Trump Media & Technology Group Corp.(DJT) - 2024 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents TMTG's unaudited consolidated financial statements, covering balance sheets, operations, equity, cash flows, and detailed notes Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Item | Sep 30, 2024 (Unaudited) | Dec 31, 2023 (Audited) | | :-------------------------------- | :----------------------- | :--------------------- | | Cash and cash equivalents | $372,135.7 | $2,572.7 | | Short-term investments | $300,742.5 | - | | Total current assets | $682,126.5 | $2,981.2 | | Total assets | $837,754.8 | $3,363.6 | | Total current liabilities | $14,363.0 | $65,275.4 | | Total liabilities | $21,221.7 | $70,125.5 | | Total stockholders' equity/(deficit) | $816,533.1 | $(66,761.9) | - Total assets significantly increased from $3,363.6 thousand at December 31, 2023, to $837,754.8 thousand at September 30, 2024, primarily driven by a substantial increase in cash and cash equivalents and the introduction of short-term investments[7] - Stockholders' equity shifted from a deficit of $(66,761.9) thousand at December 31, 2023, to a positive equity of $816,533.1 thousand at September 30, 2024, reflecting significant capital injections[7] Unaudited Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands) | Item | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net sales | $1,010.9 | $1,071.3 | $2,618.3 | $3,379.6 | | Total costs and operating expenses | $24,665.6 | $4,101.3 | $143,284.1 | $14,028.4 | | Loss from operations | $(23,654.7) | $(3,030.0) | $(140,665.8) | $(10,648.8) | | Interest income | $4,653.0 | - | $6,814.5 | - | | Interest expense | $(246.7) | $(15,071.9) | $(2,906.5) | $(37,702.5) | | Change in fair value of derivative liabilities | - | $(7,931.2) | $(225,916.0) | $(660.2) | | Net loss | $(19,248.4) | $(26,033.1) | $(363,216.1) | $(49,011.5) | | Basic/Diluted Loss per Share | $(0.10) | $(0.30) | $(2.37) | $(0.56) | - Net sales decreased by 6% for the three months ended September 30, 2024, and by 23% for the nine months ended September 30, 2024, compared to the prior year periods[10] - Net loss for the nine months ended September 30, 2024, significantly increased to $(363,216.1) thousand from $(49,011.5) thousand in the prior year, primarily due to a substantial increase in the change in fair value of derivative liabilities and higher operating costs[10] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity/(Deficit) Changes in Stockholders' Equity/(Deficit) (in thousands) | Item | Balance at Dec 31, 2023 | Net Loss (9M 2024) | Paid in Capital (9M 2024) | Total Stockholders' Equity/(Deficit) at Sep 30, 2024 | | :----------------------------------- | :---------------------- | :----------------- | :------------------------ | :--------------------------------------------------- | | Common Stock Par Value $0.0001 | $8.8 | - | $12.7 | $21.5 | | Paid in Capital | - | - | $3,726,957.3 | $3,726,957.3 | | Accumulated Deficit | $(66,770.7) | $(2,840,766.3) | - | $(2,907,537.0) | | Total Stockholders' Equity/(Deficit) | $(66,761.9) | $(327,599.7) | $3,794,776.7 | $816,533.1 | - Total stockholders' equity/(deficit) dramatically increased from a deficit of $(66,761.9) thousand at December 31, 2023, to a positive $816,533.1 thousand at September 30, 2024, primarily due to significant increases in paid-in capital from the reverse recapitalization, warrant exercises, and common stock issuances[11] - Paid-in capital saw a substantial increase of $3,726,957.3 thousand during the nine months ended September 30, 2024, reflecting proceeds from the merger, convertible note conversions, stock-based compensation, and common stock issuances[11] Unaudited Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(52,640.0) | $(10,467.2) | | Net cash used in investing activities | $(312,773.7) | $(2.2) | | Net cash provided by financing activities | $734,976.7 | $2,500.0 | | Net change in cash and cash equivalents | $369,563.0 | $(7,969.4) | | Cash and cash equivalents, end of period | $372,135.7 | $1,839.0 | - Net cash used in operating activities increased significantly to $(52,640.0) thousand for the nine months ended September 30, 2024, from $(10,467.2) thousand in the prior year, primarily due to higher operating expenses and merger-related cash bonuses[13][243] - Net cash provided by financing activities surged to $734,976.7 thousand for the nine months ended September 30, 2024, from $2,500.0 thousand in the prior year, driven by proceeds