Item 1. Financial Statements
Item 1.
Financial Statements
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Balance
Sheets as of September 30, 2024 and December 31, 2023 and Statements of Operations, Stockholders’ (Deficit)/Equity and Cash Flows for the three and nine months ending September 30 th , 2024 and September 30 th , 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
(in thousands except share data)
September 30, 2024
(Unaudited)
December 31, 2023
(Audited)
Assets
Current Assets:
Cash and cash equivalents
$
372,135.7
$
2,572.7
Short-term investments
300,742.5
-
Prepaid expenses and other current assets
9,233.5
327.5
Accounts receivable, net
14.8
81.0
Total current assets
682,126.5
2,981.2
Property and equipment, net
4,790.6
29.2
Intangible asset, net
15,811.6
-
Right-of-Use Assets, net
2,855.1
353.2
Goodwill
132,171.0
-
Total assets
837,754.8
3,363.6
Liabilities and Stockholders’ Equity/ (Deficit)
Current Liabilities:
Accounts payable and accrued expenses
6,657.4
1,600.7
Convertible promissory notes
-
41,818.8
Related party payables
262.0
-
Derivative liability
-
17,282.5
Unearned revenue
1,959.7
4,413.1
Current portion of long-term debt
4,749.9
-
Current portion of operating lease liability
734.0
160.3
Total current liabilities
14,363.0
65,275.4
Long-term operating lease liability
2,175.1
201.6
Long-term debt - Other
4,683.6
-
Convertible promissory notes
-
3,528.2
Derivative liability
-
1,120.3
Total liabilities
21,221.7
70,125.5
Commitments and contingencies (Note 15)
Stockholders’ Equity/(Deficit):
Preferred Stock $ 0.0001 par value – 1,000,000 shares authorized, 0
shares issued and outstanding at September 30 , 2024 and December 31 , 2023
-
-
Common Stock $ 0.0001 par value – 999,000,000 shares authorized, 214,389,622
and 87,500,000 shares issued and outstanding at September 30 , 2024 and December 31 , 2023
21.5
8.8
Paid in Capital
3,726,957.3
-
Treasury Stock
( 2,908.7
)
-
Accumulated Deficit
( 2,907,537.0
)
( 66,770.7
)
Total stockholders’ equity/(deficit)
816,533.1
( 66,761.9
)
Total liabilities and stockholders’ equity/(deficit)
$
837,754.8
$
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
Nine Month
Period Ended
Period Ended
(in thousands except share and per share data)
September 30,
2024
September 30,
2023
September 30,
2024
September 30,
2023
Net sales
$
1,010.9
$
1,071.3
$
2,618.3
$
3,379.6
Operating costs and expenses (1)
Cost of revenue
123.3
41.3
252.9
123.8
Research and development
3,893.7
2,202.7
41,913.9
7,212.2
Sales and marketing
2,189.4
333.6
4,435.1
978.1
General and administration
17,697.0
1,509.0
95,910.7
5,666.7
Depreciation and amortization
762.2
14.7
771.5
47.6
Total costs and operating expenses
24,665.6
4,101.3
143,284.1
14,028.4
Loss from operations
( 23,654.7
)
( 3,030.0
)
( 140,665.8
)
( 10,648.8
)
Interest income
4,653.0
-
6,814.5
-
Interest expense
( 246.7
)
( 15,071.9
)
( 2,906.5
)
( 37,702.5
)
Change in fair value of derivative liabilities
-
( 7,931.2
)
( 225,916.0
)
( 660.2
)
Loss on the conversion of convertible debt
-
-
( 542.3
)
-
Loss from operations before income taxes
( 19,248.4
)
( 26,033.1
)
( 363,216.1
)
( 49,011.5
)
Income tax expense
-
-
-
-
Net loss
$
( 19,248.4
)
$
( 26,033.1
)
$
( 363,216.1
)
$
( 49,011.5
)
Loss per Share attributable to common stockholders:
Basic
( 0.10
)
( 0.30
)
( 2.37
)
( 0.56
)
Diluted*
( 0.10
)
( 0.30
)
( 2.37
)
( 0.56
)
Weighted Average Shares used to compute net loss per share attributable to common stockholders:
Basic
200,833,835
87,500,000
152,943,536
87,500,000
Diluted
200,833,835
87,500,000
152,943,536
87,500,000
(1) Costs of operating expenses include stock-based compensation
expense as follows:
Research and development
$
-
$
-
$
30,142.5
$
-
General and administration
45.7
-
54,491.2
-
Total stock-based compensation expense
$
45.7
$
-
$
84,633.7
$
-
* 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
Treasury Stock
Number of Shares
Treasury Stock
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 Loss
-
-
-
-
-
( 210.3
)
( 210.3
)
Balance at March 31, 2023
87,500,000
8.8
-
-
-
( 8,791.6
)
( 8,782.8
)
Net Loss
-
-
-
-
( 22,768.1
)
( 22,768.1
)
Balance at June 30, 2023
87,500,000
$
8.8
-
$
-
$
-
$
( 31,559.7
)
$
( 31,550.9
)
Net Loss
-
( 26,033.1
)
( 26,033.1
)
Balance at September 30, 2023
87,500,000
$
8.8
-
$
-
$
-
$
( 57,592.8
)
$
( 57,584.0
)
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 upon reverse capitalization
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 reverse capitalization
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
Exercise of warrants
8,526,792
0.9
-
-
97,761.4
-
97,762.3
