Digital World Acquisition (DWAC) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents TMTG's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (Unaudited) This section presents TMTG's unaudited condensed consolidated financial statements, covering balance sheets, operations, equity changes, and cash flows Unaudited Condensed Consolidated Balance Sheets This section provides a snapshot of TMTG's financial position at June 30, 2024, and December 31, 2023 | (in thousands) | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | |:---------------|:--------------------------|:----------------------------| | Assets | | | | Cash and cash equivalents | $343,954.4 | $2,572.7 | | Total Assets | $356,493.8 | $3,363.6 | | Liabilities and Stockholders' Equity/(Deficit) | | | | Total Current Liabilities | $14,295.2 | $65,275.4 | | Total Liabilities | $14,825.5 | $70,125.5 | | Total Stockholders' Equity/(Deficit) | $341,668.3 | $(66,761.9) | | Total Liabilities and Stockholders' Equity/(Deficit) | $356,493.8 | $3,363.6 | - Cash and cash equivalents significantly increased from $2,572.7 thousand at December 31, 2023, to $343,954.4 thousand at June 30, 2024, primarily due to the Business Combination and warrant exercises[7] - Total stockholders' equity shifted from a deficit of $(66,761.9) thousand at December 31, 2023, to a positive equity of $341,668.3 thousand at June 30, 2024, reflecting the impact of the reverse recapitalization[7] Unaudited Condensed Consolidated Statements of Operations This section details TMTG's financial performance for the three and six months ended June 30, 2024 and 2023 | (in thousands except share and per share data) | Three Month Ended June 30, 2024 | Three Month Ended June 30, 2023 | Six Month Ended June 30, 2024 | Six Month Ended June 30, 2023 | |:-----------------------------------------------|:--------------------------------|:--------------------------------|:------------------------------|:------------------------------| | Net sales | $836.9 | $1,192.1 | $1,607.4 | $2,308.3 | | Gross profit | $800.7 | $1,150.9 | $1,477.8 | $2,225.8 | | Loss from operations | $(18,658.5) | $(3,772.9) | $(117,011.1) | $(7,618.8) | | Net loss | $(16,368.0) | $(22,768.1) | $(343,967.7) | $(22,978.4) | | Basic Loss per Share | $(0.10) | $(0.26) | $(2.67) | $(0.26) | - Net sales decreased by 30% for both the three and six months ended June 30, 2024, compared to the prior year periods, primarily due to changes in advertising revenue share and nascent advertising initiatives[8][180][193] - Net loss significantly increased for the six months ended June 30, 2024, to $(343,967.7) thousand from $(22,978.4) thousand in the prior year, largely driven by increased operating costs, particularly research and development, sales and marketing, and general and administration expenses, including substantial non-cash stock-based compensation and changes in fair value of derivative liabilities[8][196][197][198][200] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity/(Deficit) This section outlines the changes in TMTG's stockholders' equity or deficit for the period ending June 30, 2024 | (in thousands, except share data) | Common Stock Number of Shares | Par Value $0.0001 | Paid in Capital | Accumulated Deficit | Total Stockholders' (Deficit)/ Equity | |:----------------------------------|:------------------------------|:------------------|:----------------|:--------------------|:--------------------------------------| | Balance as December 31, 2023 | 87,500,000 | $8.8 | $ - | $(66,770.7) | $(66,761.9) |\n| Net Loss | - | - | - | $(327,599.7) | $(327,599.7) |\n| Fair value of TMTG earnout shares | - | - | 2,477,550.2 | (2,477,550.2) | - |\n| Conversion of convertible notes | 6,014,534 | 0.6 | 300,425.4 | - | 300,426.0 |\n| Stock Based Compensation | 1,840,000 | 0.2 | 84,587.8 | - | 84,588.0 |\n| Issuance of common stock upon Business Combination | 41,346,049 | 4.1 | 219,617.5 | | 219,621.6 |\n| Exercise of Warrants | 8,526,792 | 0.9 | 97,761.4 | | 97,762.3 |\n| Issuance of Earnout Shares | 40,000,000 | 4.0 | (4.0) | | - |\n| Conversion of convertible notes | 6,250,000 | 0.6 | 49,999.4 | | 50,000.0 |\n| Net loss | | | | (16,368.0) | (16,368.0) |\n| Balance as of June 30, 2024 | 191,477,375 | $19.2 | $3,229,937.7 | $(2,888,288.6) | $341,668.3 | - The total number of common shares outstanding increased significantly from 87,500,000 at December 31, 2023, to 191,477,375 at June 30, 2024, primarily due to the Business Combination, conversion of convertible notes, and exercise of warrants[10][11] - Paid-in capital saw a substantial increase, reflecting the effects of the Business Combination, stock-based compensation, and warrant exercises[10][11] Unaudited Condensed