Item 1. Financial Statements
Item 1.
Financial Statements
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2024 and December 31, 2023 and for the three months
ending March 31, 2024 and March 31, 2023
+
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TRUMP MEDIA & TECHNOLOGY GROUP CORP.
TABLE OF CONTENTS
Page
Unaudited Condensed Consolidated Balance Sheets
3
Unaudited Condensed Consolidated Statements of Operations
4
Unaudited Condensed Consolidated Statements of Stockholders’ Equity/(Deficit)
5
Unaudited Condensed Consolidated Statements of Cash Flows
6
Notes to Unaudited Condensed Consolidated Financial Statements
7
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TRUMP MEDIA & TECHNOLOGY GROUP CORP.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands except share data)
March 31, 2024
December 31, 2023
Assets
Current Assets:
Cash and cash equivalents
$
233,700.9
$
2,572.7
Restricted cash
40,028.3
-
Prepaid expenses and other current assets
324.7
327.5
Accounts receivable, net
47.2
81.0
Total current assets
274,101.1
2,981.2
Property and equipment, net
23.7
29.2
Right-of-Use Assets, net
313.8
353.2
Total Assets
274,438.6
3,363.6
Liabilities and Stockholders’ Equity/ (Deficit)
Current Liabilities:
Accounts payable and accrued expenses
9,704.7
1,600.7
Convertible promissory notes
50,157.8
42,415.5
Related party payables
262.0
-
Derivative liability
-
17,282.5
Unearned revenue
3,717.2
4,413.1
Current portion of operating lease liability
163.1
160.3
Total Current Liabilities
64,004.8
65,872.1
Long-term operating lease liability
159.8
201.6
Convertible promissory notes
-
2,931.5
Derivative liability
-
1,120.3
Total liabilities
64,164.6
70,125.5
Commitments and contingencies (Note 14)
Stockholders’ Equity/(Deficit):
Preferred Stock $ 0.0001 par value – 1,000,000 shares authorized, 0
shares issued and outstanding at March 31 , 2024 and December 31 , 2023
-
-
Common Stock $ 0.0001 par value – 999,000,000 shares authorized, 136,700,583
and 87,500,000 shares issued and outstanding at March 31 , 2024 and December 31 , 2023
13.7
8.8
Paid in Capital
3,082,180.9
-
Accumulated Deficit
( 2,871,920.6
)
( 66,770.7
)
Total stockholders’ equity/(deficit)
210,274.0
( 66,761.9
)
Total liabilities and Stockholders’ equity/(deficit)
$
274,438.6
$
3,363.6
The Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
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TRUMP MEDIA & TECHNOLOGY GROUP CORP.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Month
Periods Ended
(in thousands except share and per share data)
March 31,
2024
March 31,
2023
Revenue
$
770.5
$
1,116.2
Cost of revenue
93.4
41.3
Gross profit
677.1
1,074.9
Cost of operating expenses (1)
Research and development
33,158.6
2,812.1
Sales and marketing
1,070.4
256.1
General and administration
64,795.1
1,836.3
Depreciation
5.6
16.3
Total costs and operating expenses
99,029.7
4,920.8
Loss from operations
( 98,352.6
)
( 3,845.9
)
Interest expense
( 2,817.6
)
( 2,024.3
)
Interest income
28.8
-
Loss on the extinguishment of debt
( 542.3
)
-
Change in fair value of derivative liabilities
( 225,916.0
)
5,659.9
Loss before income taxes
( 327,599.7
)
( 210.3
)
Income tax expense/(benefit)
-
-
Net loss
$
( 327,599.7
)
$
( 210.3
)
Net loss per Share attributable to common stockholders:
Basic
$
( 3.61
)
$
( 0.00
)
Diluted*
$
( 3.61
)
$
( 0.00
)
Weighted Average Shares used to compute net profit/ loss per share attributable to common stockholders:
Basic
90,743,994
87,500,000
Diluted
90,743,994
87,500,000
(1) Costs of operating expenses include stock based compensation expense as follows:
Research and development
30,142.5
-
General and administration
54,445.5
-
Total stock based compensation expense
$
84,588.0
$
-
* Loss per share attributable to common stockholders for diluted calculation is based on the
Basic weighted shares as these are not dilutive. The Basic and diluted loss per share attributable to common stockholders are therefore the same.
The Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
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TRUMP MEDIA & TECHNOLOGY GROUP CORP.
Condensed Consolidated Statements of Stockholders’ (Deficit)/Equity
(Unaudited)
(in thousands, except share data)
Common Stock
Number of Shares
Par Value
$0.0001
Preferred Stock
Number of Shares
Par Value
$0.0001
Paid in Capital
Accumulated Deficit
Total
Stockholders’
(Deficit)/ Equity
Retroactive application of recapitalization to January 1, 2023
87,500,000
$
8.8
-
$
-
$
-
$
( 8,581.3
)
$
( 8,572.5
)
Net Profit/(Loss)
-
-
-
-
-
( 210.3
)
( 210.3
)
Balance at March 31, 2023
87,500,000
8.8
-
-
-
( 8,791.6
)
( 8,782.8
)
Net Profit/(Loss)
-
-
-
-
( 22,768.1
)
( 22,768.1
)
Balance at June 30, 2023
87,500,000
8.8
-
-
-
( 31,559.7
)
( 31,550.9
)
Net Profit/(Loss)
-
-
-
-
( 26,033.1
)
( 26,033.1
)
Balance as September 30, 2023
87,500,000
8.8
-
-
-
( 57,592.8
)
( 57,584.0
)
Net Profit/(Loss)
-
-
-
-
( 9,177.9
)
( 9,177.9
)
Balance as December 31, 2023
87,500,000
8.8
-
-
-
( 66,770.7
)
( 66,761.9
)
Net Loss
-
-
-
-
( 327,599.7
)
( 327,599.7
)
Fair value of TMTG earnout shares
2,477,550.2
( 2,477,550.2
)
-
Conversion of convertible notes into common stock upon Business Combination
6,014,534
0.6
-
-
300,425.4
-
300,426.0
Stock Based Compensation
1,840,000
0.2
-
-
84,587.8
84,588.0
Issuance of common stock upon Business Combination
41,346,049
4.1
-
-
219,617.5
219,621.6
Balance as of March 31, 2024
136,700,583
$
13.7
-
$
-
$
3,082,180.9
$
( 2,871,920.6
)
$
210,274.0
The Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
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TRUMP MEDIA & TECHNOLOGY GROUP CORP.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Month Periods Ended
(in thousands)
March 31, 2024
March 31, 2023
Cash flows from operating activities
Net income/(loss)
$
( 327,599.7
)
$
( 210.3
)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash interest expense on debt
2,817.6
2,024.3
Change in fair value of derivative liability
225,916.0
( 5,659.9
)
Depreciation
5.6
16.5
Loss on extinguishment of debt
542.3
-
Stock based compensation
84,588.0
-
Non-cash charge for operating lease
0.4
1.8
Prepaid expenses and other current assets
2.8
-
Accounts receivable
33.8
13.2
Unearned revenue
( 695.9
)
-
Accounts payable
5,073.1
39.9
Net cash used in operating activities
$
( 9,316.0
)
$
( 3,774.5
)
Cash flows used in investing activities
Purchases of property and equipment
-
-
Net cash used in investing activities
$
-
$
-
Cash flows provided by financing activities
Proceeds from convertible promissory notes
47,455.0
-
Proceeds from merger
233,017.5
-
Net cash provided by financing activities
280,472.5
-
Net change in cash and cash equivalents and restricted cash
271,156.5
( 3,774.5
)
Cash and cash equivalents and restricted cash, beginning of period
2,572.7
9,808.4
Cash and cash equivalents and restricted cash, end of period
$
273,729.2
$
6,033.9
Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents
233,700.9
6,033.9
Restricted cash
40,028.3
-
Total cash and cash equivalents and restricted cash, end of period
$
273,729.2
$
6,033.9
Supplemental disclosure of cash flow information
Cash paid for interest
-
-
Cash paid for taxes
-
-
Non cash investing and financing activities
Shares issued for conversion of convertible notes
$
300,426.0
$
-
The Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
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TRUMP MEDIA & TECHNOLOGY GROUP CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
The accompanying unaudited condensed consolidated financial statements include the historical accounts of Trump Media & Technology Group Corp. (“TMTG”), which
changed its name from Trump Media Group Corp. in October 2021. The mission of TMTG is to end Big Tech’s assault on free speech by opening up the Internet and giving people their voices back. TMTG
operates Truth Social, a social media platform established as a safe harbor for free expression amid increasingly harsh censorship by Big Tech corporations.