from the DWAC merger, convertible notes, warrant exercises, and common stock issuances[13][246] Notes to Unaudited Condensed Consolidated Financial Statements NOTE 1 - DESCRIPTION OF BUSINESS Details TMTG's mission to promote free expression through Truth Social and the accounting treatment of its merger with DWAC - TMTG's mission is to promote free expression and counter Big Tech censorship, operating Truth Social as a social media platform[14] - The merger with Digital World Acquisition Corp (DWAC) on March 25, 2024, was accounted for as a reverse recapitalization, with TMTG identified as the accounting acquirer[15][16] NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES Outlines TMTG's financial statement preparation, material estimates, and revenue recognition policies - The financial statements are prepared in conformity with U.S. GAAP and reflect a reclassification of cost of revenue as a component of operating costs due to the launch of content streaming on Truth+[19][21] - Material estimates include the valuation of convertible promissory notes, derivative liabilities, goodwill, intangibles, and stock-based compensation[22] - Revenue from advertising contractual arrangements is recognized when services are provided, with TMTG acting as an agent for advertising manager service companies[36][37] NOTE 3 - RECAPITALIZATION Details the financial impact of the business combination, including cash proceeds and earnout share issuances Business Combination Proceeds (in thousands) | Item | Amount | | :---------------------------------- | :------- | | Cash-trust and cash, net of redemptions | $233,017.5 | | Less: accrued expenses | $(3,292.9) | | Less: notes payable | $(10,103.0) | | Reverse recapitalization, net | $219,621.6 | - TMTG incurred $1,640.2 thousand in direct transaction costs and $6,130.0 thousand in bonus payments to employees and a director related to the merger[52] - 40,000,000 TMTG Earnout Shares were earned and issued on April 26, 2024, based on achieving certain post-merger market price thresholds[57][60] NOTE 4 – BUSINESS ACQUISITION Describes TMTG's acquisition of WorldConnect Technologies, LLC (WCT) and the preliminary fair values of acquired assets - On August 9, 2024, TMTG acquired substantially all assets and liabilities of WorldConnect Technologies, LLC (WCT) for an estimated aggregate consideration of up to $132,171.0 thousand[61][62] Preliminary Estimated Fair Values of WCT Assets Acquired and Liabilities Assumed (in thousands) | Item | Amount | | :----------------------------------- | :--------- | | Intangible asset, net | $16,313.2 | | Goodwill | $132,171.0 | | Amount attributable to assets acquired | $148,484.2 | | Assumed debt | $16,313.2 | | Total purchase price | $132,171.0 | - The acquisition included source code and related agreements, aiming to provide ultra-fast streaming technology via a custom-designed CDN[61] NOTE 5 - PROPERTY AND EQUIPMENT Details the changes in TMTG's property and equipment, including computer equipment and depreciation expenses Property and Equipment, Net (in thousands) | Item | Sep 30, 2024 | Dec 31, 2023 | | :-------------------------- | :----------- | :----------- | | Furniture and equipment | $34.5 | $34.5 | | Computer equipment | $5,152.0 | $120.8 | | Accumulated depreciation | $(395.9) | $(126.1) | | Property and equipment, net | $4,790.6 | $29.2 | - Net property and equipment increased significantly from $29.2 thousand at December 31, 2023, to $4,790.6 thousand at September 30, 2024, primarily due to increased computer equipment[68] - Total depreciation expense for the three months ended September 30, 2024, was $260.6 thousand, a substantial increase from $14.7 thousand in the prior year[68] NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES Summarizes the changes in TMTG's accounts payable and accrued expenses, highlighting new categories Accounts Payable and Accrued Expenses (in thousands) | Item | Sep 30, 2024 | Dec 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Accounts payable | $1,495.9 | $1,600.7 | | Other accrued expenses | $3,920.7 | - | | Income tax payable | $732.6 | - | | Franchise tax payable | $508.2 | - | | Total accounts payable and accrued expenses | $6,657.4 | $1,600.7 | - Accounts payable and accrued expenses increased from $1,600.7 thousand at December 31, 2023, to $6,657.4 thousand at September 30, 2024, mainly due to new categories like other accrued expenses, income tax payable, and franchise tax payable[69] NOTE 7 - LEASES Provides an overview of TMTG's lease assets, liabilities, and total lease costs for the reported periods Lease Assets and Liabilities (in thousands) | Item | Sep 30, 2024 | Dec 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Operating lease cost ROU assets, net | $2,855.1 | $353.2 | | Operating lease liabilities, current | $734.0 | $160.3 | | Operating lease liabilities, non-current | $2,175.1 | $201.6 | | Total lease liabilities | $2,909.1 | $361.9 | Total Lease Costs (in thousands) | Period | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating lease costs | $60.9 | $44.9 | $172.5 | $134.6 | | Short-term lease costs | $152.6 | $34.4 | $234.4 | $110.1 | | Total lease costs | $213.5 | $79.3 | $406.9 | $244.7 | - Total lease liabilities increased significantly from $361.9 thousand at December 31, 2023, to $2,909.1 thousand at September 30, 2024[70] NOTE 8 - INCOME TAXES Discusses TMTG's estimated effective tax rate and U.S. Federal Net Operating Loss (NOL) carryforwards - TMTG's estimated annual effective tax rate for the nine months ended September 30, 2024, is 0%, primarily due to the projection of U.S. net operating loss (NOL) for fiscal 2024 with a full valuation allowance[73] - As of September 30, 2024, TMTG had U.S. Federal NOL carryforwards with a tax benefit of approximately $9,400.0 thousand from December 31, 2023[73] NOTE 9 - OTHER INCOME - RELATED PARTY, RELATED PARTY RECEIVABLE AND PAYABLE Details TMTG's transactions and outstanding balances with various related parties - TMTG had outstanding payables to related parties, including $221.0 thousand to an affiliate of Digital World's sponsor ARC for administrative services and $41.0 thousand to the Sponsor for advances[74][75] - Payments to Trishul, LLC (owned by director Kashyap Patel) for consulting services totaled $38.3 thousand for the nine months ended September 30, 2024[76] - Payments to Hudson Digital, LLC (owned by Daniel Scavino, former director) for consulting services totaled $780.0 thousand for the nine months ended September 30, 2024[77] - In June 2024, TMTG paid $78.2 thousand to Mar-a-Lago Club LLC, owned by the Donald J. Trump Revocable Trust[78] NOTE 10 - CONVERTIBLE PROMISSORY NOTES AND WARRANTS Describes the conversion of Private TMTG and DWAC convertible notes into common stock and warrants - All Private TMTG Convertible Notes (Notes 1-23), with a cumulative face value of $48,155.0 thousand, automatically converted into an aggregate of 7,854,534 shares of TMTG common stock immediately before the Closing on March 25, 2024[79][80][81][82][83] - Digital World issued up to $50,000.0 thousand in convertible promissory notes (DWAC Convertible Notes) on February 8, 2024, which accrued 8.00% annual interest and were convertible into common stock and warrants[84] - 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[86] NOTE 11 - FAIR VALUE MEASUREMENT Explains TMTG's fair value hierarchy for financial instruments and their classification - TMTG uses a three-tier fair value hierarchy (Level 1, 2, 3) for financial instruments[95] - The repurchase agreement is valued based on Level 1 inputs (quoted market prices of collateral), while the derivative liability component of convertible promissory notes is classified as Level 3 due to significant unobservable inputs[96][97] Fair Value Measurement (in thousands) | Item | Level 1 | Level 2 | Level 3 | | :----------------------------------- | :------ | :------ | :------ | | As of Sep 30, 2024: | | | | | Repurchase agreement | $300,742.5 | - | - | | Total assets measured at fair value | $300,742.5 | - | - | | As of Dec 31, 2023: | | | | | Current Liabilities: Derivative liability | - | - | $17,282.5 | | Liabilities: Derivative liability | - | - | $1,120.3 | | Total liabilities measured at fair value | - | - | $18,402.8 | NOTE 12 - LOSS PER SHARE Clarifies that basic and diluted loss per share are identical due to TMTG incurring a net loss - Basic and diluted loss per share are the same for the periods presented because TMTG incurred a net loss, making potential dilutive shares anti-dilutive[98] Common Stock Equivalents Excluded from Dilutive Loss Per Share | Item | Sep 30, 2024 | Dec 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Convertible notes | - | - | | Warrants | 11,205,934 | - | | Total common stock equivalents excluded | 11,205,934 | - | NOTE 13 – STOCKHOLDERS' EQUITY Details changes in TMTG's authorized capital stock, equity purchase agreements, and stock repurchases - On March 