Issuance of earnout shares
40,000,000
4.0
-
-
( 4.0
)
-
-
Conversion of convertible notes in common stock
6,250,000
0.6
-
-
49,999.4
-
50,000.0
Net loss
( 16,368.0
)
( 16,368.0
)
Balance as of June 30, 2024
191,477,375
$
19.2
-
$
-
$
3,229,937.7
$
( 2,888,288.6
)
$
341,668.3
Exercise of warrants
1,758,501
0.2
-
-
20,222.6
-
20,222.8
Common stock issued for cash
17,655,365
1.7
-
-
344,742.5
-
344,744.2
Acquisition of WCT, net of offering costs
2,600,000
0.3
-
-
132,009.1
-
132,009.4
Issuance of common stock for services
2,002
0.0
-
-
45.5
-
45.5
Treasury stock
-
-
( 128,138
)
( 2,908.7
)
-
-
( 2,908.7
)
Common stock for ARC settlement
1,024,517
0.1
-
-
( 0.1
)
-
-
Net Loss
-
-
-
-
-
( 19,248.4
)
( 19,248.4
)
Balance at September 30, 2024
214,517,760
$
21.5
( 128,138
)
$
( 2,908.7
)
$
3,726,957.3
$
( 2,907,537.0
)
$
816,533.1
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)
Nine Month Periods Ended
(in thousands)
September 30,
2024
September 30,
2023
Cash flows from operating activities
Net loss
$
( 363,216.1
)
$
( 49,011.5
)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash interest expense on debt
2,780.1
37,702.5
Change in fair value of derivative liability
225,916.0
660.2
Depreciation and amortization
771.5
48.3
Loss on extinguishment of debt
542.3
-
Stock based compensation
84,633.7
-
Operating lease amortization
201.2
3.8
Prepaid expenses and other current assets
( 3,751.4
)
( 1.6
)
Accounts receivable
66.1
197.2
Unearned revenue
( 2,453.5
)
-
Accounts payable and operating lease liabilities
1,870.1
( 66.1
)
Net cash used in operating activities
( 52,640.0
)
( 10,467.2
)
Cash flows used in investing activities
Purchases of property and equipment
( 5,031.2
)
( 2.2
)
Purchase of intangible asset
( 7,000.0
)
-
Purchase of short-term investments
( 300,742.5
)
-
Net cash used in investing activities
( 312,773.7
)
( 2.2
)
Cash flows provided by financing activities
Proceeds from convertible promissory notes
47,455.0
2,500.0
Proceeds from merger
233,017.5
-
Repurchase of Common Stock
( 2,908.7
)
-
Proceeds from the issuance of Common Stock
339,463.1
-
Proceeds from the exercise of Warrants
117,949.8
-
Net cash provided by financing activities
734,976.7
2,500.0
Net change in cash and cash equivalents
369,563.0
( 7,969.4
)
Cash and cash equivalents, beginning of period
2,572.7
9,808.4
Cash and cash equivalents, end of period
$
372,135.7
$
1,839.0
Supplemental disclosure of cash flow information
Cash paid for interest
$
126.4
$
-
Cash paid for taxes
$
1,897.7
$
-
Noncash investing and financing activities
Shares issued for conversion of convertible notes
$
350,426.0
$
-
Operating lease assets obtained in exchange for operating lease obligations
$
2,703.0
$
-
Common Stock issued for business combination
$
132,171.0
$
-
Common Stock Issued for underwriter fees
$
10,107.5
$
-
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. (“Digital 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 connection with the consummation of the Business Combination, Digital World was renamed “Trump Media & Technology Group Corp.” and TMTG was renamed “TMTG Sub Inc.”
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 audited financial statements for the year ended December 31, 2023.
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Reclassifications
In the third quarter of 2024, we revised the presentation
of our statement of operations to reclassify cost of revenue as a component of operating cost and expenses, and resulted in our gross profit no longer being presented within the statement of operations. We revised the presentation of the
statement of operations to reflect changes in the way we manage and evaluate our business due to our launch of content streaming on Truth+. Reclassifications of certain prior period amounts have been made to conform to the current period
presentation.
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, the fair value of assets acquired and liabilities assumed in business acquisitions, the assessment of recoverability of our goodwill and long-lived assets, 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, derivative liabilities, recoverability of goodwill and intangibles, fair value of short-term investments, useful lives of property and equipment, earn-out shares and stock-based compensation.
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
Statements of Operations.
Cash and cash equivalents
Cash and cash equivalents represents bank accounts and demand deposits held at financial institutions.
Cash and cash equivalents are 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.
