Falcon's Beyond Global, Inc. 10-K

Item 7. Management’s discussion and analysis of financial condition and results of operations. The following discussion and analysis of financial condition and results of operations of the Company is provided to supplement the audited consolidated financial statements and the accompanying notes of the Company as of and for the years ended December 31, 2023, and 2022, included elsewhere in this Annual Report. We intend for this discussion to provide the reader with information to assist in understanding the Company’s audited consolidated financial statements and the accompanying notes, the changes in those financial statements and the accompanying notes from period to period along with the primary factors that accounted for those changes. Certain information contained in this management’s discussion and analysis includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. Please see “Cautionary Statement Regarding Forward-Looking Statements and Risk Factor Summary,” in this Annual Report. Overview of Business The Company operates at the intersection of content, technology, and experiences. We aim to engage, inspire and entertain people through our creativity and innovation, and to connect people with brands, with each other, and with themselves through the combination of digital and physical experiences. At the core of our business is brand creation and optimization, facilitated by our multi-disciplinary creative teams. We believe the complementary strengths of our business divisions facilitates invaluable insights and streamlined growth. The Company has three business divisions, which are conducted through five operating segments. Our business divisions complement each other as we pursue our growth strategy: (i) FCG creates master plans, designs attractions and experiential entertainment, and produces content, interactives and software; (ii) FBD, consisting of PDP, Sierra Parima, and Destinations Operations, develops a diverse range of entertainment experiences using both Falcon’s owned and third party licensed intellectual property, spanning LBE, dining, and retail; and (iii) FBB endeavors to bring brands and intellectual property to life through animation, movies, licensing and merchandising, gaming, as well as ride and technology sales. Our five operating and reportable segments are organized based on product lines or by geography for our location-based entertainment: FCG, PDP, Sierra Parima, Destinations Operations, and FBB (created during the 2022 fiscal year). We collectively refer to the PDP, Sierra Parima and Destinations Operations as our FBD business division. Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”). All amounts are shown in thousands of U.S. dollars unless otherwise stated. The following reflects our results of operations for the year ended December 31, 2023 and the year ended December 31, 2022. Recent Developments Strategic Business Updates The Company’s portfolio of equity method investments has undergone recent strategic and operational changes, including through its intention to utilize an asset-efficient approach to the FBD business, to continue its strategic focus on the FCG business, and its growth plans for the FBB business. See “ Item 1. Description of Business – Our Three Business Divisions ” for more information. 59 Strategic Investment On July 27, 2023, pursuant to the Subscription Agreement by and between FCG and QIC Delaware Inc., QIC agreed to make the Strategic Investment of $30.0 million in FCG through a private placement of preferred units by FCG. Pursuant to the Subscription Agreement, upon the closing of the Strategic Investment, FCG received a closing payment of $17.5 million (net of $500,000 in reimbursements). In April 2024, QIC released the remaining $12.0 million of the $30.0 million investment to FCG LLC as a result of the establishment of the Opco Incentive Plan. After giving effect to the transactions contemplated by the Subscription Agreement, FCG has two members: QIC holding 25% of the equity interest of FCG in the form of preferred units and Falcon’s Beyond Global, LLC (the “Predecessor”) holding the remaining 75% of the equity interest of FCG in the form of common units. In connection with the Strategic Investment, FCG entered into the FCG A&R LLCA to include QIC as a member and to provide QIC with certain consent, priority and preemptive rights, and the Predecessor and FCG entered into an intercompany service agreement and a license agreement. The FCG A&R LLCA contains contractual provisions regarding the distribution of FCG’s income or loss. Pursuant to these provisions, QIC is entitled to a redemption amount of the initial $30.0 million investment plus a 9% annual compounding preferred return. As a result, QIC does not absorb losses from FCG that would cause its investment to drop below this redemption amount and any losses not absorbed by QIC are fully allocated to the Company. The FCG A&R LLCA was amended on March 18, 2024 to provide QIC with additional consent rights over incentive bonuses. Following the Strategic Investment, the Company has been able to devote the necessary resources to realize its growth plans for FCG. For example, the Company recently entered into a Consultancy Services Agreement with QIC in January 2024 for a total contract value of up to approximately $83.1 million if we bid for and win all of the opportunities available to us under such agreement , pursuant to which, among other things, Falcon’s Treehouse, LLC, a subsidiary of FCG, agreed to provide certain design, technological and construction services for the first-ever Dragon Ball theme park. Falcon’s is the master planner, attraction designer, and creative guardian of the theme park. Sierra Parima. In March 2024, the Katmandu Park in Punta Cana, Dominican Republic was closed to visitors following financial, operational, and infrastructure challenges at the park. Katmandu Park DR, which is part of the Company’s unconsolidated Sierra Parima reporting segment and the Falcon’s Beyond Destinations business, was one of two entertainment destinations developed, owned and operated through two joint venture entities between the Company and Meliá, and the closure of Katmandu Park DR did not immediately affect the operations of the other joint venture entity. Overall, our Sierra Parima segment experienced losses in 2023 as a result of the challenges encountered at the Katmandu Park DR following its opening in April 2023, and as a result, Sierra Parima determined that the fair value of its long-lived fixed assets was less than carrying value as of December 31, 2023 and recorded a fixed asset impairment. Deconsolidation of FCG In connection with the Strategic Investment, the FCG A&R LLCA granted QIC the right to block or participate in certain significant operating and capital decisions of FCG, including the approval of FCG’s budget and business plan, strategic investments, and incurring additional debt, among others. These rights allow QIC to effectively participate in significant financial and operating decisions of FCG that are made in FCG’s ordinary course of business. As such, as of July 27, 2023, the Company did not have a controlling financial interest since QIC has the substantive right to participate in FCG’s business decisions. Therefore, since July 27, 2023, FCG has been deconsolidated and accounted for as an equity method investment in the Company’s consolidated financial statements. Until the five-year anniversary of the Strategic Investment, (i) FCG may not make any distributions (except for tax distributions) to any of its members and (ii) FCG will reinvest all of its available cash to support the growth and capacity of FCG and its subsidiaries for any projects, products and purchase orders submitted by QIC to FCG and its subsidiaries. These limitations in the use of available cash restrict FCG’s ability to distribute cash to the Predecessor and, in turn, the Predecessor’s ability to distribute cash to the Company, which could have an adverse impact on the Company’s ability to pay dividends to its shareholders. The consolidated statement of operations and comprehensive loss for the year ended December 31, 2023 therefore includes approximately seven months of activity related to FCG prior to deconsolidation. As of December 31, 2023, the assets and liabilities of FCG, including its goodwill, are no longer included within the Company’s consolidated balance sheets. 60 Prior to FCG’s deconsolidation, FCG generated a majority of the Company’s consolidated revenue and contract asset and liability balances. Any discussions related to results, operations, and accounting policies associated with FCG are referring to the periods prior to deconsolidation. As of July 27, 2023, the Company reflected its investment in FCG at fair value, resulting in a gain on deconsolidation of $27.4 million. Refer to the consolidated financial statements of FCG, included in Item 8 of this Annual Report. Business Combination Following the Closing of the Business Combination, the direct interests in the Predecessor were held by the Company and certain holders of the limited liability company units of the Predecessor outstanding as of immediately prior to the Business Combination. Pursuant to the Business Combination, the Company received net cash proceeds from the Business Combination totaling $1.0 million, net of $1.3 of million FAST II’s transaction costs and $1.6 million of the Predecessor transaction costs paid at Closing. FAST II’s and the Predecessor’s transaction costs related to the Business Combination of $6.4 million and $15.7 million, respectively, are not yet settled at December 31, 2023 and the Company expects to settle them over the next 24 months. Negotiations regarding the terms of the costs yet to be settled are still ongoing and may change materially from these amounts accrued. These transactions costs are recorded in accrued expenses and long-term payables. All transaction costs incurred in connection with the Business Combination are recorded in profit or loss. The total number of shares of the Company’s Class A Common Stock outstanding immediately following the Closing, inclusive of earnout shares, was 7,986,019 (11,816,629 as of April 23, 2024); the total number of shares of the Company’s Class B Common Stock outstanding immediately following the Closing, inclusive of earnout shares, was 127,596,617 (125,596,617 as of April 23, 2024); the total number of shares of the Company’s Series A Preferred Stock outstanding immediately following the Closing was 656,415 (0 as of April 23, 2024); and the total number of the Company’s Warrants outstanding immediately following the Closing was 8,440,641 (5,198,420 as of April 23, 2024). Under GAAP accounting rules, which excludes the earnout shares as such shares are not considered outstanding under GAAP, the total number of shares of the Company’s Class A Common Stock outstanding immediately following the Closing was 6,048,519; the total number of shares of the Company’s Class B Common Stock outstanding immediately following the Closing was 52,034,117; the total number of shares of the Company’s Series A Preferred Stock outstanding immediately following the Closing was 656,415; and the total number of the Company’s Warrants outstanding immediately following the Closing was 8,440,641. On November 6, 2023, the 656,415 shares of Series A Preferred Stock automatically converted into shares of Class A Common Stock pursuant to the terms of the Series A Preferred Stock. Following the automatic conversion of the Series A Preferred Stock, there are no outstanding shares of Series A Preferred Stock. The conversion rate was 0.90909 shares of Class A Common Stock for each share of Series A Preferred Stock, resulting in 596,671 shares of Class A Common Stock issued upon conversion. In connection with the automatic conversion of the Series A Preferred Stock, the outstanding Warrants are no longer exercisable for (i) 0.580454 shares of Class A Common Stock and (ii) 0.5 shares of Series A Preferred Stock. Each outstanding Warrant is now exercisable for 1.034999 shares of Class A Common Stock pursuant to the terms of the Warrants. On November 3, 2023, the Company and Continental Stock Transfer & Trust Company entered into a second amended and restated warrant agreement to reflect such adjustment to the Warrants. 