alphabet (Google), Amazon and others—that may curtail debate in America and
censor voices that contradict their “woke” ideology. As confirmed by the “Twitter Files” exposés, X has long suppressed conservative speech (including at the behest of U.S. government officials) through various means, including
“shadow banning”—a surreptitious process in which users may not even know their posts are being hidden from other users. X also outright banned conservative users such as President Donald J. Trump, who was banned for one year and ten
months—even while X continued to allow the Taliban to freely post their views to the world. In July 2023, a federal district court judge found that Biden White House personnel likely colluded with big tech companies to violate
Americans’ First Amendment rights. The opinion expressed that “targeted suppression of conservative ideas is a perfect example of viewpoint discrimination of political speech.” Big tech companies’ transformation into the arbiters of
public speech and organs of state-sponsored censorship contradicts American values. Their suppression of dissident speech constitutes the most serious threat today to a free and democratic debate. Thus, TMTG aims to safeguard public
debate and open dialogue, and to provide a platform for all users to freely express themselves.
TMTG’s first product, Truth Social, is a social media platform aiming to disrupt big tech’s control on free
speech by opening up the internet and giving the American people their voices back. It is a public, real-time platform where any user can create content, follow other users and engage in an open and honest global conversation without
fear of being censored or “cancelled” due to their political viewpoints. TMTG does not restrict whom a user can follow, which greatly enhances the breadth and depth of available content. Additionally, users can be followed by other
users without requiring a reciprocal relationship, enhancing the ability of TMTG users to reach a broad audience.
Truth Social was generally made available in the first quarter of 2022. TMTG prides itself on operating its
platform, to the best of its ability, without relying on big tech companies. Partnering with pro-free-speech alternative technology firms, Private TMTG fully launched Truth Social for iOS in April 2022. Private TMTG debuted the Truth
Social web application in May 2022, and the Truth Social Android App became available in the Samsung Galaxy and Google Play stores in October 2022. Private TMTG introduced direct messaging to all versions of Truth Social in 2022,
released a “Groups” feature for users in May 2023 and announced the general availability of Truth Social internationally in June 2023. Since its launch, Truth Social has experienced substantial growth, from zero to an aggregate of
approximately 9.0 million signups for Truth Social via iOS, Android and the web as of the date of this Report. However, investors should be aware that since its inception, Private TMTG and, following the Closing, TMTG has not relied on
any specific key performance metric to make business or operating decisions. Consequently, it has not been maintaining internal controls and procedures for periodically collecting such information, if any. While many mature industry
peers may gather and analyze certain metrics, given the early development stage of the Truth Social platform, TMTG’s management and board believe that such metrics are not critical in the near future for the business and operation of
the platform. This stance is due to TMTG’s long-term commitment to implementing a robust business plan, which may involve introducing innovative features and potentially incorporating new technologies, such as advanced video streaming
services on its platform. These initiatives may enhance the range of services and experiences TMTG can offer on its Truth Social platform.
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At this juncture in its development, TMTG believes that adhering to traditional key performance indicators, such as signups, average revenue per user, ad impressions
and pricing, or active user accounts including monthly and daily active users, could potentially divert its focus from strategic evaluation with respect to the progress and growth of its business. TMTG believes that focusing on these KPIs
might not align with the best interests of TMTG or its shareholders, as it could lead to short-term decision-making at the expense of long-term innovation and value creation. Therefore, TMTG believes that this strategic evaluation is
critical and aligns with its commitment to a robust business plan that includes introducing innovative features and new technologies. See “ Risk Factors — Risk
Factors Related to TMTG — TMTG does not currently, and may never, collect, monitor or report certain key operating metrics used by companies in similar industries.”
To foster a flourishing digital public forum, TMTG seeks to prevent illegal and other prohibited content from contaminating its platform. In accordance with Truth
Social’s terms of service, illegal and prohibited content includes, but is not limited to, depictions or threats of violence, harassment, incitement of or threats of physical harm. Using human moderators and an artificial intelligence
vendor known as HIVE, Truth Social has developed what TMTG believes is a robust, fair, and viewpoint-neutral moderation system and that its moderation practices are consistent with, and indeed help facilitate, TMTG’s objective of
maintaining “a public, real-time platform where any user can create content, follow other users, and engage in an open and honest global conversation without fear of being censored or cancelled due to their political viewpoints.” See “ Risk Factors — Risks Related to TMTG’s Business — TMTG may be subject to greater risks than typical social media platforms
because of the focus of its offerings and the involvement of President Trump. These risks include active discouragement of users, harassment of advertisers or content providers, increased risk of hacking of TMTG’s platform, lesser need
for Truth Social if First Amendment speech is no longer believed to be suppressed by other similar platforms, criticism of Truth Social for its moderation practices, and increased stockholder suits. ”
Industry Overview
Today many people get their news from the internet, including websites operated by newspapers and cable news
providers. According to a 2020 Pew Research Center survey, a large majority of Americans read news from digital devices. More than eight-in-ten U.S. adults (86%) say they get news from a smartphone, computer or tablet “often” or
“sometimes,” including 60% who say they do so often. This is higher than the portion who get news from television, though 68% get news from TV at least sometimes and 40% do so often. Americans turn to radio and print publications for news
far less frequently, with half saying they turn to radio at least sometimes (16% do so often) and about a third (32%) saying the same of print (10% get news from print publications often).