Short-term investments
Our policy for short-term investments is to establish a high-quality portfolio that preserves principal, meets liquidity needs, avoids inappropriate concentrations and
delivers an appropriate yield in relationship to our investment guidelines and market conditions. We utilize a repurchase agreement, which is used to purchase United States Treasury Bills from a third party seller, which are accounted for as
secured borrowings under which the seller pledges its securities as collateral to secure a loan from us, which is equal in value to the estimated fair value of the pledged collateral. The seller retains beneficial ownership of the pledged
collateral. At the maturity of the repurchase agreement, the seller is required to repay the loan plus accrued interest and concurrently receives back its pledged collateral from us. We may renew the agreement at the then prevailing financing rate
for the same or other securities. We may be required to transfer additional cash in the event the fair value of the collateral pledged exceeds the loan balance. Our repurchase agreement is based the September 1996 version of the Bond Market
Association Master Repurchase Agreement, which generally provides that the lender, as buyer, is responsible for obtaining collateral valuations from a generally recognized source agreed to by both the Company and the seller, or, in an instance when
such source is not available, the value determination is made by the lender.
Our repurchase agreement is expected to range from 1 to
3 days in duration and the purchase price will be equal to the repurchase price, reducing our exposure to significant market fluctuations
and other variables that may result in decline of the fair value of the securities purchased. We intend to renew our repurchase agreement immediately upon the termination of the preceding repurchase agreement to increase our potential to generate
interest income. The repurchase agreement is reported at the unpaid balance, net of any allowance for expected losses. No expected credit losses were recorded as of September 30, 2024.
Prepaid expenses and other current assets
Other current assets
consist of receivables for proceeds from warrant exercises, deferred cost associated with the issuance of our common stock, prepaid rent, insurance and prepaid data costs. Prepaid and deferred costs are amortized proportionally to their
utilization in our operations.
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 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.
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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 5 - 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 cost 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.
A dditionally, we acquired capitalized software through the business acquisition (see Note 4,
Business Acquisition) .
Goodwill and other intangible assets
We make estimates, assumptions and judgments when valuing goodwill and other intangible assets in connection with the initial purchase price allocation of business
acquisitions, as well as when evaluating the recoverability of our goodwill and other intangible assets on an ongoing basis. We assess our goodwill and indefinite-lived intangible assets for impairment at least annually during the fourth
quarter. We will also perform an assessment at other times if and when events or changes in circumstances indicate the carrying value of these assets may not be recoverable.
We perform our impairment assessment based on qualitative analysis, which includes considering various factors including macroeconomic conditions and our historical
and projected operating results. If, based on our qualitative analysis, we were to determine it is more-likely-than-not the fair value of one of our reporting units is less than its carrying amount, a quantitative impairment test would be performed
to determine if an impairment loss should be recorded.
As of September 30, 2024, we believe such assets are recoverable; however, there can be no assurance these assets will not be impaired in future periods. Any future
impairment charges could adversely impact our results of operations.
For the three and nine months ended September 30, 2024 we recognized $ 501.7 of
amortization expense on our intangible asset .
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 $ 2,453.5 was recognized as revenue for the nine months ended September 30, 2024, which
was included in the deferred revenue balance as of December 31, 2023. As September 30, 2024, deferred revenue is expected to be recognized during the succeeding 12 -month period and is therefore presented as current liability on the unaudited condensed balance sheet.
Cost of revenue
Cost of revenue
primarily encompasses expenses associated with generating advertising revenue and direct costs associated with the acquisition and licensing of content, and streaming delivery cost of our content delivery network, excluding depreciation and
amortization expense.
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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.
Selling, general and administration expenses
General and administration 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 administration employees. In addition, general and administration 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 statements 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 8 - 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.
Business combinations
We include the results of operations of acquired businesses
as of the respective acquisition dates. Purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values, with the excess recorded as goodwill. If applicable, we estimate the
fair value of contingent consideration payments in determining the purchase price. Measurement period adjustments to provisional purchase price allocations are recognized in the period in which they are determined, with the effect on earnings of
changes in depreciation, amortization or other income resulting from such changes calculated as if the accounting had been completed at the acquisition date. Contingent consideration is adjusted to fair value in subsequent periods as an increase or
decrease in general and administration expenses. Acquisition-related costs are expensed as incurred.
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 unaudited condensed consolidated financial statements.
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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 unaudited condensed 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 unaudited condensed 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 statements of changes in stockholders’ equity (deficit) for the period ended September 30, 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 and nine months ended September 30, 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 former 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 1,024,517 additional shares issued to former Digital World Class B shareholders in connection with a court order in September 2024.
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
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Public and private placement warrants
In connection with Digital World’s initial public offering in 2021, 14,374,976 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 3,424,510 warran ts (“Convertible Note Post IPO Warrants and “Pos t-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 Convertible Note Post IPO Warrants and 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 were entitled to up to 40,000,000 shares if certain post merger per share market prices were 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 was the result of the average of 1,000,000 trial outcomes. Within each trial of the simulation:
1.
The stock price was simulated for the defined term ( 1.5 years, 2 years, and 3 years)
after the Merger date.
2.
The vest date was determined as the date the stock price achieved the different stock price thresholds, which were $ 12.50 , $ 15.00 , and $ 17.50 .
3.
The payoff was 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 varied with each simulation.
4.
The payoff was discounted to the present value using the interpolated risk-free rate ranging from 4.31 % to 4.70 %.
Volatility was 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 were no service conditions nor any requirement of the participants to provide goods or services, the Company determined that the Earnout Shares were 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 was 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.