Consolidated Statements of Cash Flows This section presents TMTG's cash inflows and outflows from operating, investing, and financing activities | (in thousands) | Six Month Periods Ended June 30, 2024 | Six Month Periods Ended June 30, 2023 | |:---------------|:--------------------------------------|:--------------------------------------| | Net cash used in operating activities | $(30,754.3) | $(7,370.9) |\n| Net cash used in investing activities | $(2,141.9) | $(2.2) |\n| Net cash provided by financing activities | $374,277.9 | $ - |\n| Net change in cash and cash equivalents | $341,381.7 | $(7,373.1) |\n| Cash and cash equivalents, end of period | $343,954.4 | $2,435.3 | - Net cash used in operating activities increased to $(30,754.3) thousand for the six months ended June 30, 2024, from $(7,370.9) thousand in the prior year, driven by higher operating expenses and cash bonuses[13][208] - Net cash provided by financing activities was $374,277.9 thousand for the six months ended June 30, 2024, compared to $0.0 in the prior year, primarily from Business Combination proceeds, convertible notes, and warrant exercises[13][210] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements NOTE 1 - DESCRIPTION OF BUSINESS This note describes TMTG's mission to promote free expression through Truth Social and its merger with DWAC - TMTG's mission is to promote free expression and rival 'Big Tech' by operating Truth Social, a social media platform[14] - On March 25, 2024, TMTG consummated a Merger Agreement with Digital World Acquisition Corp. (DWAC), accounted for as a reverse recapitalization where TMTG was the accounting acquirer[15][16] NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES This note outlines the key accounting principles and methods used in preparing TMTG's financial statements - Financial statements are presented in conformity with U.S. GAAP and SEC rules, with interim results being unaudited and not necessarily indicative of future periods[19] - Revenue is recognized in accordance with ASC 606, primarily from advertising contractual arrangements where TMTG acts as an agent[27][28] - The Company adopted ASU 2020-06 effective January 1, 2024, which did not materially affect its financial statements[41] NOTE 3 - RECAPITALIZATION This note details the financial impacts of the Business Combination, including proceeds, share issuances, and transaction costs - Upon the Business Combination closing, TMTG received gross proceeds of $233,017.5 thousand[43] Shares Issued in Recapitalization | Item | Shares | |:---|:---| | Digital World common stock, outstanding prior to the Business Combination | 39,636,904 |\n| Shares issued to Digital World convertible noteholders | 1,709,145 |\n| Predecessor TMTG Shares | 87,500,000 |\n| Shares issued to former TMTG convertible noteholders | 7,854,534 |\n| Common stock immediately after the Business Combination | 136,700,583 | - TMTG incurred $1,640.2 thousand in direct transaction costs and $6,130.0 thousand in bonus payments triggered by the Merger, recorded in G&A and sales & marketing expenses[43] - 40,000,000 TMTG Earnout Shares were classified in equity and earned on April 26, 2024, based on post-merger market price thresholds[47][50] NOTE 4 - PROPERTY AND EQUIPMENT This note provides details on TMTG's property and equipment, including changes in net book value Property and Equipment, Net | (in thousands) | June 30, 2024 | December 31, 2023 | |:---------------|:--------------|:------------------| | Furniture and equipment | $34.5 | $34.5 |\n| Computer equipment | 123.6 | 120.8 |\n| Computer equipment - work in progress | 2,139.2 | - |\n| Accumulated depreciation | (135.4) | (126.1) |\n| Property and equipment, net | $2,161.9 | $29.2 | - Net property and equipment increased significantly to $2,161.9 thousand at June 30, 2024, from $29.2 thousand at December 31, 2023, primarily due to $2,139.2 thousand in computer equipment - work in progress[51] NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES This note details the composition and changes in TMTG's accounts payable and accrued expenses Accounts Payable and Accrued Expenses | (in thousands) | June 30, 2024 | December 31, 2023 | |:---------------|:--------------|:------------------| | Accounts payable | $1,948.0 | $1,600.7 |\n| Other accrued expenses | 7,642.9 | - |\n| Income tax payable | 732.6 | - |\n| Franchise tax payable | 508.2 | - |\n| Total Accounts payable and accrued expenses | $10,831.7 | $1,600.7 | - Accounts payable and accrued expenses increased substantially to $10,831.7 thousand at June 30, 2024, from $1,600.7 thousand at December 31, 2023, driven by new accrued expenses, income tax, and franchise tax payables[52] NOTE 6 - LEASES This note