61 Basis of Presentation Following the closing of the Business Combination, the Predecessor’s Executive Chairman, Mr. Scott Demerau, together with other members of the Demerau family, continued to collectively have a controlling interest of the Company. As the Business Combination represented a common control transaction from an accounting perspective, the Business Combination was treated similar to a reverse recapitalization. Since there was no change in control, the Predecessor was determined to be the accounting acquirer and the Company was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of the Predecessor issuing stock for the net assets of the Company, accompanied by a recapitalization. The net assets of the Company were stated at historical cost, with no goodwill or other intangible assets recorded. Subsequently, results of operations presented for the period prior to the Business Combination were those of the Predecessor. Public Company Costs As a consequence of the Business Combination, the Company became an SEC-registered and listed company, and the Company has incurred additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees. Additionally, our capital and operating expenditures are expected to increase significantly in connection with our ongoing activities. Infinite Acquisitions Subscription Agreement; Transferred Debt Prior to the Closing of the Business Combination, an aggregate of approximately $67.3 million in financing was provided to the Predecessor by Infinite Acquisitions, including through debt-to-equity conversions. On October 4, 2023, Infinite Acquisitions irrevocably committed to fund an additional approximately $12.8 million to the Predecessor by December 31, 2023, for a total financing from Infinite Acquisitions of $80.0 million. As of April 26, 2024, Infinite Acquisitions has not funded such commitment. Further, the holders of an aggregate $4.8 million of indebtedness of the Predecessor, entered into exchange agreements with the Company and the Predecessor whereby such indebtedness was exchanged for an aggregate of 475,000 shares of Series A Preferred Stock and a cash payment of unpaid accrued interest. The Company agreed to contribute the Transferred Debt to the Predecessor in exchange for the Predecessor (i) issuing to the Company a number of Preferred Units equal to the number of shares of Series A Preferred Stock issued upon the exchange of the Transferred Debt, and (ii) paying to the Company an amount in cash equal to the amount of cash paid by the Company as accrued interest. Such transactions were consummated concurrently with the Closing of the Business Combination. Infinite Acquisitions Loans; Katmandu Loans Following the Closing of the Business Combination through December 31, 2023, Infinite Acquisitions loaned the Company $6.8 million pursuant to its existing $10.0 million revolving credit arrangement. Subsequent to December 31, 2023, Infinite Acquisitions has loaned an additional $4.8 million to the Company pursuant to the revolving credit arrangement through April 26, 2024. The revolving credit arrangement is subject to an annual fixed interest rate of 2.75% and matures in December 2026. In April 2024, the Predecessor entered into a term loan agreement with Katmandu Ventures, LLC (“Katmandu Ventures”), a greater than 10% shareholder of the Company, pursuant to which Katmandu Ventures made a loan to the Predecessor in the principal amount of approximately $7.2 million, and a term loan agreement with Universal Kat Holdings, LLC (“Universal Kat”) pursuant to which Universal Kat has made a loan to the Predecessor in the principal amount of approximately $1.3 million. Such term loans bear interest at a rate of 8.88% per annum, payable quarterly in arrears, and will mature on March 31, 2025. Approximately $5.4 million of the proceeds of the term loans was used to repay a portion of the outstanding loans under the Infinite Acquisitions revolving credit arrangement. Impairment of Investment in Sierra Parima As referenced above, in March 2024, Katmandu Park DR was closed to visitors following financial, operational, and infrastructure challenges at the park. Based on this determination, Sierra Parima first performed an evaluation of its long-lived fixed assets in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”) to determine whether their fair value is less than carrying value. As a result of this analysis, Sierra Parima recorded a fixed asset impairment of $46.7 million for the year ended December 31, 2023. The impairment recognized by Sierra Parima is a component of the Company’s equity method share of Sierra Parima’s loss for the full year ended December 31, 2023. 62 As Sierra Parima recorded a fixed asset impairment under ASC 360, the Company further evaluated its remaining equity investment in Sierra Parima for impairment as of December 31, 2023, and determined that it was other-than-temporarily impaired. The Company estimated the fair value of its investment in Sierra Parima using probability weighted scenarios assigned to discounted future cash flows. The impairment is the result of management’s estimates and assumptions regarding the likelihood of certain outcomes related to various liquidation and sale scenarios and pending legal matters, the timing of which remains uncertain. These estimates were determined primarily using significant unobservable inputs, or Level 3 inputs, as described in Note 17 – Fair value measurement of the audited consolidated financial statements. The estimates that the Company makes with respect to its equity method investment are based upon assumptions that management believes are reasonable, and the impact of variations in these estimates or the underlying assumptions could be material. Based on the estimated sale or liquidation proceeds from Sierra Parima, and Sierra Parima’s outstanding debts remaining to be settled, the fair value of the Company’s investment in Sierra Parima was determined to be zero. As of December 31, 2023, the Company recognized an other-than-temporary impairment charge of $14.1 million, which is recorded in Share of gain (loss) from equity method investments in the consolidated statement of operations and comprehensive loss. There are no other liquidity arrangements, guarantees or other financial commitments between the Company and Sierra Parima. The Company is not committed to provide any additional funding as of December 31, 2023. Any future capital fundings will be discretionary. Liquidity and Going Concern The Company has been engaged in expanding its operations through its equity method investments, developing new product offerings, raising capital and recruiting personnel. As a result, the Company has incurred a loss from operations, an accumulated deficit, and negative cash flows from operating activities for the year ended December 31, 2023. Accordingly, the Company performed an evaluation of its ability to continue as a going concern through at least twelve months from the date of the issuance of these consolidated financial statements under ASC 205-40, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The Company has committed to funding its share of additional investment in its equity investment, Karnival, for the purpose of constructing the Vquarium Entertainment Centers in the People’s Republic of China. The Company and its joint venture partner are committed to funding non-interest-bearing advances of $9.0 million (HKD 69.7 million) each, over a three-year period. As of December 31, 2023, the Company had funded $6.6 million (HKD 51.0 million) and the Company has a remaining unfunded capital commitment of $2.4 million (HKD 18.7 million) as of December 31, 2023. On July 27, 2023, in connection with the Strategic Investment, FCG received a net closing payment from QIC of $17.5 million (net of $500,000 in reimbursements). The remaining $12.0 million of the $30.0 million investment is being held by QIC and will be released upon the establishment of an employee retention and attraction incentive program. These funds are to be used exclusively by FCG to fund its operations and growth and cannot be used to satisfy the commitments of other segments. The Company’s development plans, and investments have been funded by a combination of debt and committed equity contributions from its stockholders, and the Company is reliant upon its stockholders and third parties for obtaining additional financing through debt or equity raises to fund its working capital needs, contractual commitments, and expansion plans. As of December 31, 2023, the Company has incurred material amounts of expenses in relation to its external advisors, accountants and legal costs in relation to the Business Combination. The Company has a working capital deficiency of ($28.9) million which excludes non-cash earnout liability balance as of December 31, 2023. Additionally, the Company has $6.7 million in debt that is maturing in the next 12 months. The Company does not currently have sufficient cash or liquidity to pay liabilities that are owed or are maturing at this time. There can be no assurance that additional capital or financing raises, if completed, will provide the necessary funding for the next twelve months from the date of this Annual Report on Form 10-K. This Annual Report on Form 10-K does not reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern. 63 Factors that May Influence Future Results of Operations Our financial results of operations may not be comparable from period to period due to several factors. Key factors affecting the results of operations are summarized below. Strategic Investment Our financial results are impacted by the Strategic Investment in FCG. As of July 27, 2023, the date the Company ceased to have a controlling financial interest, FCG was deconsolidated and accounted for as an equity method investment. Until the five-year anniversary of the Strategic Investment, (i) FCG may not make any distributions (except for tax distributions) to any of its members and (ii) FCG will reinvest all of its available cash to support the growth and capacity of FCG and its subsidiaries for any projects, products and purchase orders submitted by QIC to FCG and its subsidiaries. These limitations in the use of available cash restrict FCG’s ability to distribute cash to the Predecessor and, in turn, the Predecessor’s ability to distribute cash to the Company, which could have an adverse impact on the Company’s liquidity and ability to repay its outstanding loans. Equity Method Investments