On April 26, 2024, the Earnout Shares had been earned and such shares were issued.
NOTE 4 – BUSINESS ACQUISITION
Acquisition of World Connect Technologies, LLC
On August 9, 2024, we completed the acquisition of substantially all of the assets and liabilities of WorldConnect Technologies, LLC (“WCT”), which included the source
code, an option agreement dated February 5, 2024, by and between WCT, Perception Group, Inc., Perception TVCDN Ltd., and FORA FOrum RAčunalništva, d.o.o., as amended and restated (each of the parties
thereto other than WCT, collectively, “Perception”), as well as agreements related to the source code purchase and support and maintenance. We incurred $ 942.6
in non-recurring transaction costs in connection with the acquisition, which were recogni zed within general and administration expense. We believe the acquisition will allow us to provide ultra-fast streaming technology powered through
our custom-designed, multi-site CDN using our own servers, routers, and software stack, created with the goal of rendering the service uncancellable by Big Tech.
We funded the acquisition in exchange for an estimated aggregate consideration of up to $ 132,171.0 , consisting of:
1.
2,600,000 newly-issued shares of our common stock, equal in
value to $ 68,146.0 at our common stock’s closing price on August 9, 2024.
2.
Contingent consideration upon achieving operational milestones related to the opening of future data centers, as set forth in the Asset Acquisition Agreement, an estimated 2,442,770 newly-issued shares of our common stock, equal in value to $ 64,025.0 at our common stock’s closing price on August 9, 2024. Each milestone is accounted for as a separate unit of account and the common stock to be issued meets
the criteria for equity classification pursuant to ASC 815.
3.
Assumption of a $ 17,500.0 liability payable over three years to Perception for the exercise of the Source Code Purchase Agreement, with an estimated net present value of $ 16,313.2 . $ 7,000.0 of the
assumed liability was paid upon closing.
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We estimated 57,230 newly-issued
shares of our common stock will be issued to WCT pursuant to achieving operational milestones related to the opening of future data centers, which are compensatory in nature due to project management services WCT is providing related to opening our
future data centers outside the scope of our written agreement with them. The estimated allocation of shares as compensation was based upon the estimated fair value of services to be provided divided by the closing price of our common stock on
August 9, 2024. Compensation expense related to these shares will be recorded at the fair value of the common stock when the milestones are achieved.
The following table summarizes the preliminary estimated fair values of the WCT assets acquired and liabilities assumed:
Fair value of assets acquired:
Intangible asset, net
$
16,313.2
Goodwill
132,171.0
Amount attributable to assets acquired
148,484.2
Fair value of liability assumed:
Assumed debt
16,313.2
Amount attributable to liability assumed
16,313.2
Total purchase price
$
132,171.0
The goodwill consists largely of the expected cash flows and future growth anticipated for the Company from acquiring the assets. The goodwill is deductible for tax
purposes.
Preliminary valuation of intangible assets was valued using the cost approach, which estimates value by determining the current cost of replacing an asset with another
of equivalent utility. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the acquired asset. No preliminary fair value has been assigned to other intangible assets that may have been acquired through
the other agreements. The entire preliminary valuation of intangible assets was assigned to purchased software and has an estimated amortization period of 5 years .
The determination of fair value requires considerable judgment and is sensitive to changes in the underlying assumptions. Our estimates are preliminary and subject to
adjustment, which may result in material changes to the final valuation. During the measurement period, which will not exceed one year from closing, we will continue to obtain information to assist us in finalizing the acquisition date fair
values. Any qualifying changes to our preliminary estimates will be recorded as adjustments to the respective assets and liabilities, with any residual amounts allocated to goodwill.
Pro forma financial information is not presented because the acquisition was not material to our financial statements pursuant to Rule 3-05 of Regulation S-X.