provides information on TMTG's operating lease assets, liabilities, and associated costs Lease Assets and Liabilities | (in thousands) | June 30, 2024 | December 31, 2023 | |:---------------|:--------------|:------------------| | Operating lease cost ROU assets, net | $806.6 | $353.2 |\n| Total lease assets | $806.6 | $353.2 |\n| Operating lease liabilities, current | $276.9 | $160.3 |\n| Operating lease liabilities, non-current | 530.3 | 201.6 |\n| Total lease liabilities | $807.2 | $361.9 | - Total lease assets and liabilities increased significantly from December 31, 2023, to June 30, 2024, reflecting new operating lease obligations[53] Lease Costs | (in thousands) | Three Month Period Ended June 30, 2024 | Three Month Period Ended June 30, 2023 | |:---------------|:---------------------------------------|:---------------------------------------| | Operating lease costs | $66.7 | $44.9 |\n| Short-term lease costs | 43.2 | 38.7 |\n| Total lease costs | $109.9 | $83.6 | NOTE 7 - INCOME TAXES This note explains TMTG's income tax position, including its effective tax rate and net operating loss carryforwards - The estimated annual effective tax rate for the six months ended June 30, 2024, is 0%, due to the projection of U.S. net operating loss (NOL) for fiscal 2024 with a full valuation allowance[58] - As of June 30, 2024, TMTG had U.S. Federal NOL carryforwards with a tax benefit of approximately $9,400.0 thousand from December 31, 2023[58] NOTE 8 - OTHER INCOME - RELATED PARTY, RELATED PARTY RECEIVABLE AND PAYABLE This note discloses TMTG's transactions and balances with related parties, including payments for services and advances - TMTG had outstanding payables to affiliates of Digital World's sponsor ARC for administrative services ($221.0 thousand) and advances ($41.0 thousand) as of June 30, 2024[59] - Payments were made to Trishul, LLC (owned by director Kashyap Patel) and Hudson Digital, LLC (owned by former director Daniel Scavino) for consulting services[60][61] - In June 2024, TMTG paid $78.2 thousand to Mar-a-Lago Club LLC, owned by the Donald J. Trump Revocable Trust, for a company event[62] NOTE 9 - CONVERTIBLE PROMISSORY NOTES AND WARRANTS This note details the issuance, conversion, and terms of TMTG's convertible promissory notes and warrants - Various series of Convertible Promissory Notes (Notes 1-23) with cumulative face values ranging from $5,340.0 thousand to $18,360.0 thousand were issued between May 2021 and March 2024, accruing interest between 5% and 10%[62][65][66][67] - On March 25, 2024, immediately before the Closing, Notes 1 to 23, and their accrued interest, automatically converted into an aggregate of 7,854,534 shares of TMTG common stock[68] - Digital World also agreed to issue up to $50,000.0 thousand in convertible promissory notes (DWAC Convertible Notes) on February 8, 2024, which accrued 8.00% interest and were convertible into common stock and warrants[69] - The DWAC Convertible Notes were converted into 6,250,000 shares of TMTG common stock and warrants to purchase 3,125,000 shares on June 18 and 20, 2024[71] NOTE 10 - FAIR VALUE MEASUREMENT This note describes TMTG's fair value hierarchy for financial instruments, particularly derivative liabilities - The Company uses a three-tier fair value hierarchy (Level 1, 2, 3) for financial instruments[76] - The derivative liability component of Convertible promissory notes was classified as Level 3 due to significant unobservable inputs, with fair value estimated using Black-Scholes and Monte Carlo simulations[76][78] Derivative Liability Fair Value | (in thousands) | December 31, 2023 (Level 3) | |:---------------|:----------------------------| | Current Liabilities: Derivative liability | $17,282.5 |\n| Non-Current Liabilities: Derivative liability | $1,120.3 | NOTE 11 - LOSS PER SHARE This note explains the calculation of basic and diluted loss per share, noting anti-dilutive effects - Basic and diluted loss per share are the same for the three and six months ended June 30, 2024 and 2023, as potential dilutive shares from convertible notes and warrants were anti-dilutive due to net losses[78] Common Stock Equivalents Excluded from Dilutive Loss Per Share | Item | June 30, 2024 | December 31, 2023 | |:---|:--------------|:------------------| | Warrants | 12,964,436 | - |\n| Total common stock equivalents excluded from dilutive loss per share | 12,964,436 | - | NOTE 12 - STOCKHOLDERS' EQUITY This note details changes in TMTG's authorized capital stock and warrant activity post-merger - The authorized capital stock was changed to 1,000,000,000 shares ($0.0001 par value), consisting of 999,000,000 common shares and 1,000,000 preferred shares, in connection with the merger on