Our financial results are impacted by our 50% ownership of the equity interests in three of our unconsolidated joint ventures, PDP, Sierra Parima and Karnival. Additionally, starting from the deconsolidation of FCG on July 27, 2023, our financial results are impacted by our 75% ownership of FCG, as described further below. Prior to July 27, 2023, FCG’s results and balances were consolidated with the Company. Our four unconsolidated joint ventures are recognized as equity method investments. We have recognized approximately ($52.4) million and $1.5 million Share of gain or (loss) from equity method investments including Sierra Parima impairment of ($14.1) million in 2023, for the years ended December 31, 2023, and 2022, respectively. On November 2, 2021, the Company entered into a Joint Venture Agreement to acquire a 50% interest in Karnival, a joint venture established with Raging Power Limited. The purpose of the joint venture is to hold ownership interests in entities developing and operating amusement centers located in the People’s Republic of China. The first facility is under development with an expected opening in 2025. The results of operations for Karnival are immaterial for the years ended December 31, 2023, and 2022. The carrying value of our investments and advances as of December 31, 2023, was comprised of approximately $22.9 million for PDP, $0 million for Sierra Parima, $6.8 million for Karnival and $30.9 million for FCG. The carrying value as of December 31, 2022, was comprised of approximately $23.7 million for PDP, $41.7 million for Sierra Parima and $6.6 million for Karnival. Timing of Current Projects and Future Geographic and Product Expansion Our financial results and liquidity needs vary from quarter-to-quarter or year-to-year depending on the timing of: ● our signing of agreements with and related disbursement from our clients ● FCG’s signing of agreements with and related disbursements from QIC ● completion of our current projects ● completion of Karnival’s Vquarium Entertainment Center ● our contributions to our existing and new joint ventures ● FBB’s strategic partnerships or alliances. Further, our success depends substantially on our ability to accurately predict and adapt to changing consumer tastes and preferences. Consumer tastes and preferences impact and will impact, among other items, revenues from affiliate fees, licensing fees and royalties, critical and commercial success of our planned animation, movies, and music offerings, theme park admissions, hotel room charges and merchandise, sales of licensed consumer products or sales of our other consumer products and services. 64 Risks Associated with Future Results of Operations For additional information on the risks associated with future results of operations, please see Item 1A. Risk Factors of this Annual Report. Components of Our Results of Operations Overall note regarding the deconsolidation of FCG The results of operations includes approximately seven months of activity related to FCG prior to deconsolidation during the year ended December 31, 2023. Prior to deconsolidation, FCG’s operations generated a majority of the Company’s consolidated revenue and contract asset and liability balances. Any discussions related to results, operations, and accounting policies associated with FCG refer to the periods prior to deconsolidation. After deconsolidation as of July 27, 2023, FCG’s results of operations are included in the Company’s consolidated statement of operations and comprehensive loss as a component of Share of gain (loss) from equity method investments financial statements. See Deconsolidation of Falcon’s Creative Group LLC under Note 1 – Description of business and basis of presentation in the Company’s consolidated financial statements for further discussion. FCG’s separate consolidated financial statements included elsewhere in this Annual Report include FCG’s results for the full year ended December 31, 2023. Revenue In our FCG segment, FCG generates revenue from master planning, attraction design, experiential entertainment, content production, interactives, and software. The Company’s retained investment in FCG is accounted for under the equity method and, subsequent to the deconsolidation of FCG on July 27, 2023, FCG revenue is no longer included in the results of operations. In our Destinations Operations segment, revenues may be generated through the management of resorts and theme parks and incentive fees. In our FBB segment, revenues are generated through the licensing of digital media. Project design and build expense Our Project design and build expenses primarily include project related direct wages, freelance labor, hardware, and software costs. Selling, general and administrative expense Our Selling, general and administrative expenses include payroll, payroll taxes and benefits for non-project related employee salaries, taxes, and benefits as well as technology infrastructure, marketing, occupancy, finance and accounting, legal, human resources, and corporate overhead expenses. Our Selling, general and administrative expenses include third-party accounting and legal costs related to the preparation of the Company becoming a public company upon the Closing of the Business Combination. Transaction expenses Transaction expenses are stated separately in the results of operations. Transaction expenses include professional services expenditures directly related to business combinations, other investments, and disposals of other assets and liabilities that qualify as a business. Credit loss expense Our credit loss expense includes expected credit loss reserve activity related to accounts receivable balances with our unconsolidated joint venture Sierra Parima. 65 Research and development expense Much of our intellectual property has been developed and tested in-house. We have established a team to develop the full slate of software, hardware and systems that power our products, integrating product management, engineering, analytics, data science, and design. Research and development expenses primarily consist of internal labor involved in research and development activities primarily related to the development of new FBB products across a broad range of vectors (e.g., physical theme parks, ride systems, media content and consumer merchandise), as well as development of the new asset-efficient strategy in our FBD business. Research and development expenses are expensed in the period incurred. We expect expenses to increase in future periods as we continue to invest in research and development activities to achieve our operational and commercial goals. See “ Item 1. Business – Intellectual Property Research and Development ” for more information. Intangible asset impairment loss Our intangible asset impairment loss consists entirely of the impairment of the Ride Media Content (“RMC”) intangible asset owned by our FBB segment. Depreciation and amortization expense Our Depreciation and amortization expense is primarily attributed to the amortization of finite-lived intangible assets, comprising of RMC, trade names, customer relationships, developed technology and right-of-use assets for our finance lease. All trade names, customer relationships, developed technology and finance lease right-of-use assets have been deconsolidated with FCG as of July 27, 2023. We also incurred depreciation expenses for property and equipment utilized in the operation of our businesses. Share of gain or loss from equity method investments Our Share of gain or loss from equity method investments represents our proportional share of net earnings or losses of our unconsolidated joint ventures. During 2022 and 2023, our parks and resorts, which operated within our unconsolidated joint ventures, generated revenue through the sales of hotel rooms, park admissions, food and beverage, merchandise, and ancillary services, and for fiscal 2023, the principal costs of parks and resorts were employee wages and benefits, advertising, maintenance, utilities, and insurance. Factors that have affected these costs have included fixed operating costs, competitive wage pressures, food, beverage and merchandise costs, costs for construction, repairs and maintenance and inflationary pressures. After the deconsolidation of FCG on July 27, 2023 the Company accounts for its retained investment under the equity method. FCG generates revenues from master planning, attraction design, experiential entertainment, content production, interactives, and software. The principal costs of these services are project design and build expense, employee wages and benefits, research and development, sales and marketing, depreciation and amortization, software costs, legal fees, consultant fees, and occupancy costs. The Company monitors the equity method investments for impairment and records reductions in their carrying value if the carrying amount of an investment exceeds its fair value. An impairment charge is recorded when such impairment is deemed to be other-than-temporary. To determine whether an impairment is other-than-temporary, we consider our ability and intent to hold the investment until the carrying amount is fully recovered. There were $14.1 million in impairment losses recognized for investments in equity method investments during the year ended December 31, 2023, entirely related to impairment of the Company’s equity method investment in Sierra Parima. See Note 8 – Investments and advances to unconsolidated joint ventures. There were no impairment losses recognized for investments in equity method investments during the year ended December 31, 2022. Gain on deconsolidation of FCG Our gain on deconsolidation consists of the gain recognized on the deconsolidation of FCG. The gain recognized on deconsolidation is the difference between the estimated fair value of the Company’s retained investment in FCG and the carrying value of FCG’s net assets. See Deconsolidation of Falcon’s Creative Group LLC under Note 1 – Description of business and basis of presentation in the Company’s audited consolidated financial statements for further discussion. 