Merger
On March 25, 2024, TMTG consummated the Merger Agreement dated October 20, 2021, between Digital World Acquisition Corp. (“Digitial World” or
“DWAC”), DWAC Merger Sub, TMTG, ARC Global Investments II (“ARC”), LLC and TMTG’s General Counsel, as amended on May 11, 2022, August 9, 2023 and September 29, 2023. Pursuant to the Merger Agreement, and subject to the terms and conditions set
forth therein, upon the Closing, Merger Sub merged with and into TMTG, with TMTG surviving as a wholly owned subsidiary of Digital World, and with TMTG’s stockholders receiving 87,500,000 shares of Digital World Class A common stock (excluding 40,000,000
Earnout Shares), subject to certain adjustments and earnout provisions, in exchange for TMTG common stock, which is in substance, a continuation of the TMTG shareholders’ equity interests in the TMTG business, plus up to an additional 7,854,534 shares of New Digital World common stock to be issued upon conversion of outstanding TMTG Convertible Notes immediately prior to the
Closing.
Notwithstanding the legal form of the Business Combination pursuant to the Merger Agreement, the Business Combination has been accounted for
as a reverse recapitalization in accordance with U.S. GAAP because TMTG is the operating company and has been determined to be the accounting acquirer under Financial Accounting Standards Board’s Accounting Standards Codification Topic 805,
Business Combinations (“ASC 805”), while Digital World is a blank check company. The determination is primarily based on the evaluation of the following facts and circumstances:
•
The pre-combination equity holders of TMTG hold the majority of voting rights in Digital World after giving effect to the Business Combination (“the Combined Entity”, also referred to herein as “New
Digital World” or “the Company”);
•
The pre-combination equity holders of TMTG have the right to appoint the majority of the directors on the Combined Entity Board;
•
TMTG senior management (executives) are the senior management (executives) of the Combined Entity; and
•
Operations of TMTG will comprise the ongoing operations of Combined Entity.
Under the reverse recapitalization model, the Business Combination was treated as TMTG issuing equity for the net assets of Digital World, with no goodwill or
intangible assets recorded.
While Digital World was the legal acquirer in the Business Combination, because Predecessor TMTG was deemed the accounting acquirer, the historical financial
statements of Predecessor TMTG became the historical financial statements of the combined company upon the consummation of the Business Combination. As a result, the financial statements reflect (i) the historical operating results of
Predecessor TMTG prior to the Business Combination; (ii) the combined results of Digital World and Predecessor TMTG following the closing of the Business Combination; (iii) the assets and liabilities of Predecessor TMTG at their historical
cost; and (iv) the Company’s equity structure for all periods presented.
In accordance with the applicable guidance, the equity structure has been retroactively restated in all comparative periods up to the Closing Date, to reflect the
number of shares of the Company’s common stock issued to Predecessor TMTG common shareholders and Predecessor TMTG convertible noteholders in connection with the Business Combination. As such, the shares and corresponding capital amounts and
earnings per share related to Predecessor TMTG convertible notes and Predecessor TMTG common stock prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio established in the Business
Combination.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Our interim financial statements are unaudited, and in our opinion, include all adjustments of a normal recurring nature necessary for the fair presentation of the
periods presented. The results for the interim periods are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2024. These unaudited condensed consolidated financial
statements and related notes should be read in conjunction with our unaudited financial statements for the year ended December 31, 2023.
Reclassifications
Reclassifications of certain prior period amounts have been made to conform to the current period presentation.
Liquidity and going concern
TMTG commenced operations on February 8, 2021, and began the initial launch of its social media platform in the first quarter of 2022. In October of 2021, TMTG
entered into a definitive merger agreement with DWAC, a special purpose acquisition corporation and a Delaware corporation. The companies consummated the merger on March 25, 2024.
Company operations consumed $ 47,048.0 of cash from
February 8, 2021 (inception) through March 31, 2024, primarily funded by $ 48,155.0 of proceeds (net of repayments) from the issuance
of “Private TMTG” convertible promissory notes (the “Pre-Merger Notes”). The March 25, 2024 Closing triggered the automatic conversion of the “Pre-Merger Notes” to common stock immediately prior to such closing, thus eliminating the liability.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Concurrently, TMTG received $ 273,017.5 of net cash proceeds from the Business Combination, comprised of $ 233,017.5 of cash and $ 40,000.0 of restricted cash. Prior to Closing, on
February 8, 2024, Digital World agreed to issue up to $ 50,000.0 of convertible promissory notes (the “Convertible Notes”) to
certain institutional investors (the “Note Purchase Agreements”). Principal plus accrued interest on the “Convertible Notes” is due in March 2025 ,
if the notes have not been converted to common stock. In accordance with the Note Purchase Agreements, Digital World received $ 10,000.0
of proceeds (from these notes) prior to Closing, and the Company received the remaining $ 40,000.0 immediately after Closing. The $ 40,000.0 of post-merger cash proceeds is held in a restricted account and will be released upon satisfaction of certain conditions, including the
registration of the underlying shares. As a result, the Company had a total of $ 273,729.2 in cash (including restricted cash) and $ 50,157.8 of convertible promissory notes outstanding as of March 31, 2024. See the note below titled, “NOTE 9 – CONVERTIBLE PROMISSORY NOTES,”
for a detailed description of the Company’s convertible notes.
The Company has experienced operating losses in preceding years and in the first quarter of 2024. On average, Company operations consumed approximately $ 12,577.3 of cash per year from its inception (February 8, 2021) through year-end 2023. In addition, for the three months ended March 31, 2024, and 2023, the Company had negative operating cash flows of $ 9,316.0 and $ 3,774.5 ,
respectively. As of December 31, 2023, the Company had a negative working capital position, primarily due to the short-term nature of its “Pre-Merger Notes,” which converted to common stock immediately prior to the Closing. Based upon
receipt of proceeds from the Business Combination detailed above, and the resulting positive working capital position (i.e., $ 274,101.1
of current assets less $ 64,004.8 of current liabilities, including $ 50,157.8 of convertible notes as of March 31, 2024), management believes there is not substantial doubt regarding the Company’s ability to continue as a going concern as of March 31,
2024, and the substantial doubt as of December 31, 2023, has been mitigated. The Company believes it has sufficient working capital to fund operations for at least the next twelve months from the date of issuance of these financial
statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates and assumptions reflected in the unaudited condensed consolidated financial statements relate to and include, but are not limited to, the valuation of convertible promissory notes and derivative liabilities.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries and have been prepared
in accordance with U.S. GAAP. All intercompany transactions have been eliminated. In October 2021, the Company acquired 100 % of the
ownership in T Media Tech LLC for a nominal value. The results of T Media Tech LLC since October 13, 2021 are included in the Company’s Condensed Consolidated Statement of Operations.
Cash and cash equivalents and restricted cash
Cash represents bank accounts and demand deposits held at financial institutions. Cash is held at major financial institutions with an original maturity of 90 days
or less and are subject to credit risk to the extent those balances exceed applicable Federal Deposit Insurance Corporation (FDIC) limitations. No losses were incurred for those balances exceeding the limitations.
Restricted cash consist of a holdback from convertible notes which will be released upon satification of certain conditions, including the registration of the underlying shares.
Prepaid expenses and other current assets
Other current assets consist of prepaid rent, insurance and prepaid data costs.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful lives of
the assets. Useful lives for property and equipment are as follows:
Asset Type
Range
Furniture and computer equipment
2 - 5 years
Computer equipment
3 years
Expenditures which substantially increase value or extend useful lives are capitalized. Expenditures for maintenance and repairs are charged to operations as
incurred. Gains and losses are recorded on the disposition or retirement of property and equipment based on the net book value and any proceeds received.
Long-lived fixed assets held and used are reviewed for impairment when events or changes in business circumstances indicate that the carrying amount of the assets
may not be fully recoverable. Circumstances such as the discontinuation of a line of service, a sudden or consistent decline in the sales forecast for a product, changes in technology or in the way an asset is being used, a history of operating
or cash flow losses or an adverse change in legal factors or in TMTG climate, among others, may trigger an impairment review. If such indicators are present, TMTG performs undiscounted cash flow analyses to determine if impairment exists. The
asset value would be deemed impaired if the undiscounted cash flows generated did not exceed the carrying value of the asset. If impairment is determined to exist, any related impairment loss is calculated based on fair value. There were no
triggering events identified that necessitated an impairment test over property and equipment. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. See Note 4 - Property and equipment for
further detail.
Software Development Cost
We expense software development costs, including costs to develop software products or the software component products to be sold, leased, or marketed to external
users, before technological feasibility is reached. Technological feasibility typically is reached shortly before the release of such products. As a result, development costs that meet the criteria for capitalization were not material for the
periods presented.
Software development costs also includes costs to develop software to be used solely to meet internal needs and cloud-based applications used to deliver our
services. We capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function
intended. Costs capitalized for developing such software applications were not material for the periods presented.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue recognition
The Company records revenue in accordance with ASC 606. The Company determines the amount of revenue to be recognized through application of
the following steps- Identification of the contract, or contracts with a customer; - Identification of the performance obligations in the contract; - Determination of the transaction price; - Allocation of the transaction price to the
performance obligations in the contract; and - Recognition of revenue when or as the Company satisfies the performance obligations.