March 25, 2024[82] Warrant Activity | Warrant Activity | Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |:-----------------|:---------|:--------------------------------|:-------------------------------------------------------|:--------------------------| | Outstanding at January 1, 2024 | 18,366,228 | $11.50 | 5.40 | - |\n| Granted | 3,125,000 | 11.50 | - | - |\n| Exercised | (8,526,792)| 11.50 | - | - |\n| Outstanding at June 30, 2024 | 12,964,436 | $11.50 | 4.82 | $275,494,265 | NOTE 13 - STOCK BASED COMPENSATION This note describes TMTG's equity incentive plan and significant non-cash stock-based compensation expenses - The 2024 Equity Incentive Plan, effective March 25, 2024, reserved 13,252,544 shares of common stock, with no activity for the six months ended June 30, 2024[83] - Executive Promissory Notes totaling $10,900.0 thousand were issued in March 2024 and converted into 1,090,000 shares of common stock upon the merger, resulting in $54,445.5 thousand of non-cash stock-based compensation expense[83][85][86] - Vendor Convertible Notes with an aggregate face value of $7,500.0 thousand were issued in March 2024 for R&D services, converting into common stock and resulting in $30,142.5 thousand of stock-based compensation expense[86][87] NOTE 14 - COMMITMENTS AND CONTINGENCIES This note outlines TMTG's involvement in various legal proceedings, investigations, and related financial commitments - TMTG is involved in various legal proceedings, including a FINRA inquiry, an SEC investigation (settled for $18 million civil penalty paid March 25, 2024), and a Section 16 claim[91][93][94][96] - Significant ongoing litigations include disputes with United Atlantic Ventures (UAV) in Delaware regarding alleged rights and stock ownership, and multiple lawsuits involving ARC Global Investments II, LLC and Patrick Orlando in Florida and Delaware concerning conversion ratios, fiduciary duties, and legal fee advancements[97][98][99][103][105][108][112][116] - In connection with the UAV litigation and Business Combination, 4,667,033 shares were deposited into an escrow account[90] NOTE 15 - SUBSEQUENT EVENTS This note discloses significant events occurring after the reporting period, including acquisitions and financing agreements - On July 3, 2024, TMTG entered into an asset acquisition agreement to acquire substantially all assets of WorldConnect Technologies, L.L.C. (WCT) or its affiliate, mainly including an option agreement and ancillary agreements related to source code purchase and support for video streaming technology[121] - The WCT asset acquisition closed on August 9, 2024, with TMTG agreeing to issue up to 5,100,000 shares of common stock as consideration, with 2,600,000 shares issued at closing and 2,500,000 upon milestone achievement[121] - On July 3, 2024, TMTG entered into a Standby Equity Purchase Agreement (SEPA) with YA II PN, LTD. (Yorkville), allowing TMTG to sell up to $2.5 billion of its Common Stock to Yorkville[122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of TMTG's financial condition, operations, liquidity, capital resources, and market risks Cautionary Note Regarding Forward-Looking Statements This note advises readers that the report contains forward-looking statements subject to inherent risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from expectations[125] - Readers are advised to refer to the Risk Factors section of the Company's Form 10-K and other SEC filings for important factors affecting actual results[125] Overview This section provides an overview of TMTG's business, its Truth Social platform, and plans for a new streaming service - TMTG aims to be a media and technology powerhouse promoting free expression, primarily through its social media platform, Truth Social, launched in Q1 2022[126][127][129] - Truth Social has grown to approximately 9.0 million signups as of mid-February 2024, but TMTG does not rely on traditional KPIs for business decisions, focusing instead on long-term innovation and strategic evaluation[129][130] - TMTG is developing a new live TV streaming platform, with Phase 1 (CDN for streaming live TV to app) available as of August 7, 2024, and plans for stand-alone apps and home TV apps in subsequent phases[132][134] Recent Developments This section highlights recent key events, including the Business Combination, shareholdings, and asset acquisitions - The Business Combination with Digital World Acquisition Corp. was consummated on March 25, 2024, and accounted for as a reverse recapitalization, with Private TMTG as the accounting acquirer[136][139] - As of the report date, President Donald J. Trump beneficially holds approximately 59.9% of TMTG's outstanding common stock, including 