Social media sites such as X and Facebook have become popular platforms for public discussions and information gathering. These sites were originally characterized by
the free exchange of ideas—in fact, the companies’ founders were often free-speech idealists. The freewheeling marketplace of ideas they created, however, has been eviscerated by an overbearing censorship regime implemented by the few
large, powerful corporations that now dominate the sector. Even the founder and former CEO of X has lamented that “centralizing discovery and identity into corporations” has “really damaged the internet.”
These corporations increasingly decide which viewpoints can and cannot be expressed on their platforms. No one, not even a sitting President of the United States, is
beyond the reach of big tech censorship. This dynamic has become—as X’s (formerly Twitter’s) founder predicted it would—“destructive to the noble purpose and ideals of the open internet.” Social media companies employ, rely on, and have
largely become captive to an ever-expanding faction of content moderators and so-called “fact checkers” who suppress content and promote so-called “algorithmic justice.” The means of censorship include shadow bans, temporary suspensions,
misinformation warnings, removal of offending posts, and outright bans on users and accounts. Alarmingly, viewpoints are frequently suppressed simply for contradicting the prevailing media narrative on topics of public interest. As a
result, users increasingly engage in self-censorship in an attempt to avoid takedowns, suspensions, and bans meted out by anonymous big tech censors.
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This oppressive censorship creates opportunities for TMTG, which seeks to create a free-speech haven in the social media sphere. Moreover, as America and the world have
emerged from the isolation of a years-long pandemic, Truth Social intends to provide a global platform to help reconnect people and communities by fostering each individual’s unique and unencumbered free expression.
Company Growth Strategy
As TMTG seeks to create a fully integrated media and technology company, it is pursuing these growth strategies:
Grow Truth Social. TMTG believes that growth in Truth Social’s user base will drive more
unique content, which in turn will drive the viral, organic promotion of content on Truth Social, thereby attracting more platform partners and advertisers. TMTG also plans to grow Truth Social through the addition and refinement of
user-friendly features—including the integration of video—and continued global expansion. As Truth Social attracts more users, the value proposition for advertisers increases, thereby incentivizing advertisers to develop unique and
compelling content for the platform.
Increase Product Offerings and Services. Organically and/or in partnership with third
parties, TMTG intends to develop one or more additional cutting-edge products and/or services to complement the Truth Social platform. TMTG has conducted extensive technological due diligence regarding, and begun testing, a particular,
state-of-the-art technology that supports video streaming and provides a “home” for cancelled content creators, and which TMTG is exploring with the aim to incorporate into its product offerings and/or services as soon as practicable.
Pursue Strategic Acquisitions and/or Partnerships. As cancel culture sweeps through
corporate America, businesses are facing increasing pressure to silence or disavow certain customers—or are more frequently taking controversial stands on political issues that alienate many consumers. Concurrently, an increasing number
of entrepreneurs are catering to conservatives across various industries. TMTG will actively seek out opportunities to partner with and/or acquire other participants in this growing “parallel economy.”
As an early-stage company in the rapidly evolving technology sector, Private TMTG
experienced significant shifts in its business strategy since October 2021. Private TMTG’s plans were notably impacted by a delay in accessing capital due to the postponed merger with Digital World. Despite these challenges, Private TMTG
remained agile, focusing primarily on enhancing the features and user interface of Truth Social since its launch in the first quarter of 2022. This focus on improving the user experience led Private TMTG to reassess the development of a
subscription video on demand service while exploring alternatives, including the streaming technology referenced above, and adjust its business plan and capital needs accordingly.
The successful launch of Truth Social, coupled with a strategic shift towards less
capital-intensive technology, significantly reduced TMTG’s capital requirements. This shift reflected TMTG’s adaptability and responsiveness to market conditions and the challenges in the broader sector. As TMTG continues to evolve, the
potential integration of innovative technologies with Truth Social not only signifies a strategic pivot but also opens new avenues for growth and engagement, positioning TMTG to capitalize on the synergies between advanced network
infrastructure and social media platforms in the ever-changing technology landscape.