The Company entered into advertising contractual arrangements with advertising manager service companies. The advertising manager service
companies provide advertising services through their Ad Manager Service Platform on the Truth Social website to customers. The Company determines the number of Ad Units available on its Truth Social website. The advertising manager service
companies have sole discretion over the terms of the auction and all payments and actions associated therewith. Prices for the Ad Units are set by an auction operated and managed by these companies. The Company has the right to block
specific advertisers at its sole reasonable discretion, consistent with applicable laws, rules, regulations, statutes, and ordinances. The Company is an agent in these arrangements, and recognizes revenue for its share in exchange for
arranging for the specified advertising to be provided by the advertising manager service companies. The advertising revenues are recognized in the period when the advertising services are provided.
Unearned revenue
Unearned revenue primarily consists of billings or payments received from customers in advance of revenue recognized for the services provided
to our customers or annual licenses and is recognized as services are performed or ratably over the life of the license. We generally invoice customers in advance or in milestone-based installments. Unearned revenue of $ 695.9 was recognized as revenue for the three months ended March 31, 2024, which was included in the deferred revenue balance as of December 31,
2023. As of March 31, 2024, deferred revenue is expected to be recognized during the succeeding 12 -month period and is therefore
presented as current.
Cost of revenue
Cost of revenue primarily encompasses expenses associated with generating advertising revenue. These costs are determined by allocating staff direct and indirect
costs proportionately, including depreciation, based on the time spent managing the agency relationships with external vendors. These costs are confined to activities related to coordinating with these third-party vendors as the third-party
vendors are responsible to control and facilitate the delivery of advertising services.
Research and development
Research and development expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for our engineers and
other employees engaged in the research and development of our products and services. In addition, research and development expenses include allocated facilities costs, and other supporting overhead costs.
Marketing and sales
Sales and marketing expenses consist primarily of personnel-related costs, including salaries, commissions, benefits and stock-based compensation for our employees
engaged in sales, sales support, business development and media, marketing, and customer service functions. In addition, marketing and sales-related expenses also include advertising costs, market research, trade shows, branding, marketing,
public relations costs, allocated facilities costs, and other supporting overhead costs. We expense marketing and sales cost in the period in which they are incurred. For the three months ended March 31, 2024 and 2023, marketing and sales
expenses totaled $ 1,070.4 and $ 256.1 ,
respectively.
Selling, general and administrative expenses
General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits, and stock-based compensation for our executive,
finance, legal, information technology, corporate communications, human resources, and other administrative employees. In addition, general and administrative expenses include fees and costs for professional services (including third-party
consulting, legal, and accounting services), facilities costs, and other supporting overhead costs that are not allocated to other departments.
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the unaudited condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Income tax amounts are therefore
recognized for all situations where the likelihood of realization is greater than 50%. Changes in recognition or measurement are reflected in income tax expense in the period in which the change in judgment occurs. Accrued interest expense and
penalties related to uncertain tax positions are recorded in Income Tax Expense/(Benefit). See Note 7 - Income Taxes.
Derivatives
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815,
“Derivatives and Hedging”. Derivative instruments are initially recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the statements of operations. Derivative assets and
liabilities are classified in the balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date. The Company accounts for the
warrants and earnout in accordance with the guidance contained in ASC 815-40. The Company has determined that the warrants qualify for equity treatment in the Company’s unaudited condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a
liability has been incurred and the amount can be reasonably estimated. The Company has no liabilities for loss contingencies.
Recently issued accounting standards
In December 2023, the FASB issued Accounting Standards Update, or ASU, 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax
Disclosures,” or ASU 2023-09. ASU 2023-09 requires additional disaggregated disclosures on an entity’s effective tax rate reconciliation and additional details on income taxes paid. ASU 2023-09 is effective on a prospective basis, with the
option for retrospective application, for annual periods beginning after December 15, 2024 and early adoption is permitted. We do not expect the adoption of ASU 2023-09 to have a material impact on our consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” or ASU 2023-07.
ASU 2023-07 enhances the disclosures required for reportable segments on an annual and interim basis. ASU 2023-07 is effective on a retrospective basis for annual periods beginning after December 15, 2023, for interim periods within fiscal
years beginning after December 15, 2024, and early adoption is permitted. We do not expect the adoption of ASU 2023-07 to have a material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible
preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in
capital, the embedded conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and
Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments
and contracts in an entity’s own equity. ASU 2020-06 is effective for public smaller reporting companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Board specified that an entity
should adopt the guidance as of the beginning of its annual fiscal year. The Company has adopted ASU 2020-06 effective as of January 1, 2024. The adoption of ASU 2020-06 did not have a material effect on the Company’s consolidated financial
statements.
NOTE 3 - RECAPITALIZATION
As discussed in Note 1, following the Closing of the Business Combination, TMTG was deemed the accounting acquirer and the transaction was accounted for as a
reverse recapitalization.
Transaction Proceeds
Upon the Closing, the Company received gross proceeds of $ 233,017.5 . The following table reconciles the elements of the Business Combination to the condensed consolidated
statements of cash flows and the condensed consolidated statement of changes in stockholders’ equity (deficit) for the period ended March 31, 2024:
Cash-trust and cash, net of redemptions
233,017.5
Add: other assets
-
Less: accrued expenses
( 3,292.9
)
Less: notes payable
( 10,103.0
)
Reverse recapitalization, net
219,621.6
In connection with the Merger, TMTG incurred $ 1,640.2
in one-time direct and incremental transaction costs, consisting of legal and other professional fees, recorded in general and administration expenses. TMTG also issued $ 6,130.0 of bonus payments to employees of the Company and a director of Private TMTG that were triggered by the Merger. The Company recorded $ 5,530.0 and $ 600.0 in general and
administration expense and sales and marketing expense, respectively, for the three months ended March 31, 2024. TMTG deems these to be non-recurring expenses that are not direct and incremental to the Merger.
The number of shares of common stock issued immediately following the consummation of the Business Combination were:
Digital World common stock, outstanding prior to the Business Combination
39,636,904
Shares issued to Digital World convertible noteholders, converted immediately prior to Business Combination
1,709,145
Predecessor TMTG Shares (1)
87,500,000
Shares Issued to TMTG convertible noteholders
7,854,534
Common stock immediately after the Business Combination (2)
136,700,583
(1)
Includes 614,640 shares outstanding and held in escrow.
(2)
Excludes 4,667,033 shares not outstanding and held in escrow.
The number of Predecessor TMTG shares was determined as follows:
Predecessor TMTG
Shares
Shares issued to
shareholders of
Predecessor TMTG
Common stock
100,000,000
87,500,000
100,000,000
$
87,500,000
10
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Public and private placement warrants
In connection with Digital World’s initial public offering in 2021, 14,375,000 public warrants were issued (the “Public Warrants”) and 566,742
warrants were issued in a private placement (the “Private Placement Warrants”; and the Private Placement Warrants together with the Public Warrants, collectively the “Warrants”) all of which warrants remained outstanding and became warrants
for the Common Stock in the Company.
Additionally, pursuant to warrant subscription agreements (each a “Warrant Subscription Agreement”) entered into by and between Digital World and certain
institutional investors on February 7, 2024, Digital World has agreed to issue an aggregate of 3,055,000 warrants (“Post-IPO
Warrants”), each warrant entitling the holder thereof to purchase one share of the Company’s Class A common stock for $ 11.50 per share. The Post-IPO Warrants were issued concurrently with the closing of the Business Combination, and have substantially the same
terms as the public warrants issued by Digital World in connection with its initial public offering, except that such Post-IPO Warrants may only be transferred to the applicable holder’s affiliates.
TMTG Earnout Shares
As noted in Note 1, in connection with the Merger, TMTG shareholders are entitled to up to 40,000,000 shares if certain post merger per share market prices are achieved.
The Company utilized a Monte Carlo simulation analysis to determine the fair value of the Earnout Shares at the date of the merger, which
included the following assumptions:
The Monte Carlo simulation conclusion for each tranche of the Earnout Shares is the result of the average of 1,000,000 trial outcomes. Within each trial of the simulation:
1.
The stock price is simulated for the defined term ( 1.5 years, 2 years, and 3 years)
after the Merger date.
2.
The vest date is determined as the date the stock price achieves the different stock price thresholds, which are $ 12.50 , $ 15.00 , and $ 17.50 .
3.
The payoff is calculated as the number of shares issued per tranche ( 15
million, 15 million, and 10
million) multiplied by the simulated stock price at the vest date, which varies with each simulation.
4.
The payoff is discounted to the present value using the interpolated risk-free rate ranging from 4.31 % to 4.70 %.
Volatility is calculated as the annualized standard deviation of daily returns from a set of Guideline Public Companies (GPC) over the
expected term for each tranche. The 75th percentile of GPC volatilities was selected given the Company’s early stage life cycle relative to the GPC set. The accounting for the Earnout Shares was first evaluated under ASC 718 to determine if
the arrangement represents a share-based payment arrangement. Because there are no service conditions nor any requirement of the participants to provide goods or services, the Company determined that the Earnout Shares are not within the
scope of ASC 718.
Next, the Company determined that the Earnout Shares represent a freestanding equity-linked financial instrument to be evaluated under ASC
480 and ASC 815-40. Based upon the analysis, the Company concluded that the Earnout Shares should not be classified as a liability under ASC 480.