As of September 30, 2024, $ 9,433.5 of the assumed debt
remained outstanding and for the three and nine-months ended September 30, 2024, $ 120.2 of interest expense was accreted.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
(in thousands)
September 30, 2024
December 31, 2023
Property and equipment
Furniture and equipment
$
34.5
$
34.5
Computer equipment
5,152.0
120.8
Accumulated depreciation
( 395.9
)
( 126.1
)
Property and equipment, net
$
4,790.6
$
29.2
Total depreciation expense was $ 260.6
and $ 14.7 for the three months ended September 30, 2024 and 2023, respectively. Total depreciation expense was $ 269.8 and $ 48.3 for the nine months
ended September 30, 2024 and 2023, respectively.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
(in thousands)
September 30, 2024
December 31, 2023
Accounts payable
$
1,495.9
$
1,600.7
Other accrued expenses
3,920.7
-
Income tax payable
732.6
-
Franchise tax payable
508.2
-
Accounts payable and accrued expenses
$
6,657.4
$
1,600.7
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NOTE 7 - LEASES
Operating leases are included in the unaudited condensed consolidated Balance Sheets as follows:
(in thousands)
Classification
September 30, 2024
December 31, 2023
Lease assets
Operating lease cost ROU assets, net
Assets
$
2,855.1
$
353.2
Total lease assets
$
2,855.1
$
353.2
Lease liabilities
Operating lease liabilities, current
Current liabilities
$
734.0
$
160.3
Operating lease liabilities, non-current
Liabilities
2,175.1
201.6
Total lease liabilities
$
2,909.1
$
361.9
The components of lease costs, which are included in loss from operations in our unaudited condensed consolidated Statements of Operations were as follows:
Three Month Period Ended
(in thousands)
September 30, 2024
September 30, 2023
Lease costs
Operating lease costs
$
60.9
$
44.9
Short-term lease costs
152.6
34.4
Total lease costs
$
213.5
$
79.3
Nine Month Period Ended
(in thousands)
September 30, 2024
September 30, 2023
Lease costs
Operating lease costs
$
172.5
$
134.6
Short-term lease costs
234.4
110.1
Total lease costs
$
406.9
$
244.7
Future minimum payments under
non-cancellable leases for operating leases for the remaining terms of the leases following September 30, 2024 were as follows:
(in thousands)
2024 (remainder of)
$
250.8
2025
915.3
2026
782.6
2027
771.2
2028
577.1
Thereafter
87.9
Total future minimum lease payments
3,384.9
Amount representing interest
475.8
Present value of net future minimum lease payments
$
2,909.1
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NOTE 8 - INCOME TAXES
The estimated annual effective tax rate applied to the nine month period ended September 30, 2024 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 September 30, 2024, TMTG had US Federal net
operating loss carryforwards (“NOLs”) with a tax benefit of approximately $ 9,400.0 from December 31, 2023.
NOTE 9 - 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 September 30,
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 September 30, 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 September 30, 2024 and 2023, TMTG paid $ 0.0 and $ 31.1 , respectively, and during the nine months
ended September 30, 2024 and 2023 paid $ 38.3 and $ 101.7 , respectively, to Trishul. As of September 30, 2024 and December 31, 2023, TMTG had an outstanding payable balance of zero to Trishul. 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 September 30, 2024 and 2023, we paid $ 60.0 and $ 60.0 , respectively, and for the nine months ended September 30, 2024 and 2023, we paid $ 780.0 and $ 180.0 , respectively, to Hudson Digital. As of September 30,
2024 and December 31, 2023, TMTG had outstanding payable balances of zero to Hudson Digital. 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.
In June 2024, in connection with a company event, TMTG paid $ 78.2
to Mar-a-Lago Club LLC, which is owned by the Donald J. Trump Revocable Trust, dated April 7, 2014. At the time of such transaction, Donald J. Trump owned more than 5 % of TMTG’s common stock.
NOTE 10 - 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.
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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 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 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 SPAC merger agreement or 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.
On March 25, 2024, immediately before the Closing, Notes 1 to 23, and their accrued, but unpaid interest, automatically converted into an
aggregate 7,854,534 shares of TMTG common stock.
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 3,424,510 warrants (“Convertible Note Post IPO Warrants and “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 Convertible Note Post IPO Warrants and 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.
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
was held in a restricted account and was released upon the registration of the underlying shares on June 18, 2024. On June 18 and 20, the face value of the Note Purchase Agreement was converted into 6,250,000 shares of TMTG common stock and warrants to purchase up to 3,125,000
shares of TMTG common stock.
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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 Statements 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)
September 30, 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
44,781.6
42,121.8
Loss on extinguishment of debt
542.3
-
Total liability component
106,107.1
45,347.0
Less: Conversion to Paid in Capital
( 106,107.1
)
-
Less: Short-term liability component
-
( 41,818.8
)
Liability component at September 30 , 2024 and December 31, 2023
$
-
$
3,528.2
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 September 30 , 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.
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NOTE 11 - FAIR VALUE MEASUREMENT
Fair value is defined as an exit price, representing the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction
between market participants. 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.
As of September 30, 2024
(in thousands)
Quoted prices in
active markets for
identical assets
(Level 1)
Significant
other observable
inputs
(Level 2)
Significant unobservable inputs
(Level 3)
Repurchase agreement
$
300,742.5
$
-
$
-
Total assets measured at fair value
$
300,742.5
$
-
$
-
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 Liabilities
Derivative liability
$
-
$
-
$
17,282.5
Liabilities
Derivative liability
-
-
1,120.3
Total liabilities measured at fair value
$
-
$
-
$
18,402.8
The
fair value of the repurchase agreement is based on quoted market prices of the counter-party collateral. Our repurchase agreement exposes us to credit risk and is collateralized by U.S. Treasury Bills. We have not experienced any material
losses related to these securities.
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.
The derivative liability component of Convertible promissory notes are classified as Level 3 due to significant unobservable inputs.
NOTE 12 - LOSS PER SHARE
Basic loss per share is calculated by dividing net loss 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 the three and nine months ended September 30, 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.
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Total common stock equivalents excluded from dilutive loss per share are as follows:
September 30, 2024
December 31, 2023
Convertible notes
-
-
Warrants
11,205,934
-
Total common stock equivalents excluded from dilutive loss per share
11,205,934
-
NOTE 13 – 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.
On March 25, 2024, in connection with the merger, Digital World amended (the second amendment) and restated its certification of
incorporation. Among 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.