Company Product and Service
Truth Social
TMTG has designed Truth Social to create a user-centric, interactive experience. TMTG’s development efforts focus on simplicity and ensuring that content can be
accessed by, or shared with, all participants without discrimination.
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Description of Business
Truth Social is a free expression application that offers social networking services.
TMTG’s Social Network
Truth Social, TMTG’s social networking platform, relies on free, publicly available software. Regardless of
whether Truth Social’s administrators, outside activist pressure groups, cancel-culture internet mobs, foreign governments or any other persons agree with any user’s political viewpoints, TMTG strives to ensure that any user’s protected
political speech will be allowed on the site.
Competition
TMTG’s business is characterized by rapid technological change, frequent product innovation, and the continuously evolving preferences and expectations of its users,
advertisers, content partners, platform partners and developers. TMTG will likely face significant competition in every aspect of its business, including from companies that provide tools to facilitate communications and the sharing of
information, companies that enable marketers to display advertising, and other online ad networks, exchanges, and platforms. TMTG will need to compete in order to attract, engage, and retain people who use its products, and to attract and
retain marketers, content and platform partners, and developers. TMTG expects continued, robust competition for digital ad spending. TMTG will also need to compete to attract and retain employees, especially software engineers, designers,
and product managers. TMTG further expects that it will face criticism, and its users may face criticism, from legacy social media sites and others that are opposed to views that may be expressed by TMTG’s users. While TMTG will welcome
dissenting voices to respond on TMTG’s platform, others may prefer to ignore or disparage TMTG or its users in other forums.
TMTG expects to face significant competition with the following companies for people’s attention and for advertisers’ budgets:
•
Companies that that offer products that enable people to create and share ideas, videos, and other content and
information. These offerings include, for example, X (formerly Twitter), Meta (including Facebook, Instagram and Threads), Alphabet (including Google and YouTube), Microsoft (including LinkedIn), Snapchat, TikTok and Verizon
Media Group, as well as largely regional social media and messaging companies that have strong positions in particular countries (including WeChat, Kakao, and Line). Although TMTG will seek differentiated content from other
licensors, TMTG will face competition for live premium video content rights from other digital distributors and traditional television providers, which may limit TMTG’s ability to secure such content on acceptable economic and
other terms.
•
Companies that offer advertising inventory and opportunities to advertisers.
•
Companies that develop applications, particularly mobile applications, that create, syndicate, and distribute content
across internet properties.
•
Traditional, online, and mobile businesses that enable people to consume content or marketers to reach their
audiences and/or develop tools and systems for managing and optimizing advertising campaigns.
As TMTG introduces new products, as its products evolve or as competing companies introduce new products and
services, TMTG may become subject to additional competition. TMTG’s industry is evolving rapidly and is highly competitive. See the sections titled “ Risk Factors — Risks Related to TMTG’s Business — TMTG’s business is highly competitive. Competition presents an ongoing threat to the success of TMTG’s business. If TMTG is unable to compete effectively for users and
advertiser spend, TMTG’s business and operating results could be harmed,” and “ Risk Factors — Risks Related to TMTG’s Business — The
loss of key personnel or the inability of replacements to quickly and successfully perform in their new roles could adversely affect TMTG’s business.”
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Sales and Marketing
Pending access to additional capital, TMTG intends to have a sales force and sales support staff that is focused on attracting and retaining advertisers. TMTG expects
that its sales force and sales support staff will assist advertisers throughout the advertising campaign cycle, from pre-purchase decision making to real-time optimizations as they utilize TMTG’s campaign management tools, and to
post-campaign analytics reports to assess the effectiveness of their advertising campaigns.
TMTG expects that its marketing campaigns will focus on celebrating and highlighting the voices of all people who make Truth Social unique. TMTG believes advertisers
could eventually be attracted to a platform that encourages free and open debate among all users rather than to a platform that seeks to silence diverse perspectives—including views held by large swaths of Americans.
License Agreement
Private TMTG entered into a royalty-free license agreement with President Trump and DTTM
Operations, LLC, an entity that licenses President Trump’s name and regulates his personal media assets and is beneficially wholly owned by President Trump (the “Licensor”). The License Agreement required Private TMTG to pay $100 upon the
execution of this License Agreement and that such amount constituted full consideration and a fully paid-up royalty covering the entire term of the License Agreement for the licenses granted in the License Agreement. Private TMTG did not,
and, as of the date of this Report, TMTG Sub has not, paid any other amounts to the Licensor pursuant to the License Agreement.