36,000,000 Earnout Shares issued on April 26, 2024[140] - TMTG acquired substantially all assets of WCT or its affiliate, including streaming technology, on August 9, 2024, for up to 5,100,000 shares of TMTG common stock[142][144] Key Factors Affecting Results of Operations This section discusses factors influencing TMTG's financial performance, such as executive notes, macroeconomic conditions, and user growth - Executive Promissory Notes issued to executives prior to the merger converted into 625,000 shares of TMTG common stock[147] - Inflation and current macroeconomic conditions (COVID-19, geopolitical conflicts, rising interest rates) are expected to increase cost of revenue and operating expenses, potentially impacting growth[148][150] - TMTG's success is partly dependent on the popularity and reputation of President Donald J. Trump, and adverse publicity or loss of his services could negatively affect user base and revenues[152] - Growth in user base is critical for advertising revenue, facing strong competition from other social media platforms and risks related to content moderation and international market access[153][154][158][159] Key Operating Metrics This section explains TMTG's approach to key performance indicators, noting its focus on long-term innovation - TMTG has not relied on traditional key performance indicators (KPIs) like average revenue per user or active user accounts, believing it could divert focus from long-term innovation and strategic evaluation[161] - The company may reevaluate and report KPIs in the future if deemed to significantly enhance investor understanding, but acknowledges challenges in implementing effective controls for such reporting[162] Components of Results of Operations This section breaks down TMTG's revenue sources, operating expenses, and non-operating items affecting financial results - All revenue is derived from advertising on Truth Social, generated by displaying 'Truth Ads' in user feeds[163] - TMTG has agreements with Rumble USA, Inc. and The Affinity Media Exchange, Inc. (TAME) for advertising sales, with TMTG receiving 70% of gross revenues from Rumble and a net share from TAME after commissions[164][166] - Operating expenses include Research and Development, Sales and Marketing, General and Administration, and Depreciation, with expectations for increases in cost of revenue due to platform expansion[168][170][171][173][174] - Non-operating items include changes in fair value of derivative liabilities (extinguished post-merger), interest expense (decreased post-conversion), and interest income (increased post-merger proceeds)[174][175][176] Results of Operations This section provides a detailed comparison of TMTG's financial performance for the reported periods Comparison of the three months ended June 30, 2024 and 2023 This section compares TMTG's financial results for the three-month periods ended June 30, 2024 and 2023 | (in thousands) | June 30, 2024 | June 30, 2023 | Variance, $ | Variance, % | |:---------------|:--------------|:--------------|:------------|:------------| | Revenue | $836.9 | $1,192.1 | $(355.2) | (30%) |\n| Cost of revenue | 36.2 | 41.2 | (5.0) | (12%) |\n| Gross profit | 800.7 | 1,150.9 | (350.2) | (30%) |\n| Research and development | 4,861.6 | 2,197.4 | 2,664.2 | 121% |\n| Sales and marketing | 1,175.3 | 388.4 | 786.9 | 203% |\n| General and administration | 13,418.6 | 2,321.4 | 11,097.2 | 478% |\n| Total operating costs and expenses | 19,459.2 | 4,923.8 | 14,535.4 | 295% |\n| Operating income/(loss) | (18,658.5) | (3,772.9) | (14,885.6) | 395% |\n| Interest expense | 157.8 | (20,606.3) | 20,764.1 | (101%) |\n| Interest income | 2,132.7 | - | 2,132.7 | - |\n| Change in fair value of derivative liabilities | - | 1,611.1 | (1,611.1) | (100%) |\n| Net Loss | $(16,368.0) | $(22,768.1) | 6,400.1 | (28%) | - Revenue decreased by 30% due to changes in advertising partner revenue share and nascent advertising initiatives[180] - Operating costs and expenses increased by 295%, primarily driven by higher IT consulting, software costs (R&D), increased marketing, and higher legal, license, registration, insurance, accounting, and finance fees (G&A)[183][184][185] - Net loss decreased by 28% due to a significant reduction in interest expense (101% decrease) and the elimination of derivative liability fair value changes, offset by increased operating costs[179][187][188] Comparison of the six months ended June 30, 2024 and 2023 This section compares TMTG's financial results for the six-month periods ended June 30, 2024 and 2023 | (in thousands) | June 30, 2024 | June 30, 2023 | Variance, $ | Variance, % | |:---------------|:--------------|:--------------|:------------|:------------| | Revenue | $1,607.4 | $2,308.3 | $(700.9) | (30%) |\n| Cost of revenue | 129.6 | 82.5 | 47.1 | 57% |\n| Gross profit | 1,477.8 | 2,225.8 | (748.0) | (34%) |\n| Research and development | 38,020.2 | 5,009.5 | 33,010.7 | 659% |\n| Sales and marketing | 2,245.7 | 644.5 | 1,601.2 | 248% |\n| General and administration | 78,213.7 | 4,157.7 | 74,056.0 | 1,781% |\n| Total operating costs and expenses | 118,488.9 | 9,844.6 | 108,644.3 | 1,104% |\n| Operating loss | (117,011.1) | (7,618.8) | (109,392.3) | 1,436% |\n| Interest expense | (2,659.8) | (22,630.6) | 19,970.8 | (88%) |\n| Interest income | 2,161.5 | - | 2,161.5 | - |\n| Change in fair value of derivative liabilities | (225,916.0) | 7,271.0 | (233,187.0) | (3,207%) |\n| Net loss | $(343,967.7) | $(22,978.4) | (320,989.3) | 1,397% | - Revenue decreased by 30% due to changes in advertising partner revenue share and nascent advertising initiatives[193] - Operating costs and expenses increased by 1,104%, primarily due to $30,142.5 thousand in non-cash stock-based compensation for R&D and $54,445.5 thousand in non-cash stock-based compensation for G&A related to the merger[196][198] - Net loss increased by 1,397%, largely driven by a significant $(233,187.0) thousand increase in loss from the change in fair value of derivative liabilities due to the substantial increase in common stock value prior to the Business Combination[192][200] Liquidity and Capital Resources This section discusses TMTG's ability to meet its financial obligations and fund operations, including cash position and financing plans - Historically, Private TMTG financed operations through convertible promissory notes. Post-merger, TMTG intends to fund growth through cash on hand, advertising revenues, equity issuance, and a Standby Equity Purchase Agreement (SEPA) with Yorkville for up to $2.5 billion[205] - Cash and cash equivalents increased significantly to $343,954.4 thousand at June 30, 2024, from $2,572.7 thousand at December 31, 2023, primarily from Business Combination proceeds ($233,017.5 thousand), convertible notes ($47,455.0 thousand), and warrant exercises ($93,805.4 thousand)[207] - Net cash used in operating activities increased to $(30,754.3) thousand for the six months ended June 30, 2024, from $(7,370.9) thousand in the prior year, due to higher operating expenses and cash bonuses[208] - Management believes there is no substantial doubt about the Company's ability to continue as a going concern as of June 30, 2024, due to the positive working capital position and no debt on the balance sheet post-Business Combination[222] Off-Balance Sheet Arrangements This section confirms that TMTG had no material off-balance sheet arrangements as of June 30, 2024 - As of June 30, 2024, TMTG did not have any material off-balance sheet arrangements[223] Quantitative and Qualitative Disclosures about Market Risk This section addresses TMTG's exposure to market risks, including interest rates and foreign currency, and its reporting status - TMTG is exposed to market risks including interest rates, access to credit, and foreign currency exchange rates if it expands internationally[224][248] - Cash and cash equivalents are held in demand deposits at major financial institutions, subject to credit risk above FDIC limitations[225][226] - As a smaller reporting company, TMTG is not required to provide quantitative and qualitative disclosures about market risk[250] Emerging Growth Company Status This section notes TMTG's election to use the extended transition period for new accounting standards as an emerging growth company - TMTG has elected to take advantage of the extended transition period for complying with new or revised accounting standards available to emerging growth companies under the JOBS Act[227] Critical Accounting Policies and Significant Management Estimates This section outlines TMTG's critical accounting policies requiring significant management judgment and estimates - Critical accounting policies involve significant management judgments and estimates, including revenue recognition (as an agent for advertising services), software development costs (expensed before technological feasibility), stock-based compensation (fair value measurement), income taxes (valuation allowance for NOLs), convertible promissory notes (bifurcation of embedded derivatives), and fair value of financial instruments (Level 3 for derivative liabilities)[229][231][232][237][238][239][240][242][243] Recent Accounting Pronouncements This section refers to Note 2 for details on recently issued accounting standards relevant to TMTG - Refer to Note 2 for details on recently issued accounting standards[244] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section