On July 3, 2024, the Company entered into the Standby Equity Purchase
Agreement (“ SEPA ”) with YA II PN, LTD., a Cayman Islands exempt limited
partnership (“ Yorkville ”). Pursuant to the SEPA, the Company shall have the
right, but not the obligation, to sell to Yorkville up to $ 2,500,000.0 of its Common Stock, subject to certain limitations and
conditions set forth in the SEPA, from time to time during the term of the SEPA. As consideration for Yorkville’s commitment to purchase shares at the Company’s direction upon the terms and subject to the conditions set forth in the SEPA,
on July 3, 2024 the Company agreed to pay YA Global II SPV, LLC, a subsidiary of Yorkville, (i) a structuring fee in the amount of $ 25.0
and (ii) a commitment fee in the form of 200,000 shares of Common Stock (the “ Commitment Shares ”). The Company also issued to EF Hutton LLC 125,000 shares of Common Stock as consideration for acting as placement agent (the “ Placement
Agent Shares ”). During the quarter ended September 30, 2024, Yorkville purchased 17,330,365 shares of Common Stock for prices between $ 14.31 and $ 36.13 per share, pursuant to the terms of the SEPA. Proceeds of these equity sales under the terms of the SEPA were approximately $ 339,463.1 for the nine months ended September 30, 2024.
On August 22, 2024, our Board authorized the repurchase of an aggregate of 128,138 shares of our common stock from certain executive officers at the prevailing market price of $ 22.70
per share, for an aggregate purchase price of $ 2,908.7 . As consideration for the repurchase, we remitted $ 2,908.7 to the U.S. Internal Revenue Service and certain state taxing authorities in connection with share-based compensation awards.
Warrant Activity Summary – Issued and Outstanding
Warrants
Weighted
Average
Exercise
Price
Weighted Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic
Value
Outstanding at January 1, 2024
18,366,228
$
11.50
5.40
-
Granted
3,124,999
11.50
-
-
Exercised
( 10,285,293
)
11.50
-
-
Expired or cancelled
-
-
-
-
Outstanding at September 30, 2024
11,205,934
$
11.50
4.56
$
51,211,118
Exercisable at September 30, 2024
11,205,934
$
11.50
4.56
$
51,211,118
NOTE 14 - 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 nine months ended September 30, 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.
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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 nine months ended September, 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 nine months ended September 30, 2024.
WCT Acquisition
We estimated 57,230 of the 2,600,000 newly-issued shares of our common stock that will be issued to WCT pursuant to achieving operational milestones related to the opening of future data centers, are compensatory in nature due to
project management services WCT is providing related to opening our future data centers outside the scope of our written agreement with them. The estimated allocation of shares as compensation was based upon the estimated fair value of
services to be provided divided by the closing price of our common stock on August 9, 2024. Compensation expense related to these shares will be recorded at the fair value of the common stock when the milestones are achieved.
NOTE 15 - 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.
Consistent with
the practice of many companies, we have entered into, and continue to enter into indemnity agreements with our executive officers and certain members of our board of directors. These indemnity agreements broadly provide for us to advance
expenses (including attorneys’ fees) incurred in connection with any legal proceeding, as well as indemnification for any and all expenses, actually and reasonably incurred, in connection with the investigation, defense, settlement or appeal
of such a proceeding, in connection with matters related to their position. These indemnity agreements provide that the indemnitee shall repay all amounts so advanced if it shall ultimately be determined by final judicial decision from where
there is no further right of appeal that the indemnitee is not entitled to be indemnified.
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.
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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 Private 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 (C.A. No. 2024-0184-MTZ). 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 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 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. On April 9, 2024, the Chancery Court granted the motion for leave to file a second amended complaint on April 9, 2024 and re-assigned the case to a new judge. 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, on April 30,
2024, the Chancery Court vacated the prior provisions of the March 15 order expediting the matter. On May 6, 2024, UAV filed its Renewed Motion for Contempt of the March 15, 2024 Order against Private TMTG (“First Contempt Motion”) seeking,
among other things, to enjoin Private TMTG and related parties from prosecuting certain claims in Florida state court. On May 8, 2024, the Chancery Court stayed discovery and granted a protective order with respect to all discovery served on
Defendants and all other persons from whom discovery was being sought. On June 5, 2024, UAV filed for leave to again amend its complaint. The Chancery Court granted the motion for leave to amend on July 8, 2024, and UAV filed its Third Amended
Complaint on July 9, 2024. The Third Amended Complaint dismissed as defendants three current TMTG directors (W. Kyle Green, Linda McMahon, and Robert Lighthizer) and added four former Digital World directors (Frank J. Andrews, Patrick F.
Orlando, Edward J. Preble, and Jeffrey A. Smith). On July 17, 2024, UAV filed a second contempt motion against Private TMTG and TMTG (“Second Contempt Motion”) alleging additional violations of the March 15 Order. On August 27, 2024, the
Chancery Court denied both the First Contempt Motion and the Second Contempt Motion. On July 23, 2024, all of the defendants with the exception of Patrick F. Orlando moved to dismiss the Third Amended Complaint. On September 17, 2024, Mr.
Orlando moved to dismiss the Third Amended Complaint. On October 8, 2024, UAV voluntarily dismissed Mr. Orlando with prejudice.