Under the License Agreement, as amended, TMTG Sub has a royalty-free license to use
“Trump Media & Technology Group Corp.” as its name. In addition, TMTG Sub has a royalty-free license to use the name and likeness of President Trump, solely as necessary for TMTG Sub to commercialize Truth Social. The License Agreement
prohibits use of President Trump’s name or likeness for any other purpose and specifically excludes any use in connection with political activities, including political messaging, political fundraising, get-out-the vote efforts and uses
that are controlled by or supportive of any political committees, candidates, policies or initiatives or associated with advocacy or electioneering. All uses of (and any modifications to) President Trump’s name or likeness are subject to
his prior approval. Further, the quality of any products or services offered under the License Agreement in connection with President Trump’s name or likeness is subject to his control, and those products or services must in any event
satisfy the highest standards for quality and reputation. The rights granted to use President Trump’s name and likeness do not extend to any other member of his family.
Until February 2, 2025, (the “TMTG Social Media Exclusivity Term”), President Trump has
agreed to channel non-political communications and posts coming from his personal profile to the Truth Social platform before posting that same social media communication and/or post to any other social media platform that is not Truth
Social (collectively, “Non-TMTG Social Media”) until the expiration of the “DJT/TMTG Social Media 6-Hour Exclusive” which means the period commencing when President Trump posts any social media communication onto the Truth Social platform
and ending six hours thereafter; provided that he may post social media communications from his personal profile that he deems, in his sole discretion, to be politically-related on any social media site at any time, regardless of whether
that post originates from a personal account. As a candidate for president, most or all of President Trump’s social media posts may be deemed by him to be politically related. Consequently, TMTG may lack any meaningful remedy if President
Trump minimizes his use of Truth Social. Additionally, none of the limitations or exclusivity contained in the License Agreement shall apply to any business ventures of President Trump or The Trump Organization or their respective
affiliates.
Unless notice is given, the TMTG Social Media Exclusivity Term extends in perpetuity for additional 180-day
terms. In the event of a force majeure as described in the License Agreement that lasts longer than three days, or if the TMTG Platform is not available to President Trump for a period of three or more consecutive days, President Trump will
have the right to invoke the suspension of the DJT/TMTG Social Media 6-Hour Exclusive. If the TMTG Social Media Exclusivity Term were to expire but the License Agreement remained in effect, President Trump would be required to post
non-political communications contemporaneously to Truth Social and Non-TMTG Social Media. However, that obligation would also exempt any communications that President Trump deems, in his sole discretion, to be politically-related.
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President Trump has the right to terminate the License Agreement if (i) the quality of
any product or service falls below the required level and is not restored immediately (but not later than 30 days) after notification or (ii) TMTG Sub causes or permits (a) any use of President Trump’s name, likeness or other characteristic
in any manner that denigrates or ridicules the name, image or reputation of President Trump, any member of his family, or any of his or her business properties, (b) uses of such name, likeness or other characteristic other than as permitted
in the License Agreement, (c) alternations or distortions of such name, likeness or other characteristic without President Trump’s written consent, or (d) creation of any direct, indirect or implied endorsement or commercial tie-in with any
product or service that is not offered by TMTG Sub, and the applicable foregoing condition ((a)-(d)) is not cured within 30 days after notice. The license is in any event revocable by President Trump and subject to all of the conditions and
limitations in the License Agreement.
The License Agreement also provides that, if it is not sooner terminated, and if TMTG Sub
becomes listed on a public market exchange in the United States via, inter alia, the Business Combination before December 31, 2024, the term of the License Agreement will continue in perpetuity, except that it may be terminated by TMTG Sub
for convenience or by President Trump for a breach of TMTG Sub’s obligation to ensure that any products or services offered or marketed using President Trump’s name or likeness meet the highest standards of quality and reputation if such
breach is not cured immediately (but no later than 30 days) after notification. As a result, following the completion of the Business Combination, the License Agreement will continue in perpetuity.
President Trump has agreed not to compete with Truth Social by founding, developing or
obtaining a controlling interest in a social media platform that includes one or more material features that directly compete with any of the material features of Truth Social. President Trump may otherwise compete with Truth Social,
including by managing or otherwise working with any other social media platform.
TMTG Sub may not terminate the License Agreement based on the personal or political
conduct of President Trump, even if such conduct could negatively reflect on TMTG Sub’s reputation or brand or be considered offensive, dishonest, illegal, immoral, or unethical, or otherwise harmful to TMTG Sub’s brand or reputation.