25, 2024, TMTG amended its certificate of incorporation, changing its authorized capital stock to 1,000,000,000 shares, consisting of 999,000,000 common shares and 1,000,000 preferred shares[105] - TMTG entered into a Standby Equity Purchase Agreement (SEPA) with Yorkville on July 3, 2024, granting the right to sell up to $2,500,000.0 thousand of common stock[106] - During the quarter ended September 30, 2024, Yorkville purchased 17,330,365 shares of Common Stock for approximately $339,463.1 thousand under the SEPA[106] - On August 22, 2024, TMTG repurchased 128,138 shares of common stock from executive officers for $2,908.7 thousand[107] NOTE 14 - STOCK BASED COMPENSATION Outlines the 2024 Equity Incentive Plan and the non-cash stock-based compensation expenses from note conversions - The 2024 Equity Incentive Plan, effective March 25, 2024, reserved 13,252,544 shares of common stock for delivery, with no activity for the nine months ended September 30, 2024[109] - Executive Promissory Notes totaling $10,900.0 thousand 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[110][112] - Vendor Convertible Notes with an aggregate face value of $7,500.0 thousand converted into common stock, leading to $30,142.5 thousand of non-cash stock-based compensation expense[113][114] NOTE 15 - COMMITMENTS AND CONTINGENCIES Details TMTG's involvement in various litigations, including disputes over share rights and fiduciary duties - TMTG is involved in several litigations, including disputes with United Atlantic Ventures (UAV) in Delaware regarding alleged rights to TMTG shares and director appointments[120] - Lawsuits against ARC Global Investments II, LLC and Patrick Orlando in Florida and Delaware concern conversion ratios of common stock and alleged breaches of fiduciary duty[121][124][127] - A Delaware Chancery Court order on September 16, 2024, set the conversion ratio for ARC at 1.4911:1, releasing 785,825 shares of TMTG Common Stock from escrow to ARC[124] - TMTG's transfer agent, Odyssey, filed an interpleader action regarding share ownership disputes between Michael Melkersen and ARC, naming TMTG as a nominal defendant[129] NOTE 16 - SUBSEQUENT EVENTS Reports on contingent consideration issued to WCT and a separation agreement with a former Chief Operating Officer - TMTG issued contingent consideration to WCT on October 1, 7, 14, and 29, 2024, upon achieving operational milestones related to data center openings[131] - On October 3, 2024, TMTG and its former Chief Operating Officer entered into a separation and release of claims agreement following his resignation effective September 28, 2024[132] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses TMTG's financial condition, operational results, mission, recent developments, liquidity, and critical accounting policies Cautionary Note Regarding Forward-Looking Statements Advises readers that the report contains forward-looking statements subject to risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from expectations[135] - Readers are advised to refer to the 'Risk Factors' section in the Company's Form 10-K for important factors that could affect business, financial condition, or results of operations[135] Overview Provides an overview of TMTG's mission, Truth Social's growth, and its strategy regarding key performance indicators and streaming content - TMTG aims to build a media and technology powerhouse to rival liberal media and promote free expression, primarily through its social media platform, Truth Social[136][137] - Truth Social launched in Q1 2022 and has grown to approximately 9.0 million signups by mid-February 2024 across iOS, Android, and web platforms[139] - TMTG does not currently rely on traditional key performance indicators (KPIs) like active users or ad impressions, believing it could divert focus from long-term innovation and strategic evaluation[139][140] - TMTG has completed the R&D phase for a new live TV streaming platform and expects to scale its own content delivery network (CDN), rolling out streaming content in three phases[142][144][145] Recent Developments Business Combinations Details the closing of the Business Combination with DWAC and President Donald J. Trump's beneficial ownership - The Business Combination with Digital World Acquisition Corp (DWAC) closed on March 25, 2024, and was accounted for as a reverse recapitalization with Private TMTG as the accounting acquirer[148][151] - Post-closing, President Donald J. Trump beneficially