reports the change in TMTG's independent registered public accounting firm and confirms no disagreements - Effective May 3, 2024, TMTG dismissed BF Borgers CPA PC as its independent registered public accounting firm and engaged Semple, Marchal & Cooper, LLP (SMC) on May 4, 2024[244] - There were no disagreements with BF Borgers on accounting principles, financial statement disclosure, or auditing scope/procedure during the fiscal years ended December 31, 2023 and 2022, or the subsequent interim period[245] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, TMTG is exempt from providing detailed quantitative and qualitative market risk disclosures - TMTG is exempt from providing detailed quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[250] Item 4. Control and Procedures This section addresses TMTG's disclosure controls and internal control over financial reporting, noting material weaknesses and ongoing remediation - Management identified a material weakness in internal control over financial reporting, primarily due to a failure to design and maintain formal accounting policies, processes, controls for income recordation, and a need for additional accounting personnel with SEC reporting experience[252] - Remediation efforts are ongoing in 2024, including hiring additional accounting staff, engaging third parties for complex transactions, formalizing business processes, and strengthening supervisory reviews[253] - All identified material weaknesses continue to exist as of the report date, and full remediation is expected to potentially go beyond December 31, 2024, incurring significant time and costs[255] PART II - OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings This section details TMTG's involvement in various legal proceedings, including a FINRA inquiry, SEC settlement, and ongoing litigations - TMTG cooperated with a FINRA inquiry regarding trading events prior to the Merger Agreement[258] - Digital World settled an SEC investigation for certain antifraud violations, agreeing to pay an $18 million civil penalty, which was paid on March 25, 2024, upon the Business Combination[259][260][261] - Ongoing litigations include disputes with UAV in Delaware over alleged rights and stock ownership, and lawsuits in Florida and Delaware involving ARC and Patrick Orlando regarding conversion ratios, breach of fiduciary duty, and advancement of legal fees[263][264][270][271][275][280] Item 1A. Risk Factors This section highlights key risks to TMTG's business, including internal control weaknesses, Trump's legal issues, and streaming rollout - TMTG identified material weaknesses in internal control over financial reporting, including insufficient accounting personnel and lack of formal policies, which could lead to material misstatements and impact reporting obligations[291][294] - The company's success is linked to President Donald J. Trump's popularity; his numerous legal proceedings and potential adverse outcomes could negatively impact his reputation, TMTG's brand, user base, and business prospects[299][308] - Risks exist with the rollout of TMTG's streaming content plans, including delays, increased costs, and potential inability to meet revenue expectations, which could materially affect its growth strategy[309][312] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of TMTG's equity securities occurred during the quarter ended June 30, 2024 - No unregistered sales of equity securities occurred during the quarter ended June 30, 2024, that were not previously reported[313] Item 3. Defaults Upon Senior Securities This section reports no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[313] Item 4. Mine Safety Disclosures This section states that Mine Safety Disclosures are not applicable to TMTG's operations - Mine Safety Disclosures are not applicable[313] Item 5. Other Information This section reports no other material information or Rule 10b5-1 trading agreement changes by directors or officers - No directors or officers adopted or terminated a 'Rule 10b5-1 trading agreement' or a 'non-Rule 10b5-1 trading agreement' during the quarter ended June 30, 2024[313] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including key agreements and certifications - Key exhibits include the Agreement and Plan of Merger, Second Amended and Restated Certificate of Incorporation, and Amended and Restated Bylaws[314] - Certifications from the Principal Executive Officer and Principal Financial Officer are filed/furnished herewith[314] SIGNATURES This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report's submission - The report was signed by Devin Nunes, Chief Executive Officer, and Phillip Juhan, Chief Financial Officer, on August 9, 2024[317]