Further, TMTG and TMTG Sub may be obligated to indemnify President Trump for any losses of any type that relate in any way to the License Agreement, including any such losses attributable to President Trump’s own offensive, dishonest,
illegal, immoral, unethical, or otherwise harmful conduct.
Intellectual Property
One of the core strengths of TMTG’s business is its intellectual property portfolio and
unique experience, both of which guide product development activities and TMTG’s approach to intellectual property filings.
TMTG’s future success and competitive position depend in part upon its ability to obtain
and maintain protection of its proprietary technologies. TMTG also relies on a combination of non-disclosure agreements and other contractual provisions, as well as its employees’ commitment to confidentiality and loyalty, to protect TMTG’s
technology and processes. Further, as noted above, TMTG Sub has entered into the License Agreement with President Trump, and DTTM Operations, LLC, for the right to use the likeness of President Trump.
TMTG seeks to protect its intellectual property rights by relying on federal, state, and
common law rights in the United States and other countries, as well as contractual restrictions. TMTG will enter into confidentiality and invention assignment agreements with its employees and contractors, and confidentiality agreements
with other third parties, in order to limit access to, and disclosure and use of, TMTG’s confidential information and proprietary technology. In addition to these contractual arrangements, TMTG also relies on a combination of trademarks
filed in the name of T Media Tech LLC and TMTG Sub (under its former name, Trump Media & Technology Group Corp.), trade dress, domain names, copyrights, trade secrets and patents to help protect its brand and its other intellectual
property.
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On February 14, 2023, a trademark for “TRUTH SOCIAL” in classes 21 and 25 was registered with USPTO by T Media
Tech LLC for use with cups, mugs and certain types of clothing. Trademark applications for “Truth Social” in classes 9 and 42; for “RETRUTH” in classes 9, 35, 38, 41, 42, and 45; for “TRUTHSOCIAL” in classes 9, 35, 38, 41, 42 and 45; and
for “TRUTHPLUS” in classes 9, 35, 38, 41, and 42 are the subject of suspension notices received from USPTO on October 24, 2022; January 13, 2023; February 14, 2023 and February 17, 2023, respectively, in each case based on alleged
similarity to existing registered (and pending) trademarks. In particular, the USPTO has issued non-final rejections of all of the foregoing applications to register marks for use with a social media network or a streaming video service.
Although Private TMTG pursued certain appeal rights, there can be no assurance that TMTG will be able to overcome the objections of the trademark examiner or that the challenged marks will be approved. Several additional trademark
applications remain pending, but have not been the subject of adverse action by USPTO.
TMTG may be unable to obtain patent or trademark protection for its technologies and brands, and any patents or trademarks that may be issued in the future, may not
provide TMTG with competitive advantages or distinguish its products and services from those of its competitors. In addition, any patents and trademarks may be contested, circumvented, or found unenforceable or invalid, and TMTG may not be
able to prevent third parties from infringing, diluting or otherwise violating them. For example, TMTG is currently evaluating its options with respect to apparent bad faith registrations of the Truth Social trademark in the European Union
and Sweden.
Companies in the internet, technology, and media industries own large numbers of patents, copyrights,
trademarks, and trade secrets and frequently enter into litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other rights. In addition, various “non-practicing entities” that
own patents and other intellectual property rights often attempt to aggressively assert their rights in order to extract value from technology companies. TMTG expects to face future allegations that TMTG has infringed or otherwise
violated the patents, copyrights, trademarks, trade secrets, and other intellectual property rights of third parties, including its competitors and non-practicing entities. As TMTG faces increasing competition and as its business grows,
TMTG will likely face more intellectual property-related claims and litigation matters. For additional information, see the sections titled “ Risk
Factors — Risks Related to TMTG’s Business — If TMTG’s trademarks and other proprietary rights are not adequately protected to prevent use or appropriation by TMTG’s competitors, the value of TMTG’s brand and other intangible assets may
be diminished, and TMTG’s business may be adversely affected. The USPTO has issued a non-final rejection of TMTG’s or its affiliate’s applications to register the trademarks “Truth Social” and “TRUTHSOCIAL” for use with a social media
network because of alleged similarity to other registered and pending trademarks. If TMTG is unable to overcome the objections of the trademark examiner to successfully register the pending “Truth Social” and “TRUTHSOCIAL” trademarks
with the USPTO and otherwise protect TMTG’s intellectual property, the value of TMTG’s brand and other intangible assets may be diminished, TMTG may be forced to rebrand its offerings, and TMTG’s business may be adversely affected .”