The Company next considered the equity classification conditions in ASC 815-40-25 and concluded that all of the conditions were met.
Therefore, the Earnout Share arrangement is appropriately classified in equity.
As the merger has been accounted for as a reverse recapitalization, the fair value of the Earnout Shares arrangement has been accounted for
as an equity transaction as of the closing date of the merger.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
(in thousands)
March 31, 2024
December 31, 2023
Property and equipment
Furniture and equipment
$
34.5
$
34.5
Computer equipment
120.8
120.8
Accumulated depreciation
( 131.7
)
( 126.1
)
Property and equipment, net
$
23.7
$
29.2
Total depreciation expense was $ 5.6 and $ 16.5 for the three months ended March 31, 2024 and 2023, respectively
NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
(in thousands)
March 31, 2024
December 31, 2023
Accounts payable
$
1,147.7
$
1,600.7
Other accrued expenses
5,526.1
-
Income tax payable
2,522.7
-
Franchise tax payable
508.2
-
Accounts payable and accrued expenses
$
9,704.7
$
1,600.7
11
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 - LEASES
Operating leases are included in the unaudited condensed consolidated Balance Sheets as follows:
(in thousands)
Classification
March 31, 2024
December 31, 2023
Lease assets
Operating lease cost ROU assets, net
Assets
$
313.8
$
353.2
Total lease assets
$
313.8
$
353.2
Lease liabilities
Operating lease liabilities, current
Current liabilities
$
163.1
$
160.3
Operating lease liabilities, non-current
Liabilities
159.8
201.6
Total lease liabilities
$
322.9
$
361.9
The components of lease costs, which are included in loss from operations in our unaudited condensed consolidated Statement of Operations we as follows:
Three Month Period Ended
(in thousands)
March 31, 2024
March 31, 2023
Lease costs
Operating lease costs
44.8
44.8
Total lease costs
$
44.8
$
44.8
(in thousands)
March 31, 2024
2024 (remainder of)
$
136.1
2025
185.8
2026
31.3
Total future minimum lease payments
$
353.2
Amount representing interest
30.3
Present value of net future minimum lease payments
322.9
NOTE 7 - INCOME TAXES
The estimated annual effective tax rate applied to the three month periods ended March 31, 2023 is 0 %, which differs from the US federal statutory rate of 21 % principally due to the projection of U.S. net operating loss for fiscal 2024 with full application of a valuation allowance. As of March 31, 2024, TMTG had US Federal net operating loss carryforwards
(“NOLs”) with a tax benefit of approximately $ 9,400.0 from December 31, 2023.
NOTE 8 – OTHER INCOME – RELATED PARTY, RELATED PARTY RECEIVABLE AND PAYABLE
Administrative Services Arrangement
An affiliate of the Digital World sponsor ARC agreed, commencing from the date when Digital World’s Registration Statement was declared
effective through the earlier of Digital World’s consummation of a Business Combination and its liquidation, to make available to the Digital World certain general and administrative services, including office space, utilities and
administrative services, as Digital World required from time to time. Digital World agreed to pay the affiliate of the Sponsor $ 15.0
per month for these services. The agreement with the Sponsor was terminated on April 5, 2023. $ 221.0 was unpaid as of March 31, 2024.
Advances – related party
During 2022 and the year ended December 31, 2023, the Digital World Sponsor paid, on behalf of Digital World, $ 470.8 to a vendor for costs incurred by Digital World and $ 41.0 directly to Digital World. As of March 31, 2024, the Company’s obligation to the Sponsor for such payments was outstanding in the amount of $ 41.0 .
Effective June 13, 2022, Private TMTG entered into a Consulting Services Agreement with Trishul, LLC (“Trishul”). Pursuant to such agreement and subsequent
performance by the parties thereto, Trishul provided consulting services to Private TMTG until the consulting relationship was terminated by Private TMTG effective March 25, 2024, upon the Closing of the Business Combination. During the three
months ended March 31, 2024 and 2023, TMTG paid $ 30.0 and $ 40.0 , respectively, to Trishul. As of March 31, 2024 and 2023, TMTG had an outstanding payable balance of zero and $ 10.0 , respectively to Trishul. The outstanding
payable balance at December 31, 2023 was zero . Trishul is owned by Kashyap “Kash” Patel, a director of TMTG since March 25, 2024,
and previously a director of Private TMTG from March 11, 2022, until March 26, 2024.
In August 2021, Private TMTG entered into a Consulting Services Agreement with Hudson Digital, LLC (“Hudson Digital”). Pursuant to the agreement, which as amended
expires December 31, 2024, Hudson Digital provides consulting services to TMTG. Hudson Digital also received a TMTG Executive Promissory Note in the principal amount of $ 4,000.0 , which converted into common shares immediately before the Closing (along with all other Private TMTG Convertible Notes), and a $ 600.0 retention bonus following the Closing. During the three months ended March 31, 2024 and 2023, we paid $ 60.0 to Hudson Digital. As of March 31, 2024 and 2023, TMTG had an outstanding payable balance of $ 600.0 and zero , respectively to Hudson Digital, recorded
within accounts payable and accrued liabilities on the condensed consolidated balance sheet. Hudson Digital is owned by Daniel Scavino, who served as a director of Private TMTG from February 16, 2023, until March 25, 2024. Mr. Scavino has not
served as an officer or director of TMTG.
12
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 – CONVERTIBLE PROMISSORY NOTES AND WARRANTS
Notes 1 to 7 were Convertible Promissory Notes issued from May 2021 through October 2021 with a cumulative face value of $ 5,340.0 , maturity of 24 months from each respective issuance
date and interest was accrued at 5 % based on the simple interest method (365 days year) for each note. Each of Notes 1-7
contemplated multiple plausible outcomes that include conversion upon a Qualified SPAC Business Combination (“SPAC”) and at least one of the following conversion triggers: Qualified Initial Public Offering (“IPO”), private equity transaction
and/or change of control. All outstanding principal of these Notes, together with all accrued but unpaid interest on such principal, will convert to equity. The number of shares of Company stock to be issued to the Lender upon conversion of the
Notes in the event of a completed SPAC transaction would be the number of shares of the Company Stock (rounded to the nearest whole share) equal to the quotient of: (a) the principal plus accrued interest on the Notes then outstanding, divided
by $ 4.00 . In other, non-SPAC conversion scenarios, the number of shares of Company stock to be issued to the Lender upon conversion
of the Notes was variable based on the application of an automatic discounted share-settlement feature. For Notes 1 and 2, the number of shares of Company stock to be issued to the Lender upon a non-SPAC conversion event would be the number of
shares of Company stock (rounded to the nearest whole share) equal to the quotient of: (a) the principal plus accrued interest on the Notes then outstanding (b) divided by 40 % of the initial public offering price per share of a qualified initial public offering. For Notes 3-7, the number of shares of Company stock to be issued to the Lender upon a non-SPAC
conversion event would be the number of shares of Company stock (rounded to the nearest whole share) equal to the quotient of: (a) the principal plus accrued interest on the Notes then outstanding (b) divided by 40 % of (i) the initial public offering price per share of a qualified initial public offering, (ii) the price per share as determined by the
valuation of the Company in connection with a qualified private equity raise, or (iii) in the case of a change of control, the price per share determined in accordance with the Company’s then current fair value determined by an independent
valuation firm.
Notes 8 to 12 were Convertible Promissory Notes issued from November 2021 through December 2021 with a cumulative face value of $ 17,500.0 , maturity of between 18
months and 36 months and interest was accrued at a range between 5 % and 10 % based on the simple interest method (365 days year) for each
note. Notes 8 to 12 were convertible simultaneously with the completion of a SPAC merger agreement or IPO. All outstanding principal of these Notes, together with all accrued but unpaid interest on such principal, would convert to equity. The
number of shares of Company stock to be issued to the Lender upon conversion of the Notes would be the number of shares of the Company Stock (rounded to the nearest whole share) equal to the quotient of: (a) the principal plus accrued interest
on the Notes then outstanding (b) divided by either US$ 25 , US$ 21 or US$ 20 subject to the respective conditions of the individual Notes;
provided, however, in the event that the stock price quoted for the Company on NASDAQ or The New York Stock Exchange (as applicable) at the time of the closing of the Qualified SPAC Business Combination (the “TMTG Stock Price”) is less than
either $ 50 per share, $ 42
per share, $ 40 per share subject to the respective conditions of the individual Notes, then the Conversion Price would be reset to 50 % of the then current TMTG Stock Price subject to a floor of $ 10 per share.
Notes 13 to 18 were Convertible Promissory Notes issued from January 2022 through March 2022. Note 19 was issued on August 23, 2023. Notes 13 to 19 were
Convertible Promissory Notes issued with a cumulative face value of $ 18,360.0 , maturity of 18 months and interest will be accrued at a range between 5 %
and 10 % based on the simple interest method (365 days year) for each note. Notes 13 to 19 were convertible simultaneously with the
completion of a Qualified SPAC Business Combination (“SPAC”) merger agreement or Qualified Initial Public Offering (“IPO”). All outstanding principal of these Notes, together with all accrued but unpaid interest on such principal, would convert
to equity. The number of shares of Company stock to be issued to the Lender upon conversion of the Notes would be the number of shares of the Company Stock (rounded to the nearest whole share) equal to the quotient of: (a) the principal plus
accrued interest on the Notes then outstanding (b) divided by either US$ 25 or US$ 21 subject to the respective conditions of the individual notes.