66 Interest expense Our Interest expense consists primarily of the interest on our debt instruments and finance lease liabilities. Interest expense related to debt instruments is generated by related party and third-party loans and lines of credit used primarily to fund working capital and operations. See Note 10 – Long-term debt and borrowing arrangements in the Company’s audited consolidated financial statements for a description of our indebtedness and “Liquidity and Capital Resources ” below. Interest income During fiscal 2023, our Interest income consisted primarily of interest income recognized in connection with licensing the right to use digital ride media content to Sierra Parima. The agreement required ten equal annual payments of $0.3 million to the Company beginning in March 2023. As the payments were deferred over a ten-year period, a significant financing component exists. Therefore, the Company recognized a financing receivable discounted based on the contracted annual payments and recognized interest income beginning in the three months ended June 30, 2023. As of December 31, 2023 the Company recognized an expected credit loss reserve against all balances due from Sierra Parima, including receivables related to this ride media license. See Credit loss expense in results of operations below . Change in fair value of warrant liabilities The Company accounts for Warrants assumed in connection with the Business Combination (see Note 1 – Description of business and basis of presentation) in accordance with the guidance contained in ASC 815, Derivatives and Hedging (“ASC 815”), under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the Warrants to fair value at the end of each reporting period. The liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the results of operations. Change in fair value of earnout liabilities At the closing of the Business Combination, pursuant to the Merger Agreement, certain holders were entitled to receive up to a total of 1,937,500 and 75,562,500 contingent Earnout Shares in the form of Class A Common Stock and Class B Common Stock, respectively. The Earnout Shares were deposited into escrow at the Closing and are to be earned, released and delivered upon satisfaction of, or forfeited and canceled up on the failure of certain milestones. The Earnout Shares are classified as a liability and measured at fair value, with changes in fair value included in the results of operations. Foreign exchange transaction gain (loss) Our Foreign exchange transaction gain (loss) include our transactional gains and losses on the settlement or re-measurement of our non-functional currency denominated assets and liabilities. Since we conduct business in jurisdictions outside of the United States, we generate realized and unrealized transactional foreign exchange gains and losses from the remeasurement of U.S. dollar denominated cash and debt balances held by Fun Stuff, our Euro functional currency subsidiary, and the settlement of vendor balances denominated in non-functional currencies. As the U.S. dollar strengthens against the Euro, we record realized and unrealized foreign exchange losses; as the U.S. dollar weakens against the Euro, we record realized and unrealized foreign exchange gains. Income tax The Company is treated as a corporation for U.S. federal and state income tax purposes and is subject to U.S. federal and state income taxes, in addition to local and foreign income taxes, with respect to its allocable share of taxable income generated by the Predecessor. The Predecessor is organized as a limited liability company taxed as a partnership. The consolidated financial statements of the Predecessor do not include a provision for federal or state income tax expense or benefit as our taxable income or loss is included in the tax returns of the Predecessor’s members. Our foreign subsidiaries and unconsolidated joint ventures are subject to tax in their local jurisdiction and we record a provision for income tax expense or benefit where applicable. 67 Results of Operations The following comparisons are historical results and are not indicative of future results, which could differ materially from the historical financial information presented. Any discussions related to results, operations, and accounting policies associated with FCG are referring to the periods prior to deconsolidation. The results of operations includes approximately seven months of activity related to FCG LLC prior to deconsolidation in the year ended December 31, 2023. See Deconsolidation of Falcon’s Creative Group LLC under Note 1 – Description of business and basis of presentation and Note 8 – Investments and advances to equity method investments in the Company’s audited consolidated financial statements. The following table summarizes our results of operations for the following periods: Year ended December 31, 2023 Year ended December 31, 2022 Revenue $ 18,244 $ 15,950 Expenses: Project design and build expense 10,151 11,344 Selling, general and administrative expense 28,064 18,439 Transaction expenses 26,021 — Credit loss expense 5,965 — Research and development 1,248 2,771 Intangible assets impairment expense 2,377 — Depreciation and amortization expense 1,576 737 Loss from operations (57,158 ) (17,341 ) Share of gain or (loss) from equity method investments (52,452 ) 1,513 Gain on deconsolidation of FCG 27,402 — Interest expense (1,124 ) (1,113 ) Interest income 95 — Loss on disposal of assets — (9 ) Change in fair value of warrant liabilities (2,972 ) — Change in fair value of earnout liabilities (345,413 ) — Foreign exchange transaction gain (loss) 367 (478 ) Net loss $ (431,255 ) $ (17,428 ) Income tax benefit 325 — Net loss $ (430,930 ) $ (17,428 ) 68 Revenue Year ended December 31, 2023 Year ended December 31, 2022 Services transferred over time: Design and project management services $ 10,555 $ 10,963 Media production services 1,773 392 Attraction hardware and turnkey sales 2,052 4,302 Other 2,533 293 Total revenue from services transferred over time 16,913 15,950 Services transferred at a point in time: Digital media licenses 1,331 — Total revenue from services transferred at a point in time 1,331 — Total revenue $ 18,244 $ 15,950 Revenue increased $2.2 million to $18.2 million for the year ended December 31, 2023, compared to $16.0 million for the year ended December 31, 2022. The increase was primarily attributable to: ● $2.1 million increase in revenue relating to shared services provided by the Company to FCG during the five-month period subsequent to the deconsolidation of this subsidiary. ● $2.2 million increase in revenue associated with all long-term contracts with QIC ● $0.1 million increase in revenue related to contracts with unconsolidated joint ventures PDP and K-11 ● $1.3 million increase in digital media license revenue relating to Ride Media contract with unconsolidated joint venture Sierra Parima ● $0.4 million increase in revenue from Fun Stuff management and incentive fees These above increases were offset by the following decreases to revenue: ● $2.8 million decrease in revenue related to Sierra Parima contracts which were completed or are nearing completion ● $0.9 million decrease in revenue related to all other contracts. The Company’s investment in FCG is accounted for under the equity method and, as such, FCG project management and design revenue is no longer included in the results of operations subsequent to the deconsolidation of FCG on July 27, 2023. Project design and build expense Project design and build expense decreased $1.1 million to $10.2 million for the seven-month period ended December 31, 2023, compared to $11.3 million for the year ended December 31, 2022, which represents 15.5% decrease as a percent of revenue driven primarily by an increase in sales with higher margin projects within FCG compared to the year ended December 31, 2022. During the year ended December 31, 2023, we continued to work on long-term higher margin contracts for design and project management services, most of which are higher dollar value jobs due to their increased length, scale, and complexity, offset by lower margin attraction hardware and turnkey sales services. Selling, general and administrative expense Selling, general and administrative expense increased $9.5 million to $28.0 million for the year ended December 31, 2023, compared to $18.5 million for the year ended December 31, 2022. The increase was primarily related to audit fees and professional services fees along with incremental headcount for public company readiness. Audit and professional services fees increased $5.4 million from $8.3 million for the year ended December 31, 2022 to $13.7 million for the year ended December 31, 2023. 69 Transaction expenses Transaction expenses were $26.0 million for the year ended December 31, 2023. There were no such expenses for the year ended December 31, 2022. The increase was primarily driven by legal fees, consulting fees, banking fees, printer and transfer agent fees, and excise tax on stock redemptions. These expenses represent costs incurred in excess of funds received in connection with the Business Combination completed in the fourth quarter of 2023. Credit loss expense Credit loss expenses were $6.0 million for the year ended December 31, 2023. There were no such expenses for the year ended December 31, 2022. Based on an evaluation of Sierra Parima’s credit characteristics, the expected credit loss reserve was increased by $6.0 million during the year ended December 31, 2023 which represents the Company’s estimate of expected credit losses over the contractual life of each receivable. This loss reserve now offsets all receivables from Sierra Parima as of December 31, 2023. A portion of these reserved receivables was removed from the Company’s balance sheet with the deconsolidation of FCG. Research and Development Research and development expense decreased $1.6 million to $1.2 million for the year ended December 31, 2023, compared to $2.8 million for the year ended December 31, 2022. The expense in both periods relates to the development of new FBB products. Intangible asset impairment expense Intangible asset impairment expense was $2.4 million for the year ended December 31, 2023. There was no impairment expense for the year ended December 31, 2022. The Company assessed impairment indicators and determined that there has been a significant decrease in the amount of expected ultimate revenue to be recognized from the ride media content asset. Development plans for future parks, where this asset would have been deployed, have been put on hold as the Company evaluates the funding required to develop these parks. These circumstances indicate that the fair value may be less than the unamortized cost of the asset. As significant uncertainty exists as to when capital may be available to commit to these future projects, the Company could not reasonably project any future cash flows from the ride media content, and its value has been fully impaired as of December 31, 2023. Depreciation and amortization expense Depreciation and amortization expense increased $0.9 million to $1.6 million for year ended December 31, 2023, compared to $0.7 million for the year ended December 31, 2022, relating primarily to the amortization of the digital ride media asset of $1.1 million recognized in the first quarter of 2023 when the asset was licensed for use by Sierra Parima. This increase was partially offset by $0.2 million decrease in depreciation and amortization for all other long-lived assets. Additionally, increase in year over year depreciation expense would have been larger, however FCG was deconsolidated on July 27, 2023, resulting in only seven months of depreciation expense in the year ended December 31, 2023. Share of gain or (loss) from equity method investments Year ended December 31, 2023 2022 Change PDP $ (1,522 ) $ 3,229 (4,751 ) Sierra Parima (43,073 ) (1,719 ) (41,354 ) Karnival 288 3 285 FCG (8,145 ) — (8,145 ) Total Share of gain or (loss) from equity method investments $ (52,452 ) $ 1,513 (53,965 ) 70 Share of loss from equity method investments increased $53.9 million to ($52.4) million for the year ended December 31, 2023, compared to a $1.5 million gain for the year ended December 31, 2022. The change in gain or loss from equity method investments was driven by: ● $41.4 million higher share of net loss from Sierra Parima in the year ended December 31, 2023 which sustained operating losses since opening in 2023. $23.4 million of the loss was related to impairment of long-lived assets by Sierra Parima. The $14.1 million remaining investment balance was fully impaired by the Company. See Note 8 – Investments and advances to equity method investments