Government Regulation
TMTG is subject to a number of U.S. federal and state and foreign laws and regulations that involve matters central to TMTG’s business. These laws and regulations may
involve privacy, rights of publicity, data protection, content regulation, intellectual property, competition, protection of minors, consumer protection, taxation, or other subjects. Many of these laws and regulations are still evolving and
being tested in courts and could be interpreted in ways that could harm TMTG’s business and revenue. In addition, the application and interpretation of these laws and regulations often are uncertain, particularly in the new and rapidly
evolving industry in which TMTG operates.
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TMTG is also subject to federal, state and foreign laws regarding privacy and the
protection of user data, and most recently updated Truth Social’s privacy policy in accordance with such laws in December 2022. In the U.S., state privacy laws such as the California Consumer Privacy Act, as amended by the California
Privacy Rights Act, the Arkansas Social Media Safety Act, and the Utah Social Media Regulation Act, the Texas Capture or Use of Biometric Identifiers Act, the Illinois Biometric Information Privacy Act, and others may affect TMTG. There are
also a number of legislative proposals pending before the U.S. Congress, various state legislative bodies, and foreign governments concerning data protection that could affect TMTG. Foreign data protection, privacy, consumer protection,
content regulation and other laws and regulations are often more restrictive than those in the United States. For example, the CCPA, as amended by the CPRA, provide new data privacy rights for consumers and new operational requirements for
companies, effective in 2020 and 2023 respectively. The CCPA gives California residents rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information
about how their personal information is collected, used, and shared. The CCPA provides for civil penalties for violations and creates a private right of action for security breaches that could lead to consumer class actions and other
litigation against the Company. Truth Social as an internet platform is subject to 47 U.S. Code § 230 and COPPA in addition to the regulations discussed above. The FTC has adopted revisions to COPPA that expands liability for the collection
of information by operators of websites and other electronic solutions that are directed to children. 47 U.S. Code § 230 provides a potential defense for Truth Social from incurring liability for restricting access to or the availability of
material that a user may consider to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable whether or not such material is protected by the First Amendment of the U.S. Constitution. However, such
defense may be costly financially. Pursuant to the statute, Truth Social will at the time of entering an agreement with a customer, notify such customer that parental control protections (such as computer hardware, software, or filtering
services) are commercially available and may assist the customer in limiting access to material that is harmful to minors. For example, the Company is subject to the GDPR, which applies to all members of the EEA and, in some circumstances,
to processors in a state outside the EEA including any business, regardless of its location, that provides goods or services to individuals located in the EEA. The GDPR imposes significant obligations on data controllers and data
processors, requiring the implementation of more stringent requirements for the processing of personal data. If the Company fails to comply with the GDPR, it may lead to regulatory investigation with possible enforcement of monetary
penalties ranging from 10 million to 20 million euro, or 2% to 4% of annual worldwide revenue (whichever is higher), private or class action lawsuits and/or reputational damage.
On July 10, 2023, the European Commission adopted an adequacy decision concluding that
the United States ensures an adequate level of protection for personal data transferred from the European Union to organizations in the United States that are included in the “Data Privacy Framework List,” which is maintained by the U.S.
Department of Commerce pursuant to the EU-U.S. Data Privacy Framework. The impact of the European Commission’s adequacy decision is complex, evolving, and may be reviewed by the CJEU. A future invalidation of the Privacy Shield by the CJEU
will create additional uncertainty and mean there are few if any viable alternatives to the Privacy Shield and the SCCs for the foregoing purposes, which may lead to government enforcement actions, litigation, fines and penalties or adverse
publicity that could have an adverse effect on TMTG’s reputation and business.
Further, in Canada, the Company is subject to Canada’s PIPEDA. PIPEDA provides Canadian
residents with privacy protections and sets out rules for how companies may collect, use and disclose personal information in the course of commercial activities. Truth Social users may be restricted from accessing Truth Social from certain
countries, and other countries may intermittently restrict access to Truth Social. It is possible that other governments may seek to restrict access to or block TMTG’s website or mobile applications, censor content available through TMTG’s
products or impose other restrictions that may affect the accessibility or usability of Truth Social for an extended period of time or indefinitely.
For additional information, see the section titled “ Risk Factors — Risks Related to TMTG’s Business — TMTG’s business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data
protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to TMTG’s business practices, increased cost of operations, or declines in user
growth or engagement, or otherwise harm TMTG’s business .”
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Emerging Growth Company
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of
certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the independent registered public
accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding
a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading
market for our securities and the prices of our securities may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to
private companies. We have taken advantage of the benefits of this extended transition period.