Notes 20 to 23 were Convertible Promissory Notes issued from November 2023 through March 2024 with a cumulative face value of $ 7,955.0 , maturity of 18 months and
interest will be accrued at 10 % based on the simple interest method (365 days year) for each note. Notes 20 to 23 were convertible
with the completion of a Qualified SPAC Business Combination (“SPAC”) merger agreement or Qualified Initial Public Offering (“IPO”). The outstanding principal of the Notes, accrued but unpaid interest on such principal, would convert to equity.
The number of shares of Company stock to be issued to the Lender upon conversion of the Notes in the event of a SPAC transaction shall be the number of shares of the Company Stock (rounded to the nearest whole share) equal to the quotient of:
(a) the principal plus accrued interest on the Notes then outstanding (b) divided by US$ 10 . The number of shares of Company stock to
be issued to the Lender upon conversion of the Notes in the event of an IPO would be the number of shares of the Company Stock (rounded to the nearest whole share) equal to the quotient of: (a) the principal plus accrued interest on the Notes
then outstanding (b) divided by 50 % of the IPO price per share.
Convertible notes and warrants - February 8, 2024 - Pursuant to a note purchase agreement entered into by and between Digital World and certain institutional
investors on February 8, 2024 (the “Note Purchase Agreement”), Digital World agreed to issue up to $ 50,000.0 in convertible
promissory notes (the “Convertible Notes”). The Convertible Notes: (a) accrue interest at an annual rate of 8.00 % and are payable on
the earlier of (i) the date that is 12 months after the date on which the Company consummates the Business Combination, which interest is not payable to the extent the holder exercises the conversion right and (ii) the date that the winding up
of the Company is effective (such date, the “Maturity Date”); (b) are convertible (i) at any time following the consummation of the Business Combination, but prior to the Maturity Date, redemption or otherwise the repayment in full of the
Convertible Notes, at each holder’s option, in whole or in part, and subject to the terms and conditions of the Convertible Notes, including any required shareholders’ approval upon the consummation of the Business Combination and (ii) into
that number of Digital World Class A common stock and warrants included in the units, each unit consisting of one share of Class A
common stock of the Company and one-half of one warrant of the Company (the “Conversion Units”), equivalent to (A) the portion of
the principal amount of the applicable Convertible Note (excluding any accrued interest, which shall not be payable with respect to the Convertible Note that was converted) being converted, divided by (B) $ 8.00 (the “Conversion Price”); (c) may be redeemed by Digital World, in whole or in part, commencing on the date on which all Digital World Class A
common stock issuable to the holders has been registered with the SEC, by providing a 10-day notice of such redemption (the
“Redemption Right”), which Redemption Right is contingent upon the trading price of the Digital World Class A common stock exceeding 130 %
of the applicable conversion price on at least 3 trading days, whether consecutive or not, within the 15 consecutive trading days ending on the day immediately preceding the day on which a redemption notice is issued by Digital World; (d) are
initially drawable for 20 % of the applicable investor’s commitment amount and a final drawdown for the remaining 80 % to occur upon the closing of the Business Combination, with the proceeds of such final drawdown to be deposited into a control account as
indicated by the Company (the “Control Account”). The proceeds from such final drawdown deposited into the Control Account shall remain therein and may not be withdrawn by the Company until such time as (i) the Company exercises the Redemption
Rights using the proceeds in the Control Account, (ii) any portion of the applicable Convertible Note has been converted, at which time such portion shall be released from the Control Account or (iii) if prior to the conversion, a resale
registration statement of the Company covering all common stock issued pursuant to the Convertible Note has been declared effective by the Commission; (e) are subject to specified events of default; and (f) have registration rights pursuant to
the registration rights agreement entered into by the Company and the parties thereto as of September 2, 2021.
In
addition, pursuant to warrant subscription agreements (each a “Warrant Subscription Agreement”) entered into by and between Digital World and certain institutional investors on February 7, 2024, Digital World has agreed to issue an
aggregate of 3,055,000 warrants (“Post-IPO Warrants”), each warrant entitling the holder thereof to purchase one share of Digital World Class A common stock for $ 11.50 per share. The Post-IPO Warrants were issued concurrently with the closing of the Business Combination, and have substantially the same terms as the public warrants issued by Digital World in
connection with its initial public offering, except that such Post-IPO Warrants may only be transferred to the applicable holder’s affiliates.
13
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investors funded $ 10,000.0 of the $ 50,000.0 available under the Note Purchase Agreement before the closing of the merger and $ 40,000.0 immediately after Closing. The $ 40,000.0 of proceeds
is held in a restricted account and will be released upon satisfaction of certain conditions, including the registration of the underlying shares.
Conversion into Paid in Capital
At the closing of the merger, certain Digital World and TMTG convertible notes were converted into common stock of the Company. The carrying value of the Digital
World notes converted was $ 8,228.6 and the carrying value of the TMTG notes converted was $ 300,426.0 , including the derivative liability.
The Company determined the automatic discounted share-settlement feature upon certain events (e.g., SPAC, IPO, change in control, etc.) is an embedded derivative
requiring bifurcation accounting as (1) the feature is not clearly and closely related to the debt host and (2) the feature meets the definition of a derivative under ASC 815 (Derivative and Hedging). Subsequent changes to the fair value of the
embedded derivative flows through the Statement of Operations. The Debt (net of initial debt discount and any related debt issuance costs recorded) is accreted using the effective interest rate method under ASC 835 (Interest) until maturity. The
Convertible Promissory Notes (debt host) are not subject to Subtopic 480-10.
(in thousands)
March 31, 2024
December 31, 2023
Convertible Promissory Notes
Notes 1 to 7
$
5,340.0
$
5,340.0
Notes 8 to 12
17,500.0
17,500.0
Notes 13 to 20
17,860.0
17,860.0
Notes 21 to 23
7,455.0
-
Digital World Convertible Notes
50,103.0
-
Total
98,258.0
40,700.0
Debt Issuance costs
( 240.0
)
( 240.0
)
Carrying value of Convertible Promissory Notes
98,018.0
40,460.0
Less: Derivative liability component
( 37,234.8
)
( 37,234.8
)
Liability component at date of issue
60,783.2
3,225.2
Interest charged
44,939.4
42,121.8
Loss on extinguishment of debt
542.3
-
Total Liability component
$
106,264.9
$
45,347.0
Less: Conversion to Paid in Capital
( 56,107.1
)
-
Less: Short-term liability component
( 50,157.8
)
( 42,415.5
)
Liability component at March 31 , 2024 and December 31, 2023
$
-
$
2,931.5
Embedded feature component
Derivative liability component
$
37,234.8
$
37,234.8
Change in fair value of embedded derivative
207,084.1
( 18,832.0
)
Total Derivative Liability Component
244,318.9
18,402.8
Less: Conversion to Paid in Capital
( 244,318.9
)
-
Less: Short-term derivative liability component
-
( 17,282.5
)
Derivative Liability Component at March 31 , 2024 and December 31, 2023
$
-
$
1,120.3
The interest charged for the periods is calculated by applying the effective interest rate range of between 16.3 % to 100 %+ to the liability component for the period since the
respective notes were issued.
As of March 31, 2024, our future minimum payment of our note payable in the amount of $ 50,157.8
is due in March 2025.
NOTE 10 - FAIR VALUE MEASUREMENT
The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2. Significant other inputs that are directly or indirectly observable in the marketplace.
Level 3. Significant unobservable inputs which are supported by little or no market activity.
The derivative liability component of Convertible promissory notes are classified as Level 3 due to significant unobservable inputs.
14
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of March 31, 2024
(in thousands)
Quoted prices in
active markets for
identical assets
(Level 1)
Significant
other observable
inputs
(Level 2)
Significant unobservable inputs
(Level 3)
Current Liabilites
Derivative liability
-
Liabilities
Derivative liability
-
As of December 31, 2023
(in thousands)
Quoted prices in
active markets for
identical assets
(Level 1)
Significant
other observable
inputs
(Level 2)
Significant unobservable inputs
(Level 3)
Current Liabilites
Derivative liability
17,282.5
Liabilities
Derivative liability
1,120.3
The estimated fair value of the conversion feature of the Derivative liability is based on traditional valuation methods including Black-Scholes option pricing
models and Monte Carlo simulations.
NOTE 11 – LOSS PER SHARE
Basic loss per share is calculated by dividing net income by the weighted average number of shares of stock outstanding during the period.
Diluted loss per share is calculated by dividing net loss by the weighted average number of shares outstanding during the period adjusted for the effect of dilutive potential shares from convertible notes and warrants. There were no dilutive potential common shares for three months ended March 31, 2024 and 2023, because the Company incurred a net loss and the potential
dilutive shares are anti-dilutive. As such, basic and diluted losses per common share are the same.