This matter remains pending.
Lawsuit Against ARC, Patrick Orlando, UAV, Andrew Litinsky, and Wesley Moss in Florida
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 in the Civil Division for the Twelfth Judicial Circuit
Court in Sarasota County, Florida, on February 27, 2024 (Docket No. 2024-CA-001061-NC). 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. On April 3, 2024,
Defendants ARC and Mr. Orlando filed a joint motion to dismiss the amended complaint or, in the alternative, to stay the proceeding pending the Delaware Action. Defendants ARC and Mr. Orlando also filed that same day a motion to stay discovery
in the action. On May 29, 2024, Digital World moved to compel discovery from ARC and Mr. Orlando. On July 15, 2024, following a July 10 hearing, the Court entered an order denying the motion to stay discovery and motion to compel. Defendants
ARC and Orlando have appealed that order. On July 29, 2024, the Court entered an order denying the motion to dismiss or, in the alternative, to stay the proceeding. On August 2, 2024, Defendants ARC and Mr. Orlando filed a motion to stay
pending appeal. On July 31, 2024, Digital World and Private TMTG filed a motion for leave to file a second amended complaint, which proposed to add allegations against ARC and Orlando related to pre-targeting and other misconduct as set forth
in the SEC Complaint against Orlando, and naming UAV, Andrew Litinsky and Wesley Moss as additional defendants. On August 15, 2024, Digital World and Private TMTG filed a motion for temporary injunction seeking to enjoin the threatened sale of
Digital World stock by Defendant ARC and one of the new defendants proposed to be added through the motion for leave to file a second amended complaint. On August 28, 2024, Digital World and Private TMTG filed a renewed motion to compel,
seeking prior productions to the SEC and DOJ and other documents from Defendants ARC and Mr. Orlando. On August 30, 2024, the Court held a hearing to address several motions. During the hearing, the Court granted Digital World and Private
TMTG’s motion for leave to amend and denied their motion for temporary injunction. The Court also denied the motion to stay pending appeal filed by Defendants ARC and Mr. Orlando. On September 4, 2024, Digital World and Private TMTG filed an
expedited motion to compel, seeking production of ARC’s capitalization table, supporting documents, and an order requiring ARC to cooperate with Digital World and Private TMTG in advance of the expiration of the lock-up restriction. On
September 5, 2024, Defendants ARC and Mr. Orlando filed a motion to stay pending appeal in the Second District Court of Appeal (C.A. No. 2D2024-1780). On September 12, 2024, the Court granted in part and denied in part the expedited motion to
compel, ordering production of the capitalization table and supporting documents by September 13, 2024, at 12 p.m. On that same day, Defendants ARC and Mr. Orlando filed a notice of removal in the Middle District of Florida (C.A. No.
8:24-cv-02161). On September 13, 2024, Digital World and Private TMTG filed an emergency motion to remand to state court in the Middle District of Florida, which the Middle District granted on September 17, 2024. On September 18, 2024, Digital
World and Private TMTG filed an emergency motion for temporary injunction and contempt against ARC and Mr. Orlando in the state court action. On that same day, the Court held a hearing during which it granted Digital World and Private TMTG’s
motion for contempt, imposed a coercive sanction against ARC and Mr. Orlando of $ 5,000 per day until they complied with the court’s
September 12 discovery order, and denied their motion for temporary injunction. Defendants ARC and Orlando have appealed that order (C.A. No. 2D2024-02364). On October 1, 2024, Digital World and Private TMTG filed a motion for an order to show
cause why ARC and Mr. Orlando should not be held in further contempt and subject to increased sanctions for their failure to comply with the Court’s September 18 contempt order. On October 18, 2024, the Second District Court of Appeal denied
ARC and Mr. Orlando’s motion to stay pending appeal. At a June 17, 2024, status hearing, the court agreed to schedule a trial for August 2025.
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Litigation with ARC in Delaware
On February 29, 2024, ARC filed a lawsuit in the Court of Chancery of the State of Delaware (C.A. No. 2024-0186-LWW) against Digital World
and its directors, alleging an impending violation of the Digital World Charter. ARC alleged that Digital World failed to commit to issue conversion shares to ARC that ARC claims it is owed upon the consummation of the Business Combination
pursuant to the Charter. ARC claimed a conversion ratio of 1.81 :1 and sought 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. TMTG vigorously defended Digital World’s calculation of the conversion ratio and related rights. In
addition to its complaint, 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 5,
2024, the Chancery Court denied ARC’s motion, stating that it would not conduct a merits or injunction hearing before March 22, 2024. Consequently, the Chancery Court also denied ARC’s request to postpone the Business Combination 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 Chancery 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. As a result, 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 DWAC deposited into escrow 3,579,480
shares of TMTG shares of common stock (“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 . On September
16, 2024, the Chancery Court issued its order in this matter setting the conversion ratio at 1.4911 :1. The Chancery Court ruled
against ARC on a substantial majority of its claims, reducing ARC’s proposed calculation of the conversion ratio of 1.81 :1 by
approximately 70 % and holding that the former board members of Digital World did not breach any fiduciary duties in setting the
conversion ratio calculation or in their public disclosures of the same. As a result of the Chancery Court’s order, a portion of the disputed conversion Common Stock held in escrow were released to ARC. The release of Common Stock is
subject to the terms and conditions of the ARC Escrow Agreement with the Escrow Agent and TMTG. Accordingly, 785,825 shares of
TMTG Common Stock, which represents the Court’s calculation for the difference between a ratio of 1.348 :1 and 1.4911 :1, were released from escrow (the “Court Ratio”). Both parties still retain the option to file an appeal within 30 days after the Chancery Court’s final order. In connection with the Chancery Court’s final order, 238,692 Common Shares deposited in the Non-ARC Class B Shareholders Escrow Agreement, representing the Court Ratio, were released to the applicable holders, subject to
the terms and conditions of the Non-ARC Class B Shareholders Escrow Agreement and the Securities Act of 1933, as amended. On October 23, 2024, ARC filed a motion for a $ 1,000.0 fee award.