We will remain an emerging growth company until the earlier of (1) (a) December 31, 2026, (b) the last day of the fiscal year in which we have total annual gross
revenue of at least $1.235 billion, or (c) the last day of the fiscal year in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of
the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Additionally, we are a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of
certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market
value of our common stock held by non-affiliates equals or exceeds $250 million as of the end of the prior June 30th, or (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year and the market value of
our common stock held by non-affiliates exceeds $700 million as of the prior June 30th.
Periodic Reporting and Financial Information
We have registered our common stock and warrants under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and
current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports will contain financial statements audited and reported on by our independent registered public accountants.
We are required to evaluate our internal control procedures for the fiscal year ended December 31, 2023 as required by the Sarbanes-Oxley Act. Only in
the event we are deemed to be a large accelerated filer or an accelerated filer, and no longer qualify as an emerging growth company, will we be required to have our internal control procedures audited. We have filed a Registration
Statement on Form 8-A with the SEC to register our securities under Section 12 of the Exchange Act. As a result, we are subject to the rules and regulations promulgated under the Exchange Act. We have no current intention of filing a Form
15 to suspend our reporting or other obligations under the Exchange Act. We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but
not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously
approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
Available Information
Our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act are filed with the SEC. We are subject to the informational
requirements of the Exchange Act and file or furnish reports, proxy statements, and other information with the SEC. Such reports and other information filed by us with the SEC are available free of charge on our website at
https://tmtgcorp.com/ when such reports are available on the SEC's website.
The
SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
The
contents of the websites referred to above are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.
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Human Capital Resources
As of December 31, 2023, Private TMTG had approximately 36 full-time employees. None of
Private TMTG’s employees are subject to a collective bargaining agreement. Private TMTG has never experienced a material work stoppage or disruption to its business relating to employee matters. We consider our relationship with our
employees to be good.
Our human capital resources objectives include, as applicable, identifying, recruiting,
retaining, incentivizing and integrating our existing and new employees.
Recent Developments
Business Combination
The Closing of the previously announced Business Combination took place on March 25,
2024.
Agreements Related to the Business Combination
Indemnification Agreements
On March 25, 2024, in connection with the Closing, Digital World caused the Amended
Charter to take effect. The Amended Charter provides that, to the fullest extent permitted by Delaware law, no director will be personally liable to TMTG or its stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director’s duty of loyalty to TMTG or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section
174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. TMTG also is expressly authorized to carry directors and officers’ liability insurance providing indemnification for TMTG’s
directors, officers, and certain employees for some liabilities.
In connection with the foregoing, on March 25, 2024, TMTG entered into separate
indemnification agreements with each of its directors and executive officers. Each indemnification agreement provides for the indemnification and advancement by TMTG of certain expenses and costs relating to claims, suits or proceedings
arising from service to TMTG or, at its request, service to other entities, as officers or directors, to the maximum extent permitted by applicable law.
Escrow Agreement in Relation to the Merger Consideration
On March 21, 2024, Digital World entered into that certain Share Escrow Agreement with
Odyssey pursuant to Section 1.16 of the Merger Agreement providing that 614,640 shares of TMTG Common Stock (together with any equity securities paid as dividends or distributions with respect to such shares or into which such shares are
exchanged or converted, the “Escrow Shares”) will be held in escrow for 12 months following Closing with respect to any indemnification claims made in accordance with the Merger Agreement (the “Share Escrow Agreement”).
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Escrow Agreements in Connection with the Delaware Litigation
On February 29, 2024, ARC, which was controlled by Mr. Patrick Orlando, Digital World’s
former chairman of its board of directors and chief executive officer, filed the Delaware Lawsuit in the Court of Chancery of the State of Delaware (the “Chancery Court”). ARC’s complaint, among other matters, alleges impending violation
of the Digital World Charter for failure to commit to issue the number of conversion shares to ARC and other holders of Digital World Class B Common Stock (the “Non-ARC Class B Shareholders”) that ARC claims it is owed upon the
consummation of the Business Combination. As previously disclosed, on March 5, 2024, the Chancery Court held a hearing to decide ARC’s motion to expedite the case schedule, during which, the Vice Chancellor denied and declined to hold a
merits hearing or issue an injunction before Digital World’s special meeting of stockholders held on March 22, 2024 (the “Special Meeting”). The Chancery Court ruled that Digital World’s proposal to place disputed shares into an escrow
account upon the closing of the Business Combination was sufficient to preclude a possibility of irreparable harm related to the conversion of the ARC’s shares in connection with the Business Combination into TMTG Common Stock.
Additionally, the Chancery Court requested that the parties stipulate to the establishment of an escrow account for the placement of disputed shares following the Business Combination, to be held pending conclusion of the action.