Total common stock equivalents excluded from dilutive loss per share are as follows:
March 31, 2024
March 31, 2023
Convertible notes
6,250,000
-
Warrants
21,491,229
-
Total common stock equivalents excluded from dilutive loss per share
27,741,229
-
As noted in Note 14, in connection with the litigation initiated by ARC against DWAC in the Delaware Court of Chancery and the Closing of the Business Combination, the Company deposited 4,667,033 shares into an escrow account, to be held until the action concludes. While in escrow, such shares are generally not considered by the
Company to be issued and outstanding. For purposes of basic and diluted loss per share (and the table above), these shares are not included until the contingency (litigation) is resolved.
NOTE 12 – STOCKHOLDERS’ EQUITY
At inception, the total number of shares of all classes of capital stock that the Company was authorized to issue was 11,000 shares of Company Stock, each having a par value of $ 0.000001 ,
of which 10,000 shares were issued and outstanding, and an additional 1,000 shares were authorized for issuance in connection with the Company’s Equity Incentive Plan.
In October 2021, the total number of shares of Common Stock authorized was increased to 110,000,000 , each having a par value of $ 0.000001 . Each share
of the Company’s Common Stock, automatically and without any action on the part of the Company or any respective holders thereof, was reclassified into ten thousand ( 10,000 ) shares of the Company’s Common Stock, $ 0.000001 par value per share, resulting in 110,000,000 shares authorized, of which 100,000,000 shares were issued and outstanding , and an additional 7,500,000
shares were authorized for issuance in connection with the Company’s Equity Incentive Plan .
In January 2022, the total number of shares of the Company’s Common Stock authorized was increased to 120,000,000 , each having a par value of $ 0.000001 , of which 100,000,000 shares were issued and outstanding , and an additional 7,500,000 shares were authorized for issuance in connection with the Company’s Equity Incentive Plan .
In January 2024, the total number of shares of the Company’s Common Stock authorized was increased to 1,000,000,000 , each having a par value of $ 0.000001 ,
of which 100,000,000 shares were issued and outstanding. 100,000,000 of the additional authorized but unissued shares were classified as non-voting.
15
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On March 25, 2024, in connection with the merger, Digital World amended (the second amendment) and restated its certification of
incorporation. Amoung other matters, Digital World’s name was changed to Trump Media and Technology Group Corp. Additionally, the Company changed its authorized capital stock to 1,000,000,000 shares, each with a par value of $ 0.0001 per
share, consisting of (a) 999,000,000 shares of common stock and (b) 1,000,000 shares of preferred stock.
NOTE 13 – STOCK BASED COMPENSATION
2024 Equity Incentive Plan
In connection with the Business Combination, TMTG’s Board adopted, and our stockholders approved, the Digital World Acquisition Corp. 2024
Equity Incentive Plan (the “2024 Equity Incentive Plan”), which became effective on March 25, 2024. The total number of shares of our common stock reserved and available for delivery under the 2024 Equity Incentive Plan at any time during the
term of the 2024 Equity Incentive Plan will be equal to 13,252,544 No activity pursuant to the 2024 Equity Incentive Plan occurred for the three months ended March 31, 2024.
Executive Promissory Notes
In March 2024, we issued unsecured Executive Promissory Notes to certain executives, including each of our Named Executive Officers
(“NEOs”) in an aggregate amount of $ 10,900.0 , as consideration for their service to the Company through the Merger. The Executive
Promissory Notes bore a zero -coupon interest rate, and became payable at the earlier of September 30, 2024 , an Event of Default, or upon a Change in Control Event. The Maturity Date of the Executive Promissory Notes could be extended at the sole discretion of
each executive individually for any reason, including for the purpose of allowing the Executive Promissory Notes to convert to stock or other securities upon a Change of Control Event.
Upon a Change of Control Event, the Executive Promissory Notes automatically converted into either (a) shares of common stock at a fixed
conversion price of $ 10.00 per share upon consummating a merger with DWAC, or (b) a share amount equal to the quotient of the
principal amount divided by the price per share based upon the current fair value of the common stock of TMTG, for any other Change of Control Events.
On March 25, 2024, we consummated a merger between DWAC and TMTG at which time the Executive Promissory Notes automatically converted into
an aggregate of 1,090,000 shares of our common stock. We accounted for the Executive Promissory Notes as a liability award under
ASC 718 as the Executive Promissory Notes could be converted into a variable number of shares upon a Change of Control event and the executives had the sole discretion to extend the Maturity Date which could result in the Company being required
to settle the Executive Promissory Notes in cash. We remeasured the fair value of the Executive Promissory Notes at their settlement date and recorded stock-based compensation expense for these awards, within general and administration expense
in the Statement of Operations, totaling $ 54,445.5 for the three months ended March 31, 2024.
Vendor Convertible Notes
In March 2024, we issued unsecured convertible notes to certain vendors in exchange for research and development services provided. These
Vendor Convertible Notes were issued with an aggregate face value of $ 7,500.0 , bore a zero -coupon interest rate, and had a maturity date in March 2027 .
The Vendor Convertible Notes were automatically convertible in to shares of our common stock upon consummating a merger between DWAC and
TMTG at a conversion price of $ 10.00 per share. We measured the fair value of these Vendor Convertible Notes on their date of grant
and recorded $ 30,142.5 of stock based compensation expense, within research and development expense in the Statement of Operations
for the three months ended March 31, 2024.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
From time-to-time, we are a party to litigation and subject to claims, suits, regulatory and government investigations, other proceedings and consent decrees in
the ordinary course of business, and other unasserted claims. We investigate claims as they arise and accrue estimates for resolution of legal and other contingencies when losses are probable and reasonably estimable. Based on current known
facts and circumstances, the Company currently believes that any liabilities ultimately resulting from ordinary course claims, and proceedings will not individually or in aggregate, have a material adverse effect on the Company’s financial
position, results of operations or cash flows. However, the outcomes of claims legal proceedings or investigations are inherently unpredictable and subject to uncertainty, and may have an adverse effect on us because of defense costs,
diversion of management resources and other factors that are not known to us or cannot be quantified at this time. We may also receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that
favorable final outcomes will be obtained. The final outcome of any current or future claims or lawsuits could adversely affect our business, financial position, results of operations or cash flows. We periodically evaluate developments in
our legal matters that could affect the amount of liability that has previously been accrued or the reasonably possible losses that we have disclosed, and make adjustments as appropriate.
In connection with the litigation initiated by ARC against DWAC in the Delaware Court of Chancery (see below) and the Closing of the Business
Combination, the Company deposited 4,667,033 shares into an escrow account, to be held until the action concludes. While in escrow,
such shares are generally not considered by the Company to be issued and outstanding. On March 22, 2024, the Chancery Court entered a Scheduling Order setting the case for a single-day trial on June 26, 2024.
Except as indicated below, to the knowledge of our management team, there is no litigation currently pending or contemplated against us or
against any of our property.
We have cooperated with a FINRA inquiry concerning events (specifically, a review of trading) that preceded the public announcement of the
Merger Agreement and the consummation of the Business Combination. According to FINRA’s request, the inquiry should not be construed as an indication that FINRA has determined that any violations of Nasdaq rules or federal securities laws have
occurred, or as a reflection upon the merits of the securities involved or upon any person who effected transactions in such securities.
Settlement in Principle
Digital World was the subject of an investigation by the SEC with respect to certain statements, agreements and the timing thereof included in Digital World’s
registration statements on Form S-1 in connection with its IPO and Form S-4 relating to the Business Combination (the “Investigation”).
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On July 3, 2023, Digital World reached an agreement in principle (the “Settlement in Principle”) in connection with the Investigation. The
Settlement in Principle was subject to approval by the SEC.
On July 20, 2023, the SEC approved the Settlement in Principle, announcing it settled its dispute with Digital World and entered an order (the
“Order”) finding that Digital World violated certain antifraud provisions of the Securities Act and the Exchange Act, in connection with Digital World’s IPO filings on Form S-1 and the Form S-4 concerning certain statements, agreements and
omissions relating to the timing and discussions Digital World had with Private TMTG regarding the proposed business combination. In the Order, Digital World agreed (i) that any amended Form S-4 filed by Digital World would be materially
complete and accurate with respect to certain statements, agreements and omissions relating to the timing and discussions that Digital World had with Private TMTG regarding the proposed business combination and (ii) to pay a civil money penalty
in an amount of $ 18 million to the SEC promptly after the closing of any merger or a comparable business combination or transaction,
whether with Private TMTG or any other entity.
In connection with the consummation of the Business Combination, on March 25, 2024, Digital World paid the $ 18 million civil penalty to the SEC pursuant to the Order.