in the Company’s consolidated financial statements. ● Share of net income from PDP decreased by $4.7 million for the year ended December 31, 2023, primarily driven by an increase in loss from derivatives, tax expense, and impairment of the loan from Sierra Parima and receivable balance from FBG, partially offset by increase in hotel income. $2.7 million of PDP’s loss was related to impairment of long-lived assets by PDP. ● Share of loss from FCG was $8.1 million for the year ended December 31, 2023 which was consolidated by the Company until July 27, 2023. ● The above losses were partially offset by a $0.3 million increase in share of net income from Karnival for the year ended December 31, 2023, primarily driven by interest income. Gain on deconsolidation of FCG Gain on deconsolidation of FCG was $27.4 million for the year ended December 31, 2023. There were no gains on deconsolidation for the year ended December 31, 2022. The gain recognized on deconsolidation is the difference between the estimated fair value of the Company’s retained investment in FCG and the carrying value of FCG’s net assets. See Deconsolidation of Falcon’s Creative Group LLC under Note 1 – Description of business and basis of presentation and Note 8 – Investments and advances to equity method investments in the Company’s audited consolidated financial statements. Interest expense Interest expense stayed consistent at ($1.1) million for the years ended December 31, 2022 and December 31, 2023. Interest expense was generated from our related party and third-party loans and lines of credit used primarily during fiscal 2022 and 2023 to fund the development, acquisition and construction of Katmandu Park in Punta Cana through our investment in the Sierra Parima joint venture and to fund working capital required in preparation for becoming a public company. Interest income Interest income of $0.1 million was recognized during the year ended December 31, 2023 from interest income on the long term financing receivable due from Sierra Parima. Change in fair value of warrant liabilities Loss due to change in fair value of warrant liabilities increased to ($3.0) million for year ended December 31, 2023, compared to $0 million for the year ended December 31, 2022 driven by the non-cash increase in the market value of the Warrants between closing of the Business Combination and December 31, 2023. Change in fair value of earnout liability Loss due to change in fair value of earnout liability was $345.4 million for the year ended December 31, 2023, driven by the non-cash increase in the market value of the Company’s stock between closing of the Business Combination and December 31, 2023. There was no such loss during for the year ended December 31, 2022. 71 Foreign exchange transaction loss Foreign exchange transaction gain increased $0.9 million to a $0.4 million gain for the year ended December 31, 2023, compared to a ($0.5) million loss for the year ended December 31, 2022. The decrease was primarily attributable to the unrealized foreign exchange gain (loss) on U.S. denominated related party debt with a Spanish subsidiary as the U.S. dollar strengthened against the Euro during the year ended December 31, 2022 and weakened against the Euro during the year ended December 31, 2023. Income tax Income tax benefit increased by $0.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to the tax loss post-Merger. Segment Reporting The following table presents selected information about our segment’s results for the years ended December 31, 2023, and 2022. The segment results include approximately seven months of FCG’s consolidated activity prior to July 27, 2023. Subsequent to FCG’s deconsolidation on July 27, 2023 FCG segment income or loss is comprised of only of the Company’s equity method share of FCG’s income or loss: Year ended December 31, 2023 Year ended December 31, 2022 Revenues: Falcon’s Creative Group $ 14,514 $ 17,460 Destinations Operations 481 293 Falcon’s Beyond Brands 1,482 — Intersegment eliminations (279 ) (1,803 ) Unallocated corporate revenue 2,046 — Total revenue 18,244 15,950 Segment income (loss) from operations: Falcon’s Creative Group (10,577 ) 698 Destinations Operations (1,807 ) (1,195 ) PDP 1,192 3,229 Sierra Parima (5,614 ) (1,719 ) Falcon’s Beyond Brands (4,015 ) (3,699 ) Intersegment eliminations (2,341 ) (553 ) Total segment loss from operations (23,162 ) (3,239 ) Unallocated corporate overhead (42,342 ) (11,861 ) Depreciation and amortization expense (1,576 ) (737 ) Gain on deconsolidation of FCG 27,402 — Impairment of intangible assets (2,377 ) — Share of equity method investee’s Impairment of fixed assets (26,085 ) — Impairment of equity method investments (14,069 ) Interest expense (1,124 ) (1,113 ) Interest income 95 — Change in fair value of warrant liabilities (2,972 ) Change in fair value of earnout liabilities (345,413 ) Foreign exchange transaction gain (loss) 367 (478 ) Net loss before income taxes $ (431,255 ) $ (17,428 ) Income tax benefit 325 — Net loss $ (430,930 ) $ (17,428 ) 72 Total revenue for the year ended December 31, 2023, increased $2.2 million to $18.2 million compared to $16.0 million for the year ended December 31, 2022, primarily driven by an increase in revenue generated within the FCG and FBB segments, which was primarily due to new long-term contracts for design and project management services at higher contract values, continuation of design and project management projects with high contract values, and FBB’s digital media contract with Sierra Parima as discussed above. Additionally, unallocated corporate revenue related to shared services provided by the Company to FCG also drove revenue increase for the year ended December 31, 2023. See Deconsolidation of Falcon’s Creative Group LLC under Note 1 – Description of business and basis of presentation . Total segment loss from operations for the year ended December 31, 2023, increased $20.0 million to ($23.2) million compared to ($3.2) million for the year ended December 31, 2022, due to the following: ● FCG segment loss from operations for the year ended December 31, 2023, increased $11.3 to ($10.6) million loss as compared to income of $0.7 million in the year ended December 31, 2022, primarily as a result of a credit loss expense on receivables from Sierra Parima and corporate overhead costs being allocated to segments in 2023 to support expansion of the business at the segment level including opening of the Philippines office that will support the execution of design services for FCG customers. This cost increase is partially offset by an increase in revenues and improved margins on new long-term contracts. ● Destinations Operations segment loss from operations for the year ended December 31, 2023, increased $0.6 million to ($1.8) million loss compared to loss of ($1.2) million for the year ended December 31, 2022, primarily due to more corporate overhead costs allocated to the segment in 2023 to support the growth of the business. ● PDP segment income for the year ended December 31, 2023, decreased $2.0 million to $1.2 million compared to $3.2 million for the year ended December 31, 2022, primarily driven by a $7.3 million increase in revenue and a decrease of $0.5 million in operating lease expenses, offset by a $2.9 million increase in hotel and administrative expenses, an unfavorable change of $1.3 million in allowance for doubtful accounts, a $1.0 million impairment loss on disposal of financial instruments and a $5.8 million unfavorable change in derivatives, which changed from income to loss, driven by interest rate swaps within the hotel group. ● Sierra Parima segment loss for the year ended December 31, 2023, increased $3.9 million to ($5.6) million compared to ($1.7) million for the year ended December 31, 2022, experienced losses in 2023 as a result of the challenges encountered at the Katmandu Park DR following its opening in April 2023, and as a result, Sierra Parima determined that the fair value of its long-lived fixed assets was less than carrying value as of December 31, 2023 and recorded a fixed asset impairment. The park closed in March of 2024 following financial, operational, and infrastructure challenges. Additionally, there were increases in costs due to park operating costs during the year ended December 31, 2023. ● FBB segment loss from operations for the year ended December 31, 2023 increased $0.3 million to ($4.0) million compared to ($3.7) million for the year ended December 31, 2022. For the year ended December 31, 2023 revenue increased $1.5 million related to a digital media licensing contract with Sierra Parima and research and development costs decreased $1.4 million due to completed projects and less emphasis on developing new products while shifting to marketing projects. This was offset by a $3.2 million increase in selling, general and administrative expense. ● Intersegment eliminations for the year ended December 31, 2023, increased $1.9 million to $(2.4) million compared to $(0.5) million for the year ended December 31, 2022, primarily driven by changes in contracts between FCG and the other segments. As a result of FCG’s deconsolidation, intercompany revenue which was eliminated in 2022 is only eliminated for 7 months for the year ended December 31, 2023. Reportable segments measures of profit and loss are earnings before interest, foreign exchange gains and losses, unallocated corporate expenses, impairments and depreciation and amortization expense. Results of operating segments include costs directly attributable to the segment including project costs, payroll and payroll-related expenses and overhead directly related to the business segment operations. Unallocated corporate overhead costs include costs related to accounting, audit, and corporate legal expenses. Transaction expenses were $26.0 million for the year ended December 31, 2023 which were particularly high for this period due to the Business Combination. Unallocated corporate overhead costs are presented as a reconciling item between total income (losses) from reportable segments and the Company’s consolidated financial results. For more information about our Segment Reporting, see Note 16 – Segment information in the Company’s audited consolidated financial statements. 73 Non-GAAP Financial Measures We prepare our consolidated financial statements in accordance with US GAAP. In addition to disclosing financial results prepared in accordance with US GAAP, we disclose information regarding Adjusted EBITDA which is a non-GAAP measure. We define Adjusted EBITDA as net income (loss), determined in accordance with US GAAP, for the period presented, before interest expense, net, income tax expense, depreciation and amortization, transaction expenses related to the business combination, credit loss expense, share of equity method investee’s impairment of fixed assets, impairment of equity method investments, change in fair value of warrant liabilities, change in fair value of earnout liabilities, intangible asset impairment loss, and gain on deconsolidation of FCG. We believe that Adjusted EBITDA is useful to investors as it eliminates the non-cash depreciation and amortization expense that results from our capital investments and intangible assets recognized in any business combination and improves comparability by eliminating the interest expense associated with our debt facilities, which may not be comparable with other companies based on our structure. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under US GAAP. Some of these limitations are (i) it does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) it does not reflect changes in, or cash requirements for, our working capital needs, (iii) it does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements, (v) it does not adjust for all non-cash income or expense items that are reflected in our statements of cash flows, and (vi) other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures. The following table sets forth reconciliations of net loss under US GAAP to Adjusted EBITDA for the following periods: Year ended December 31, 2023 Year ended December 31, 2022 Net loss $ (430,930 ) $ (17,428 ) Interest expense (1,124 ) (1,113 ) Interest income 95 — Income tax benefit 325 — Depreciation and amortization expense 1,576 737 EBITDA (430,058 ) (17,804 ) Transaction expenses 26,021 — Credit loss expense 5,965 — Share of equity method investee’s impairment of fixed assets 26,085 — Impairment of equity method investments 14,069 — Change in fair value of warrant liabilities 2,972 — Change in fair value of earnout liabilities 345,413 — Intangible asset impairment loss 2,377 — Gain on deconsolidation of FCG (27,402 ) — Adjusted EBITDA $ (34,559 ) $ (17,804 ) Net loss increased $(413.5) million to $(430.9) million for the year ended December 31, 2023, compared to $(17.4) million for the year ended December 31, 2022, primarily driven by a $(345.4) million change in fair value of earnout liabilities. Adjusted EBITDA loss increased $16.8 million to $(34.6) million for year ended December 31, 2023, compared to ($17.8) million for the year ended December 31, 2022 primarily driven by higher SG&A which was partially offset by higher gross margin. 74 Liquidity and Capital Resources Sources and Uses of Liquidity Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations. Our primary short-term cash requirements are to fund working capital, short-term debt, acquisitions, contractual obligations and other commitments. Our medium-term to long-term cash requirements are to service and repay debt and to invest in facilities, equipment, technologies, and research and development for growth initiatives. Our principal sources of liquidity are funds from borrowings, equity contributions from our existing investors and cash on hand. As of December 31, 2023, our total indebtedness was approximately $29.6 million. We had approximately $0.7 million of unrestricted cash and $3.2 million available for borrowing under our lines of credit. Such amounts reflect the conversion of $7.3 million owed to Infinite Acquisitions into 727,500 units of the Predecessor and the exchange of an additional $4.8 million owed to Infinite Acquisitions into 475,000 shares of Series A Preferred Stock, each in connection with the Closing of the Business Combination. Prior to the Closing of the Business Combination, an aggregate of approximately $67.3 million in financing was provided to the Predecessor by Infinite Acquisitions including through the debt-to-equity conversions. On October 4, 2023, Infinite Acquisitions irrevocably committed to fund an additional approximately $12.8 million to the Company by December 31, 2023, for a total financing from Infinite Acquisitions of $80.0 million. As of December 31, 2023, Infinite Acquisitions loaned an additional $6.8 million to the Company through its existing line of credit. See Note 22 – Subsequent events in the Company’s audited consolidated financial statements. As of December 31, 2023, Infinite Acquisitions had not funded such commitment. As of December 31, 2023, Infinite Acquisitions loaned an additional $6.8 million to the Company through its existing revolving credit arrangement. Subsequent to December 31, 2023, Infinite Acquisitions loaned an additional $4.8 million to the Company pursuant to the revolving credit arrangement through April 26, 2024. The revolving credit arrangement is subject to an annual fixed interest rate of 2.75% and matures in December 2026. Further, in April 2024, the Predecessor entered into term loan agreements with Katmandu Ventures and Universal Kat in the combined principal amount of approximately $8.5 million. Such term loans bear interest at a rate of 8.88% per annum, payable quarterly in arrears, and will mature on March 31, 2025. Approximately $5.4 million of the proceeds of the term loans was used to repay a portion of the Infinite Acquisitions revolving credit arrangement. See Note 22 – Subsequent events in the Company’s audited consolidated financial statements. On March 10, 2023, in connection with stockholder votes to approve the extension of the date by which FAST II was required to complete an initial business combination, public stockholders of FAST II elected to redeem an aggregate of 15,098,178 shares of FAST II Class A Common Stock for cash, at a redemption price of approximately $10.1498 per share for an aggregate redemption amount of approximately $153.2 million. In addition, in connection with the Business Combination, 6,772,844 holders of FAST II Class A Common Stock exercised their right to redeem those shares for a pro rata portion of the cash in the FAST II trust account, which equaled approximately $10.63 per share, for an aggregate of approximately $72.0 million. As a result, an aggregate of approximately $225.2 million was paid to such redeeming stockholders at or prior to the closing of the Business Combination out of the trust account established by FAST II upon the closing of the FAST II IPO. We received net cash proceeds from the Business Combination totaling $1.0 million net of FAST II transaction cost of $2.9 million paid at Closing. FAST II and the Predecessor transaction costs related to the Business Combination of $6.4 million and $15.7 million, respectively, are not yet settled and the Company expects to settle them over the next 24 months. Costs incurred in excess of the gross proceeds were recorded in profit or loss. 75 We anticipate managing our operations to ensure that our existing cash on hand and unused capacity on our existing lines of credit, provide us with liquidity to fund our operations for the next twelve months. For the year ended December 31, 2023, we have losses and negative cash flows from operating activities that raise substantial doubt about our ability to continue as a going concern. As of December 31, 2023, we have $20.8 million of accrued expenses and other current liabilities, which include $17.6 million of audit and professional fees relating to the Business Combination, $2.2 million of excise tax payable on FAST II stock redemptions which is not payable until forthcoming treasury regulations are finalized, $0.6 million of accrued payroll and related expenses, and approximately $0.4 million of other accrued expenses and current liabilities. Additionally, as of December 31, 2023, we have unfunded commitments to Karnival of $2.4 million (HKD 18.7 million), to be used for the purpose of constructing the VAquarium Entertainment Centers in China which need to be paid in 2024. On July 27, 2023, FCG received a closing payment from QIC of $17.5 million (net of $500,000 in reimbursements). On April 16, 2024, QIC released the remaining $12.0 million of the $30.0 million investment to FCG LLC upon the establishment of the employee retention and attraction incentive program. These funds are to be used exclusively by the FCG segment to fund its operations and growth and cannot be used to satisfy the commitments of other segments. Until we can generate sufficient revenue from our five reportable segments to cover operating expenses, working capital and capital expenditures, we expect funds raised from additional capital and debt raises to fund our cash needs. Our capital requirements will depend on many factors, including the timing and extent of spending to support our research and development efforts, investments in technology, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features. In addition, we expect to incur additional costs as a result of operating as a public company. See “Factors that May Influence Future Results of Operations” above. We expect our capital expenditures and working capital requirements to increase materially in the near future. Our ability to generate cash in the future depends on our financial results which are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our control. Our future access to, and the availability of credit on acceptable terms and conditions, is impacted by many factors, including capital market liquidity and overall economic conditions. In the event that additional financing is required from outside sources, we cannot be sure that any additional financing will be available to us on acceptable terms if at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition could be adversely affected. Contractual and Other Obligations Tax Receivable Agreement In connection with the Closing if the Business Combination, the Company entered into the Tax Receivable Agreement with the Predecessor, the TRA holder representative, certain members of the Predecessor (the “TRA Holders”) and other persons from time-to-time party thereto. Pursuant to the Tax Receivable Agreement, among other things, the Company is required to pay to each TRA Holder 85% of certain tax benefits, if any, that it realizes (or in certain cases is deemed to realize) as a result of the increases in tax basis resulting from any exchange of new the Predecessor units for Class A Common Stock or cash in the future and certain other tax benefits arising from payments under the Tax Receivable Agreement. In certain cases, the Company’s obligations under the Tax Receivable Agreement may accelerate and become due and payable, based on certain assumptions, upon a change in control and certain other termination events, as defined in the Tax Receivable Agreement . Commitments Partnership with Raging Power Limited Pursuant to the terms of our joint venture agreement with Raging Power, Falcon’s and Raging Power are each required to provide funding to Karnival in the form of non-interest-bearing advances, which will be repaid based on a percentage of gross revenues from the operation of the LBE at 11 SKIES. Accordingly, the joint venture agreement provides that we receive 16.6% to 20.6% of gross revenue of the LBE at 11 SKIES. As of December 31, 2023, we have unfunded commitments to Karnival of $2.4 million (HKD 18.7 million). 