Based on the foregoing, on March 21, 2024, Digital World entered into two escrow agreements with Odyssey, as
follows: (i) an escrow agreement for the benefit of ARC (the “ARC Escrow Agreement”), pursuant to which TMTG deposited into escrow 3,579,480 shares of TMTG Common Stock, and (ii) an escrow agreement for the benefit of the Non-ARC Class B
Shareholders (the “Non-ARC Class B Shareholders Escrow Agreement,” and together with the ARC Escrow Agreement, the “Disputed Shares Escrow Agreements”), pursuant to which TMTG deposited into escrow 1,087,553 shares of TMTG Common Stock,
which amounts represent the difference between the actual conversion ratio, determined by Digital World’s board of directors upon closing of the Business Combination (which was determined to be 1.348:1), and a conversion ratio of 2.00.
Any release of shares is subject to the terms and conditions of the Disputed Shares Escrow Agreements.
Convertible Notes
On February
8, 2024, Digital World agreed to issue up to $50,000,000 in Digital World Convertible Notes pursuant to a note purchase agreement entered into by and between Digital World and certain institutional investors (the “Note Purchase
Agreement”). Upon the Closing, on March 25, 2024, and pursuant to the Note Purchase Agreement, the final drawdown for $40,000,000 (the “Final Drawdown”) in Digital World Convertibles Notes was issued to the certain
institutional investors (the “Accredited Investors”). The Final Drawdown was deposited into a control account and may only be released to TMTG pursuant to the terms of the Note Purchase Agreement and the Convertible Notes.
Lock-Up Agreement
On March 25, 2024, Digital World entered into separate Lock-Up Agreements (the “Lock-Up
Agreements”) with: Andrew Northwall, Daniel Scavino Jr., Devin G. Nunes, Donald J. Trump, Jr., President Donald J. Trump, Kashyap “Kash” Patel, Phillip Juhan, Scott Glabe and Vladimir Novachki (the “Holders”), pursuant to which they are
each contractually restricted from selling or transferring any of (i) their shares of TMTG’s Common Stock held immediately following the Closing and (ii) any of their shares of TMTG’s Common Stock that result from converting securities held
immediately following the Closing (the “Lock-Up Shares”). Such restrictions became applicable commencing from the Closing Date and end the earliest of (i) the six-month anniversary of the Closing Date, (ii) on the date on which the closing
stock price for TMTG Common Stock equals or exceeds $12.00 per share for any 20 trading days within any 30-trading day period commencing at least 150 days after the Closing Date, and (iii) such date on which TMTG completes a liquidation,
merger, stock exchange, reorganization or other similar transaction that results in all of the TMTG stockholders having the right to exchange their shares of TMTG Common Stock for cash, securities or other property (the “Lock-Up Trading
Restrictions”).
Lock-Up Provisions Pursuant to the Amended Charter
In addition, subject to certain customary exceptions, the Amended Charter also includes
Lock-Up Trading Restrictions, which apply to holders who received TMTG Common Stock in exchange for their TMTG Common Stock (but excluding shares of TMTG Common Stock issued to the former holders of TMTG Convertible Notes in connection with
the conversion of such TMTG Convertible Notes into Private TMTG common stock prior to the Closing and exchanged for TMTG Common Stock at the Closing).
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Non-Competition and Non-Solicitation Agreements
In connection with the Closing and pursuant to the Merger Agreement, on March 25, 2024,
Devin G. Nunes, Phillip Juhan, Andrew Northwall, Vladimir Novachki, Scott Glabe, Kashyap “Kash” Patel and Donald J. Trump, Jr. (the “Significant Company Holders”) each separately entered into a Non-Competition and Non-Solicitation Agreement
(the “Non-Competition and Non-Solicitation Agreements”) in favor of Digital World and Private TMTG and their respective successors, assigns and affiliates (the “Covered Parties”). Under the Non-Competition and Non-Solicitation Agreements,
each Significant Company Holder has agreed that, for a period of (i) four years, the Significant Company Holder will not engage in any business activity similar to, or competitive with, the business conducted by the Covered Parties, in
particular, Truth Social and the business of developing and operating media platforms for social media and digital video streaming, and of developing and operating products and services relating and incidental thereto or any other business
being conducted by a Covered Party (including any of a Covered Party’s subsidiaries), as of the Closing Date and (ii) three years, it will not, directly or indirectly (a) hire, engage, solicit, induce or encourage certain employees,
independent contractors, consultants, or other certain personnel to leave a Covered party; or (b) in any way interfere with or attempt to interfere with the relationship between such persons and a Covered Party.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.