Lawsuit Against UAV,
Litinsky, 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 (Docket 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 Mr. 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 Docket No. 2024-CA-001061-NC (described above) for
purposes of discovery and pretrial proceedings, which was denied without prejudice on August 2, 2024. On June 27, 2024, the court granted Mr. Moss, Mr. Litinsky, and UAV’s motion to stay proceedings pending resolution of the Delaware
litigation involving UAV. The court also denied Private TMTG’s motion for an anti-suit injunction. On July 3, 2024, Mr. Orlando filed a motion to dismiss. On July 17, 2024, Private TMTG sought review of the court’s order granting UAV’s
motion to stay in Florida’s Second District Court of Appeal by filing a petition for a writ of certiorari with that court (Case No. 2D2024-1642). The court subsequently denied UAV’s motion to enforce the stay and Private TMTG’s motion to
stay the stay pending certiorari review on September 2, 2024, and September 23, 2024, respectively.
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Litigation With 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”) (C.A. No. 2024-0264-LWW). 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.
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 October 28, 2024, TMTG had paid or agreed to pay more than $ 1.9 M to Mr. Orlando’s attorneys pursuant to such Stipulation and TMTG’s other advancement obligations to Mr. Orlando. 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 had incurred and would 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 (the “ARC Removal Action”). Mr. Orlando also sought reimbursement for the legal fees and expenses incurred in connection with his supplement to the Advancement Lawsuit, and he sought pre-judgment and post-judgment
interest on the amounts he claimed were owed to him. On August 1, 2024, plaintiffs in the ARC Removal Action dismissed their complaint without prejudice. On August 8, 2024, Mr. Orlando dismissed his supplemental claims in the Advancement
Lawsuit without prejudice. The Advancement Lawsuit remains open on the Chancery Court’s docket.
Litigation with Orlando and Benessere in Miami, Florida
On April 2, 2024,
Patrick Orlando and Benessere Investment Group, LLC (“Benessere”) filed suit against TMTG in the Circuit Court of the Eleventh Judicial District in Miami-Dade County Florida (Docket No. 2024-005894-CA-01). 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 August 22, 2024, the motion for preliminary injunction had not been set for
hearing.
Litigation with
Odyssey Transfer & Trust Company in Delaware
On June 20, 2024, TMTG’s transfer agent, Odyssey filed an interpleader action in the U.S. District Court of the District of Delaware (C.A. No. 24-CV-00729). The complaint pertains to the ongoing
dispute regarding share ownership between Michael Melkersen and ARC and includes TMTG as a nominal defendant. Odyssey is seeking an order from the Court discharging Odyssey of further liability and requiring ARC and TMTG to resolve their
competing claims as to 716,140 Class A shares of TMTG and 25,000 TMTG warrants. On July 18, 2024, ARC filed a motion to dismiss for improper venue. On July 22, 2024, TMTG filed a motion for discharge and dismissal. On August 13, 2024, TMTG
filed its answer and crossclaims against Mr. Melkersen and ARC. On August 21, 2024, ARC filed a motion to dismiss for lack of subject matter jurisdiction. This matter remains pending.
Litigation with
RejuveTotal LLC in New York
On October 21, 2024, RejuveTotal LLC (“Rejuve”) filed suit against TMTG and its Chief Financial Officer in the Supreme Court of the State of New York, New York County (Index No. 655551/2024).
The complaint alleged breach of contract, and sought equitable relief as well as indemnification and reimbursement of costs and expenses, in connection with Rejuve’s role as Purchaser Representative under the Merger Agreement. As of
October 29, 2024, defendants in this matter had not yet been served.
NOTE 16 - SUBSEQUENT EVENTS
On each of October 1, October 7, October 14, and October 29, 2024, TMTG issued contingent
consideration to WCT upon the achievement of operational milestones related to the opening of data centers, in accordance with the terms of the Asset Acquisition Agreement.
On October 3, 2024, the Company and its former Chief Operating Officer (“Former COO”) entered into a separation and release of claims agreement (the “Separation Agreement”) following the Former COO’s
resignation effective September 28, 2024 (“Separation Date”). Pursuant to the Separation Agreement, the Former COO is entitled to certain payments over fourteen months following the Separation Date, subject to his compliance with the terms of the Separation
Agreement .
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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.