76 Transaction costs Pursuant to the Business Combination, the Company received net cash proceeds from the Business Combination totaling $1.0 million, net of $1.3 million FAST II transaction costs and $1.6 million of Predecessor transaction costs paid at Closing. FAST II and Predecessor’s transaction costs related to the Business Combination of $6.4 million and $15.7 million, respectively, are not yet settled at December 31, 2023 and the Company expects to settle them over the next 24 months. These transaction costs are recorded in accrued expenses and long-term payables. Negotiations regarding the terms of the costs yet to be settled are still ongoing and may change materially from these amounts accrued. All transaction costs incurred in connection with the Business Combination are recorded in profit or loss. Related Party Loans We have entered into various financing agreements with Infinite Acquisitions. A portion of the outstanding debt under such financing agreements was exchanged for shares of Series A Preferred Stock in connection with the Business Combination. As of December 31, 2023, we have aggregate outstanding balances of $29.6 million under these financing agreements. See “— Infinite Acquisitions Subscription Agreement; Transferred Debt ” above. For more information regarding our related party transactions, see Note 10 — Long-term debt and borrowing arrangements and Note 11 — Related party transactions included in the notes to the Company’s audited financial statements. Leases We no longer have lease liabilities on our consolidated balance sheet as of December 31, 2023. The finance and operating leases for our corporate headquarters and warehouse space located in Orlando, Florida were deconsolidated with FCG. For more information regarding our leases, see Note 6 — Leases included in the notes to the Company’s audited financial statements. Cash Flows The following table summarizes our cash flows for the period presented: For the year ended December 31, 2023 For the year ended December 31, 2022 Cash used in operating activities $ (23,422 ) $ (19,290 ) Cash used in investing activities 282 (26,261 ) Cash provided by financing activities 15,132 50,881 Cash Flows from Operating Activities Our cash flows from operating activities are primarily driven by the activities associated with our FCG segment, FBB segment beginning in 2022 and corporate overhead activities. Project cyclicality and seasonality may impact cash flows from operating activities on a sequential quarterly basis during the year. Cash used in operating activities increased $4.1 million to ($23.4) million in the year ended December 31, 2023, compared to ($19.3) million for the year ended December 31, 2022. The most significant adjustments to net income for the year ended December 31, 2023 included adding back the $52.5 million share of loss from equity method investments, $6.0 million related party credit loss expense, $345.4 million change in fair value of earnouts, and $2.4 million impairment of the ride media receivable. These add-backs were partially offset by a $27.4 million gain on deconsolidation of FCG. The remaining increase in cash uses in operating activities came from offsetting changes in working capital assets and liabilities. 77 Cash Flows from Investing Activities Our primary investing activities have consisted of investments in and advances to our unconsolidated joint ventures for the development of our Katmandu Park located in Punta Cana, Dominican Republic, purchases of property, equipment, and capitalization of RMC. Net cash provided by investing activities increased $26.6 million to $0.3 million during the year ended December 31, 2023, compared to ($26.3) million net cash used by investing activities during the year ended December 31, 2022. The cash provided by investing activities during the year ended December 31, 2023 consisted primarily of (i) $23.8 million decrease in investments and advances to our unconsolidated joint ventures. Contributions to fund our share of the construction of Katmandu Park, Punta Cana were lower in the year ended December 31, 2023 as major construction work wrapped up in early 2023, and (ii) $2.6 million increase cash inflow on deconsolidation of FCG during the fourth quarter of 2023. Cash Flows from Financing Activities Net cash provided by financing activities decreased $35.8 million to $15.1 million in the year ended December 31, 2023, compared to $50.9 million in the year ended December 31, 2022. The cash provided by financing activities in the year ended December 31, 2023 consisted primarily of (i) $18.4 million in proceeds from the $10.0 million related party revolving credit arrangement with Infinite Acquisitions, (ii) $3.3 million repayment of related party term loans with Infinite Acquisitions, (iii) $4.1 million repayment on the $10.0 million related party revolving credit arrangement with Infinite Acquisitions, (iv) $4.2 million proceeds from exercised Warrants. See Note 10 — Long-term debt and borrowing arrangements. The cash provided by financing activities in the year ended December 31, 2022 consisted primarily of $38.2 million equity contributions from the Predecessor’s members and $14.5 million proceeds from related party debt and credit facilities. This was partially offset by $1.5 million repayment of third-party debt and $0.2 million principal payment on finance lease obligations. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources. Critical Accounting Estimates The discussion under “Company’s Management’s Discussion and Analysis of Financial Condition and results of operations” is based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses as well as the disclosure of contingent assets and liabilities. We regularly review our estimates and assumptions. These estimates and assumptions, which are based upon historical experience and on various other factors believed to be reasonable under the circumstances, form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Reported amounts and disclosures may have been different had management used different estimates and assumptions or if different conditions had occurred in the periods presented. Below is a discussion of the policies that we believe may involve a high degree of judgment and complexity. We believe that the accounting policies disclosed below include estimates and assumptions critical to our business and their application could have a material impact on our consolidated financial statements. In addition to these critical policies, our significant accounting policies are included within Note 2 – Summary of significant accounting policies in our audited consolidated financial statements. 78 Revenue We recognize revenue in accordance with the provisions of FASB ASC 606, Revenue from Contracts with Customers (“ASC 606”), which requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Falcon’s Creative Group Accounting policies associated with FCG are referring to the periods prior to deconsolidation. We account for a contract once it has approval and commitment from all parties, the rights and payment terms of the parties can be identified, the contract has commercial substance and the collectability of the consideration, or transaction price, is probable. Contracts are often subsequently modified to include changes in specifications or requirements, these changes are not accounted for until they meet the requirements noted above. A significant portion of the FCG’s revenue is derived from master planning and design contracts, media production contracts and turnkey attraction contracts. The Company accounts for a contract once it has approval and commitment from all parties, the rights and payment terms of the parties can be identified, the contract has commercial substance and the collectability of the consideration, or transaction price, is probable. Contracts are often subsequently modified to include changes in specifications or requirements. These changes are not accounted for until they meet the requirements noted above. Each promised good or service within a contract is accounted for separately under the guidance of ASC 606, if they are distinct. Promised goods or services not meeting the criteria for being a distinct performance obligation are bundled into a single performance obligation with other goods or services that together meet the criteria for being distinct. The appropriate allocation of the transaction price and recognition of revenue is then applied for the bundled performance obligation. The Company has concluded that its service contracts generally contain a single performance obligation given the interrelated nature of the activities which are significantly customized and not distinct within the context of the contract. Once the Company identifies the performance obligations, the Company determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. The Company’s contracts generally do not contain credits, price concessions, or other types of potential variable consideration. Prices are fixed at contract inception and are not contingent on performance or any other criteria. The Company engages in long-term contracts for production and service activities and recognizes revenue for performance obligations over time. These long-term contracts involve the planning, design, and development of attractions. Revenue is recognized over time (versus point in time recognition), as the Company’s performance creates an asset with no alternative use to the Company and the Company has an enforceable right to payment for performance completed to date, and the customer receives the benefit as the Company builds the asset. The Company considers the nature of these contracts and the types of products and services provided when determining the proper accounting for a particular contract. These are primarily fixed-price contracts. For long-term contracts, the Company typically recognizes revenue using the input method, using a cost-to-cost measure of progress. The Company believes that this method represents the most faithful depiction of the Company’s performance because it directly measures value transferred to the customer. Contract estimates are based on various assumptions to project the outcome of future events that may span several years. These assumptions include, but are not limited to, the amount of time to complete the contract, including the assessment of the nature and complexity of the work to be performed; the cost and availability of materials; the availability of subcontractor services and materials; and the availability and timing of funding from the customer. The Company bears the risk of changes in estimates to complete on a fixed-price contract, which may cause profit levels to vary from period to period. For over time contracts, the Company recognizes anticipated contract losses as soon as they become known and estimable. 