Section 16 Claim
On October 20, 2023, Robert Lowinger (the “Plaintiff”) filed a complaint against Rocket One Capital, LLC (“Rocket One”), Michael Shvartsman,
Bruce Garelick, and Digital World in the U.S. District Court for the Southern District of New York. According to the complaint, Digital World was named as a party in the lawsuit because the Plaintiff is seeking relief for the benefit of Digital
World. In the complaint, the Plaintiff contends that, in 2021, Mr. Garelick and Rocket One were directors of Digital World and that they purchased securities of Digital World. The Plaintiff further alleges that within a six-month period from the date of their purchases, both Mr. Garelick and Rocket One sold securities in Digital World and realized profits from those
sales. Additionally, the Plaintiff alleges that Mr. Shvartsman had a financial interest in the profits resulting from Rocket One’s purchases and sales of Digital World’s securities. According to the Plaintiff, under Section 16(b) of the
Exchange Act (15 U.S.C. §78p(b)), Rocket One, Mr. Shvartsman, and Mr. Garelick are each required to disgorge certain trading profits to Digital World. On January 11, 2024, Digital World filed a pre-motion letter with the court, indicating
Digital World’s intention to file a motion to dismiss in relation to the matter. This pre-motion letter was subsequently endorsed by the court on January 17, 2024. The court provided a deadline of January 22, 2024 for the Plaintiff to respond
to Digital World’s pre-motion letter.
On March 1, 2024, Digital World filed a motion to dismiss the claims against Digital World. On March 15, 2024, the Plaintiff filed an
opposition to Digital World’s motion to dismiss. On March 22, 2024, Digital World filed a reply in support of its motion to dismiss the claims against Digital World. The case is Lowinger v. Rocket One Capital, LLC, et al., No. 1:23-cv-9243
(S.D.N.Y. Oct. 20, 2023).
Litigation with United Atlantic Ventures (“UAV”) in Delaware
On July 30, 2021, an attorney for the Trump Organization, on behalf of President Trump, declared void ab initio a services agreement that had
granted TMTG, among other things, extensive intellectual property and digital media rights related to President Trump for purposes of commercializing the various Private TMTG initiatives (the “Services Agreement”). Neither Private TMTG nor
Digital World was a party to such agreement.
On each of January 18, 2024 and February 9, 2024, Digital World received letters from counsel to UAV, a party to the Services Agreement. The
letters contained certain assertions and enclosed a copy of the Services Agreement that had been declared void two and a half years earlier. Specifically, counsel for UAV claims that the Services Agreement grants UAV rights to (1) appoint two
directors to TMTG and its successors (i.e., TMTG after the Business Combination), (2) approve or disapprove of the creation of additional TMTG shares or share classes and anti-dilution protection for future issuances, and (3) a $ 1.0 million expense reimbursement claim. In addition, UAV asserts that the Services Agreement is not void ab initio and claims that certain events
following the July 30, 2021 notification support its assertion that such Services Agreement was not void.
On February 6, 2024, a representative of UAV sent a text message to a representative of a noteholder of TMTG suggesting that UAV might seek to
enjoin the Business Combination. On February 9, 2024, Private TMTG received from counsel to UAV a letter similar to those letters received by Digital World, which also threatened Private TMTG with legal action regarding UAV’s alleged rights in
Private TMTG, including, if necessary, an action to enjoin consummation of the Business Combination.
On February 28, 2024, UAV filed a verified complaint against Private TMTG in the Chancery Court seeking declaratory and injunctive relief
relating to the authorization, issuance, and ownership of stock in Private TMTG and filed a motion for expedited proceedings. On March 4, 2024, UAV filed an amended complaint, converting their action from a direct action to a purported
derivative action, and adding members of the Private TMTG board as defendants.
On March 6, 2024, Private TMTG filed an opposition to UAV’s motion to expedite, and UAV filed its response on March 8, 2024. On March 9, 2024,
the Chancery Court held a hearing to decide UAV’s motion to expedite proceedings. During the oral argument, Private TMTG agreed that any additional shares of Private TMTG issued prior to or upon the consummation of the Business Combination
would be placed in escrow pending a resolution of the dispute between the parties. The Chancery Court entered an order consistent with the foregoing on March 15, 2024, and scheduled a status conference for April 1, 2024. On March 18, 2024,
Private TMTG and the former board filed a motion to dismiss the amended complaint for, among other things, failure to state a claim.
On April 2, 2024, UAV filed a motion for leave to file a second amended complaint together with a motion for preliminary injunction and a
motion for contempt and anti-suit injunction related to Private TMTG’s filing of a separate litigation against UAV and others in Florida state court. Private TMTG maintains that the contempt claims are meritless. Additionally, UAV filed a
motion for a case scheduling order seeking to expedite discovery in advance of a hearing scheduled for April 30, 2024. On April 3, 2024, Defendants (Private TMTG and its former board) filed an opposition to the motion for scheduling order. On
April 5, 2024, Defendants filed an opposition to the motion for leave to file a second amended complaint. On April 8, 2024, Defendants filed a motion to stay discovery and for protective order. The Chancery Court granted the motion for leave to
file a second amended complaint on April 9, 2024, but the Chancery Court also re-assigned the case to a new judicial officer.
On April 11, 2024, UAV filed its second amended complaint, naming the prior Defendants together with five new defendants—TMTG and the current
directors on the TMTG Board who were not on Private TMTG’s board of directors.
On April 22, 2024, all of the Defendants moved to vacate the Chancery Court’s prior order expediting the matter. Additionally, all of the
Defendants moved to dismiss the second amended complaint. Following briefing and oral argument on the motion to vacate, the Chancery Court vacated the prior provisions of the March 15 order expediting the matter. On May 8, 2024, the Chancery
Court stayed discovery.
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NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
This matter—including Defendants’ Motion to Dismiss and UAV’s Renewed Motion for Contempt—remains pending.
Lawsuit Against ARC and Patrick Orlando
On February 26, 2024, representatives of ARC Global Investments II, LLC (“ARC”) claimed to Digital World that after a “more comprehensive”
review, the conversion ratio for Digital World Class B common stock into Digital World Class A common stock upon the completion of the Business Combination was approximately 1.8 :1. ARC’s new claim also contradicted the previous assertion by Patrick Orlando, the managing member of ARC, that the conversion ratio was 1.68 :1. Digital World’s board of directors viewed these claims as an attempt by Mr. Orlando to secure personal benefits, breaching his fiduciary duty to Digital World and
its shareholders.
Digital World and Private TMTG initiated a lawsuit against ARC (Case No. 192862534) in the Civil Division for the Twelfth Judicial Circuit
Court in Sarasota County, Florida, on February 27, 2024. The complaint sought a declaratory judgment affirming the appropriate conversion ratio as 1.34 :1,
as previously disclosed, damages for tortious interference with the contractual and business relationship between Private TMTG and Digital World, and damages for conspiracy with unnamed co-conspirators to interfere with the same. The complaint
also sought damages for Mr. Orlando’s breach of fiduciary duty, which exposed Digital World to regulatory liability and resulted in an $ 18
million penalty, and for his continuous obstruction of Digital World’s merger with Private TMTG to extort various concessions that benefited only him and harmed Digital World and its shareholders. Furthermore, the complaint sought damages for
the wrongful assertion of dominion over Digital World’s assets inconsistent with Digital World’s possessory rights over those assets. On March 8, 2024, Digital World voluntarily dismissed its declaratory judgment claim against ARC. On March 17,
2024, Digital World and Private TMTG filed an amended complaint, adding a claim for violation of Florida’s Deceptive and Unfair Trade Practices Act. Digital World further alleged breach of fiduciary duty of loyalty, breach of fiduciary duty of
care, and conversion claims against Mr. Orlando. With respect to ARC, Digital World alleged aiding and abetting a breach of fiduciary duty. Defendants ARC and Mr. Orlando filed motions to dismiss the amended complaint and stay discovery in the
action on April 3, 2024. No hearing has been set on the motions, and a case management conference is scheduled for June 17, 2024.
On the afternoon of February 28, 2024, ARC’s registered agent in Wilmington, Delaware, and Mr. Orlando were served with the complaint filed by
Digital World and Private TMTG. Later that day, ARC’s counsel electronically mailed Digital World’s counsel a lawsuit, filed in the Court of Chancery of the State of Delaware, alleging an impending violation of the Digital World Charter for
failure to commit to issue the number of conversion shares to ARC that ARC claims it is owed upon the consummation of the Business Combination (the “Delaware Lawsuit”). The complaint claims a new conversion ratio of 1.78 :1 and seeks specific performance and damages for the alleged breach of the Digital World Charter, a declaratory judgment that the certain
derivative securities of Digital World should be included in the calculation of the conversion ratio, a finding that the directors of Digital World breached their fiduciary duties, and a preliminary injunction to enjoin the Business Combination
until Digital World “corrected” the conversion ratio.
We do not believe ARC’s 1.78 :1
conversion ratio and related claims are supported by the terms of the Digital World Charter. As a result, we intend to vigorously defend Digital World’s calculation of the conversion ratio and related rights. In addition to its complaint filed
on February 28, 2024, ARC also filed a motion with the Chancery Court requesting that the case schedule be expedited to enable the Chancery Court to conduct an injunction hearing prior to the March 22, 2024 shareholder vote. On March 3, 2024,
Digital World filed an opposition to ARC’s motion to expedite, and ARC filed a reply on March 4, 2024. On March 5, 2024, the Chancery Court conducted a hearing to consider ARC’s request to expedite the case schedule. After hearing arguments
from both sides, the Vice Chancellor denied ARC’s motion, stating that the court would not conduct a merits or injunction hearing before March 22, 2024. Consequently, the Vice Chancellor also denied ARC’s request to postpone the vote until
after a merits hearing.
The Chancery Court ruled that Digital World’s proposal to deposit disputed shares into an escrow account at the close of the Business
Combination was adequate to prevent potential irreparable harm related to ARC’s share conversion. The court also found that Digital World’s public disclosures about ARC’s claims and possible conversion scenarios at the close of the Business
Combination further mitigated the risk of irreparable harm due to insufficient disclosure for the March 22, 2024 vote. In its ruling, the Chancery Court ordered ARC and Digital World to propose a schedule by March 8, 2024, for resolving the
action within 150 days following the Business Combination. The court also asked the parties to provide a stipulation by March 8,
2024, regarding ARC’s ability to maintain standing over its claim after voting in favor of the Business Combination. The court further requested the parties to agree to the creation of an escrow account for the deposit of disputed shares after
the Business Combination, to be held until the action concludes. Lastly, the court asked Digital World’s counsel to submit a letter by March 8, 2024, outlining how this litigation will proceed alongside the Florida litigation filed by Digital
World on February 27, 2024, in the Circuit Court of Sarasota County, Florida. On March 8, 2024, Digital World submitted a letter to the Chancery Court, stating that it voluntarily had dismissed its claim for declaratory judgment in the Circuit
Court of Sarasota County, Florida. On March 22, 2024, the Chancery Court entered a Scheduling Order setting the case for a single-day trial on June 26, 2024. Discovery is ongoing.
In relation to the Delaware Lawsuit, Digital World notified its shareholders on March 14, 2024, of its intention to apply a conversion ratio
to all Digital World Class B common stock shares to ensure that ARC and the Non-ARC Class B Shareholders receive an equal number of common stock shares in the Company per share of Digital World Class B common stock. Accordingly, on March 21,
2024, Digital World entered into the Disputed Shares Escrow Agreements with the Escrow Agent, pursuant to which TMTG deposited into escrow the number of shares of TMTG Common Stock representing 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.
The ultimate resolution as to whether none, a portion or all of the disputed conversion shares will be issued is not determinable at this
time. As a general matter, the pursuit of the claims may be costly and time consuming and could have a material adverse effect on TMTG’s reputation and its existing stockholders and may result in counterclaims.
Litigation With Patrick Orlando in Delaware
On March 15, 2024, Plaintiff Patrick Orlando brought a lawsuit against Digital World in the Chancery Court seeking advancement of legal fees
associated with Mr. Orlando’s involvement in civil litigation against Digital World in Florida and certain other matters (the “Advancement Lawsuit”). Mr. Orlando’s allegations relate to certain provisions in the Digital World Charter, Digital
World’s bylaws, and an indemnity agreement allegedly entered into between Mr. Orlando and Digital World. Mr. Orlando alleges that those certain provisions require Digital World to pay the legal fees Mr. Orlando incurred and will incur in
connection with legal proceedings in which he is involved by reason of the fact that he is or was a director or officer of Digital World. Mr. Orlando seeks a court order that (i) declares that he is entitled to legal fees for certain
proceedings described in the complaint, (ii) requires Digital World to pay for legal fees incurred and future legal fees to be incurred for those proceedings, (iii) requires Digital World to pay the fees incurred to bring the Advancement
Lawsuit, and (iv) requires Digital World to pay pre- and post-judgment interest on the amounts owed to Mr. Orlando.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On April 3, 2024, the Chancery Court entered a Stipulation and Advancement Order (“Stipulation”), stating that Mr. Orlando is entitled to
advancement of attorneys’ fees and costs incurred with legal proceedings described in the Stipulation, subject to Digital World’s right to challenge the reasonableness of those attorneys’ fees and costs. The Stipulation further states that Mr.
Orlando is entitled to fees incurred in connection with enforcement of advancement rights and sets forth procedures that will govern future requests for advancement of attorneys’ fees and costs. As of May, 10, 2024, TMTG had paid or agreed to
pay a total of $ 235.1 thousand to Mr. Orlando’s attorneys pursuant to such Stipulation.
On April 23, 2024, Mr. Orlando filed a motion for leave to supplement the Advancement Lawsuit to add a claim for advancement of legal fees and
expenses Mr. Orlando has incurred and will incur in connection with his defense of an action for declaratory judgment brought by members of ARC regarding Mr. Orlando’s removal as the managing member of ARC. Mr. Orlando also seeks reimbursement
for the legal fees and expenses incurred in connection with his supplement to the Advancement Lawsuit, and he seeks pre-judgment and post-judgment interest on the amounts he claims are owed to him.
Lawsuit Against ARC in New York
On March 19, 2024, Plaintiff Digital World filed a lawsuit against ARC in New York state court alleging breach of contract and seeking
injunctive relief. Digital World’s claims related to an agreement between Digital World and ARC entered into in September 2021 (the “Letter Agreement”), whereby ARC promised to vote in favor of any merger agreement presented to Digital World
shareholders for a vote. Digital World alleged that it presented a merger agreement to its shareholders, but ARC withheld its vote in favor of the merger in advance of the March 22, 2024 shareholder vote. Digital World’s suit requested that the
court declare ARC’s obligation to vote its shares in favor of the merger, per the Letter Agreement, and an order compelling ARC to specifically perform its obligations under the Letter Agreement. Digital World also sought an award of
consequential damages for breach of contract. On March 22, 2024, Digital World voluntarily discontinued its action without prejudice after ARC cast its vote in favor of the Business Combination at the Special Meeting.
Lawsuit Against UAV, Litinksy, Moss, and Orlando in Florida
On March 24, 2024, Private TMTG filed a lawsuit in the Circuit Court of the Twelfth Judicial Circuit for Sarasota County, Florida (Case No.
2024 CA 001545 NC) against UAV, Andrew Litinsky, Wesley Moss, and Patrick Orlando. In view of UAV’s repeated demands concerning its alleged stock ownership and director appointment rights, the complaint alleges claims for a declaratory judgment
against UAV determining that the Services Agreement is unenforceable against Private TMTG. The complaint also asserts a claim for unjust enrichment against UAV based on its failure to competently provide services to the company. Finally, the
complaint asserts claims for damages for (a) breach of the fiduciary duty of loyalty against Mr. Litinsky and Mr. Moss based on their dealings with Orlando, (b) aiding and abetting and conspiracy to breach fiduciary duty against Mr. Orlando
based on the same events, and (c) breach of the fiduciary duty of care against Mr. Litinsky and Mr. Moss for their gross negligence in managing the company.
On April 25, 2024, Private TMTG filed a motion to consolidate this lawsuit with the Lawsuit Against ARC and Patrick Orlando in Sarasota
County, Florida described above for purposes of discovery and pretrial proceedings. That motion is currently pending before the court, as is Mr. Moss, Mr. Litinsky, and UAV’s motion to stay proceedings—which is set for a hearing on June 5,
2024.
Litigation with Orlando and Benessere in Miami, Florida
On April 2, 2024, Patrick Orlando and Benessere Investment Group, LLC filed suit against TMTG in the Circuit Court of the Eleventh Judicial
District in Miami-Dade County, Florida. Orlando and Benessere seek a declaratory judgment that TMTG is restricted from disclosing material exchanged with Orlando and Benessere pursuant to a joint defense agreement previously entered into by the
Parties in addition to a request for damages for any breach of the joint defense agreement. Also on April 2, 2024, Orlando and Benessere filed a motion for preliminary injunction for enforcement of the joint defense agreement. As of May 2,
2024, the motion for preliminary injunction had not been set for hearing.
Litigation with ARC Noteholders in Miami, Florida
On May 8, 2024, a group of ARC noteholders (Edwin B. Tucker et al.) filed suit against ARC and DWAC n/k/a TMTG in the Circuit Court of the
Eleventh Judicial District in Miami-Dade County, Florida. The noteholders seek specific performance and compensatory damages from both defendants or, in the alternative, damages for breach of contract from ARC, in connection with shares of
TMTG to which the ARC noteholders assert they are entitled. As of May 10, 2024, TMTG had not been served in this action.
NOTE 15 – SUBSEQUENT EVENTS
On April 15, 2024, TMTG filed a registration statement on form S-1, which, as of May 20, 2024, had not yet been declared effective and remained subject to
amendment and completion.
On April 16, 2024, TMTG announced that it had finished the research and development phase of its new live TV streaming platform and would begin scaling up its own
content delivery network. On May 16 and 17, 2024, respectively, the Company signed agreements to obtain data center services and purchase servers and related equipment for the project.
On April 26, 2024, in accordance with the terms of the Merger Agreement, the Company officially determined that 40,000,000 Earnout Shares had been earned, after which such shares were issued.
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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.