79 Accounting for long-term contracts requires significant judgment relative to estimating total costs, in particular, assumptions relative to the amount of time to complete the contract, including the assessment of the nature and complexity of the work to be performed. The Company’s estimates are based upon the professional knowledge and experience of its engineers, program managers and other personnel, who review each long-term contract monthly to assess the contract’s schedule, performance, technical matters and estimated cost at completion. Changes in estimates are applied retrospectively and when adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods. On long-term contracts, the portion of the payments retained by the customer is not considered a significant financing component. At contract inception, the Company also expects that the lag period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will not constitute a significant financing component. Many of the Company’s long-term contracts have milestone payments, which align the payment schedule with the progress towards completion on the performance obligation. On some contracts, the Company may be entitled to receive an advance payment, which is not considered a significant financing component because it is used to facilitate inventory demands at the onset of a contract and to safeguard the Company from the failure of the other party to abide by some or all their obligations under the contract. Contract balances result from the timing of revenue recognized, billings and cash collections, and the generation of Contract assets and liabilities. Contract assets represent revenue recognized in excess of amounts invoiced to the customer and the right to payment is not subject to the passage of time. Contract liabilities are presented on the Company’s consolidated balance sheets and consist of billings in excess of revenues. Billings in excess of revenues represent milestone billing contracts where the billings of the contract exceed recognized revenues. Destinations Operations The principal sources of revenues for the Destinations Operations segment are resort and theme park management and incentive fees. Resort and theme park management and incentive fees are based on a percentage of revenues and profits, respectively earned by the theme parks during the corresponding period. Investments in unconsolidated joint ventures We use the equity method to account for investments in corporate joint ventures when we have the ability to exercise significant influence over the operating decisions of the joint venture. Such investments are initially recorded at cost and subsequently adjusted for our proportionate share of the net earnings or loss of the investee, which is reported in Equity in losses of unconsolidated joint ventures in the results of operations. The dividends received, if any, from these joint ventures reduce the carrying amount of our investment. Goodwill and Intangible assets The Company reviews definite lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The recoverability of these amortizing intangible assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then the assets are written down to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. Estimating the fair value of reporting units is a subjective process that involves the use of significant estimates by management. The FCG reporting unit has significant revenue concentration associated with a few customers. Although we believe that we have strong relationships with each customer, if any of these customers were to move their business elsewhere it would have an adverse effect on our profitability, particularly the profitability of FCG. In addition, unanticipated changes in business performance market declines or other events impacting the fair value of these businesses, including changes in market multiples, discount rates, interest rates and growth rates assumptions, could result in goodwill impairment charges in future periods. The Company did not identify any goodwill impairment for the years ended December 31, 2023, and 2022. 80 Ride Media Content RMC consists of themed audio and visual content following a storyline that is displayed to guests while in the queue and during the ride. The same RMC can be deployed on rides of a similar nature. The Company earns a fixed annual fee for licensing the right to use the RMC to customers. In accordance with ASC 926-20, the Company capitalizes costs to produce the RMC, including direct production costs and production overhead. The RMC is expected to be predominantly monetized individually, as the RMC is not expected to be monetized with other films or license agreements. The predominant monetization strategy is determined when capitalization of production costs commences and is reassessed if there is a significant change to the expected future monetization strategy. For RMC that is predominantly monetized on an individual basis, the Company uses a computation method to amortize capitalized production costs on the ratio of the RMC’s current period revenues to its estimated remaining ultimate revenue (i.e., the total revenue to be earned in the RMC’s remaining life cycle.) The RMC is typically licensed for a 10-year period with a fixed annual fee. Amortization begins when the RMC is first deployed and starts generating revenue. Unamortized RMC costs are tested for impairment whenever events or changes in circumstances indicate that the fair value of the RMC may be less than its unamortized costs. If the carrying value of an individual RMC exceeds the estimated fair value, an impairment charge will be recorded in the amount of the difference. For content that is predominately monetized individually, the Company utilizes estimates including ultimate revenues and additional costs to be incurred (including marketing and distribution costs), in order to determine whether the carrying value of the RMC is impaired. Owned RMC is presented as a noncurrent asset within Intangible assets, net of accumulated amortization and impairment. Amortization of RMC assets is primarily included in Depreciation and amortization expense in Income (Loss) from operations. The unamortized cost balance of RMC was fully impaired as of December 31, 2023. See results of operations. Fair Value Fair value focuses on an exit price and is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risk inherent in valuation techniques, transfer restrictions and credit risks. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risk associated with investing in those financial instruments. The carrying amounts of Cash and cash equivalents, Accounts receivables, Accounts payable and Accrued expenses and other current liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The carrying amounts of finance leases are discounted to approximate fair value. Warrant Liabilities The Company accounts for Warrants assumed in connection with the Business Combination in accordance with the guidance contained in ASC 815, Derivatives and Hedging, under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. The Company remeasures the fair value of the Warrants based on the quoted market price of the Warrants. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the Warrants to fair value at the end of each reporting period. The liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the results of operations. 81 Earnout Liabilities At the closing of the Business Combination, pursuant to the Merger Agreement, certain holders were entitled to receive up to a total of 1,937,500 and 75,562,500 contingent Earnout Shares in the form of Class A Common Stock and Class B Common Stock of the Company, respectively. The Earnout Shares were deposited into escrow at the Closing and are to be earned, released and delivered upon satisfaction of, or forfeited and canceled up on the failure of certain milestones. The Earnout Shares are classified as a liability and measured at fair value, with changes in fair value included in the results of operations. Business combinations We account for our acquisitions in accordance with ASC 805, Business Combinations. We initially allocate the purchase price of an acquisition to the assets acquired and liabilities assumed based on their estimated fair values, with any excess of consideration recorded as goodwill. The results of operations of acquisitions are included in the consolidated financial statements from the date of acquisition. Costs incurred to complete the business combination, such as legal and other professional fees, are not considered part of the transaction consideration and are expensed as incurred. Full impairment of Investment in Sierra Parima As Sierra Parima recorded a fixed asset impairment under ASC 360, the Company further evaluated its remaining equity investment in Sierra Parima for impairment as of December 31, 2023, and determined that it was other-than-temporarily impaired. The Company estimated the fair value of its investment in Sierra Parima using probability weighted scenarios assigned to discounted future cash flows. The impairment is the result of management’s estimates and assumptions regarding the likelihood of certain outcomes related to various liquidation and sale scenarios and pending legal matters, the timing of which remains uncertain. These estimates were determined primarily using significant unobservable inputs (Level 3). The estimates that the Company makes with respect to its equity method investment are based upon assumptions that management believes are reasonable, and the impact of variations in these estimates or the underlying assumptions could be material. Based on the estimated sale or liquidation proceeds from Sierra Parima, and Sierra Parima’s outstanding debts remaining to be settled, the fair value of the company’s investment in Sierra Parima was determined to be zero. As of December 31, 2023, the Company recognized an other-than-temporary impairment charge of $14.1 million, which is recorded in Share of gain (loss) from equity method investments in the consolidated statement of operations and comprehensive loss. New and Recently Adopted Accounting Pronouncements See Note 2 – Summary of significant accounting policies to our audited consolidated financial statements for more information about recent accounting pronouncements, the timing of their adoption and our assessment, to the extent we made one, of their potential impact on our financial condition and results of operations. JOBS Act Accounting Election The Company is an “emerging growth company” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement under the Securities Act declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. 82 Section 107 of the JOBS Act allows emerging growth companies to take advantage of the extended transition period for complying with new or revised accounting standards. Under Section 107, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Any decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. The Company has elected to use the extended transition period available under the JOBS Act, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. The Company will remain an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) following the fifth anniversary of the effectiveness of the Company’s registration statement on Form S-4 in connection with the Business Combination, (b) in which the Company has total annual revenue of at least $1,235,000,000, or (c) in which the Company is deemed to be a large accelerated filer, which means the market value of its common equity that is held by non-affiliates exceeds $700.0 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which the Company has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. Smaller Reporting Company Additionally, the Company is a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. The Company will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of the shares of Class A Common Stock held by non-affiliates exceeds $250.0 million as of the prior June 30, and (ii) the Company’s annual revenue exceeds $100.0 million during such completed fiscal year and the market value of the shares of Class A Common Stock held by non-affiliates exceeds $700.0 million as of the prior June 30. To the extent the Company takes advantage of such reduced disclosure obligations, it may also make comparison of the Company’s financial statements with other public companies difficult or impossible. Item 7A. Quantitative And Qualitative Disclosures About Market Risk We are a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act. Therefore, pursuant to Item 305(e) of Regulation S-K, we are not required to provide the information required by this Item. Item 8. Financial Statements and Supplementary Data The information required by this item appears following Item 15 of this Annual Report and is incorporated by reference herein. 83 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.