held approximately 57.6% of TMTG common stock, including 36,000,000 Earnout Shares issued on April 26, 2024[153] WorldConnect Technologies Describes TMTG's acquisition of WCT to enhance CDN technology for the Truth platform - TMTG acquired substantially all assets of WorldConnect Technologies, L.L.C. (WCT) on August 9, 2024, to roll out CDN technology for the Truth platform[154] - Consideration for the WCT acquisition included up to 5,100,000 shares of TMTG common stock, with 2,600,000 shares issued at closing and 2,500,000 contingent on milestones[157] - TMTG assumed a $17,500.0 thousand purchase price for the Source Code, payable in installments over three years[158] Standby Equity Purchase Agreement Outlines the Standby Equity Purchase Agreement (SEPA) with Yorkville and shares purchased under it - On July 3, 2024, TMTG entered into a Standby Equity Purchase Agreement (SEPA) with Yorkville, allowing TMTG to sell up to $2,500,000.0 thousand of its Common Stock[160] - Yorkville purchased 17,330,365 shares of Common Stock for approximately $339,463.1 thousand during the quarter ended September 30, 2024, under the SEPA[166] Convertible Promissory Notes Summarizes the conversion of Private TMTG convertible promissory notes into common stock prior to the merger - Prior to the Closing, Private TMTG issued convertible promissory notes totaling $48,155.0 thousand (net of repayments), which converted into Private TMTG common stock immediately before the Closing[168] Key Factors Affecting Results of Operations Discusses macroeconomic impacts, inflation, and the dependence on President Donald J. Trump's popularity as key operational factors - Inflation is expected to materially increase TMTG's cost of revenue and operating expenses in the coming years[171] - Macroeconomic events (e.g., COVID-19, geopolitical conflicts, rising interest rates) have led advertisers to be cautious, potentially impacting TMTG's revenue[172] - 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 the company[175] - Growth in user base is critical for advertising revenue, and TMTG faces strong competition from other social media platforms[176][177] Key Operating Metrics Explains TMTG's strategic decision not to rely on traditional performance metrics for business decisions - TMTG has not relied on traditional performance metrics (e.g., average revenue per user, active users) to make business decisions, focusing instead on feature enhancement and user interface[186] - Management believes focusing on traditional KPIs could divert attention from long-term innovation and value creation[186] Components of Results of Operations Details the sources of revenue, cost of revenue, operating expenses, and non-operating items affecting TMTG's financial results - All revenue is derived from advertising services on the Truth Social platform, generated by displaying 'Truth Ads' in user feeds[188] - Cost of revenue includes expenses for advertising, content acquisition/licensing, and streaming delivery, expected to increase significantly with platform expansion[194][195] - General and administration expenses include personnel costs, professional services (legal, accounting), and facilities, expected to increase due to public company operations[198][199] - Non-operating items include changes in fair value of derivative liabilities (extinguished post-merger), interest expense (decreased post-conversion), and interest income (increased due to cash holdings)[203][204][205][206] Results of Operations Comparison of the three months ended September 30, 2024 and 2023 Compares TMTG's financial performance for the three months ended September 30, 2024, and 2023 Three Months Ended September 30 (in thousands) | Item | 2024 | 2023 | Variance ($) | Variance (%) | | :----------------------------------- | :------- | :------- | :----------- | :----------- | | Revenue | $1,010.9 | $1,071.3 | $(60.4) | (6%) | | Cost of Revenue | $123.3 | $41.3 | $82.0 | 199% | | Research and development | $3,893.7 | $2,202.7 | $1,691.0 | 77% | | Sales and marketing | $2,189.4 | $333.6 | $1,855.8 | 556% | | General and administration | $17,697.0 | $1,509.0 | $16,188.0 | 1,073% | | Depreciation and amortization | $762.2 | $14.7 | $747.5 | 5,085% | | Total operating costs and expenses | $24,665.6 | $4,101.3 | $20,564.3 | 501% | | Operating income/(loss) | $(23,654.7) | $(3,030.0) | $(20,624.7) | 681% | | Interest expense | $(246.7) | $(15,071.9) | $14,825.2 | (98%) | | Interest income | $4,653.0 | - | $4,653.0 | - | | Change in fair value of derivative liabilities | - | $(7,931.2) | $7,931.2 | (100%) | | Net Loss | $(19,248.4) | $(26,033.1) | $6,784.7 | (26%) | - Revenue decreased by 6% due to a change in a revenue share agreement and selective testing of a nascent advertising initiative[212] - General and administration expenses surged by 1,073% due to higher legal, software license, insurance, accounting, and finance fees[216] - Net loss decreased by 26% primarily due to a 100% decrease in loss from change in fair value of derivative liabilities (due to conversion) and a 98% decrease in interest expense[218][219] Comparison of the nine months ended September 30, 2024 and 2023 Compares TMTG's financial performance for the nine months ended September 30, 2024, and 2023 Nine Months Ended September 30 (in thousands) | Item | 2024 | 2023 | Variance ($) | Variance (%) | | :----------------------------------- | :----------- | :----------- | :----------- | :----------- | | Revenue | $2,618.3 | $3,379.6 | $(761.3) | (23%) | | Cost of revenue | $252.9 | $123.8 | $129.1 | 104% | | Research and development | $41,913.9 | $7,212.2 | $34,701.7 | 481% | | Sales and marketing | $4,435.1 | $978.1 | $3,457.0 | 353% | | General and administration | $95,910.7 | $5,666.7 | $90,244.0 | 1,593% | | Depreciation and amortization | $771.5 | $47.6 | $723.9 | 1,521% | | Total operating costs and expenses | $143,284.1 | $14,028.4 | $129,255.7 | 921% | | Operating loss | $(140,665.8) | $(10,648.8) | $(130,017.0) | 1,221% | | Interest expense | $(2,906.5) | $(37,702.5) | $34,796.0 | (92%) | | Interest income | $6,814.5 | - | $6,814.5 | - | | Loss on the extinguishment of debt | $(542.3) | - | $(542.3) | - | | Change in fair value of derivative liabilities | $(225,916.0) | $(660.2) | $(225,255.8) | 34,119% | | Net loss | $(361,216.1) | $(49,011.5) | $(314,204.6) | 641% | - Revenue decreased by 23% due to a change in a revenue share agreement and selective advertising initiatives[226] - General and administration expenses increased by 1,593% due to $54,445.5 thousand in non-cash stock-based compensation and higher legal, insurance, and accounting fees related to the merger[231] - Net loss increased by 641% primarily due to a significant increase in the loss from the change in fair value of derivative liabilities (34,119% increase) and higher operating costs, partially offset by decreased interest expense[233][234] Liquidity and Capital Resources Discusses TMTG's funding strategy, cash position, and ability to meet operational needs - TMTG plans to fund operations and growth initiatives (Truth Social, Truth+ expansion, acquisitions) using cash on hand, advertising revenues, equity issuance (including SEPA), and potential future financing[239] Cash and Cash Equivalents and Short-term Investments (in thousands) | Date | Amount | | :----------------------------------- | :----------- | | September 30, 2024 | $672,878.2 | | December 31, 2023 | $2,572.7 | Increase in Cash and Investments (9M 2024): $670,305.5 - The substantial increase in cash and investments is primarily due to $233,017.5 thousand from the DWAC merger, $47,455.0 thousand from convertible notes, $117,949.8 thousand from warrant exercises, and $336,554.4 thousand from common stock issuances[241] Cash Flows Summarizes TMTG's cash flow activities for operating, investing, and financing during the nine months ended September 30, 2024 and 2023 Cash Flows Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Variance ($) | Variance (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------- | :----------- | | Net cash used in operating activities | $(52,640.0) | $(10,467.2) | $(42,172.8) | 403% | | Net cash used in investing activities | $(312,773.7) | $(2.2) | $(312,771.5) | >100% | | Net cash provided by financing activities | $734,976.8 | $2,500.0 | $732,476.7 | >100% | - The increase in cash used in operating activities was driven by $37,189.0 thousand of higher year-to-date expenses and $6,580.0 thousand of merger-related cash bonuses[243] - Net cash used in investing activities significantly increased due to $300,742.5 thousand in short-term investments, a $7,000.0 thousand cash payment for WCT acquisition, and $5,031.2 thousand for data center equipment[245] Convertible Promissory Notes Details the conversion of various Private TMTG and DWAC convertible notes into common stock and warrants - Various series of Private TMTG Convertible Notes (Notes 1-23) with cumulative face values ranging from $5,340.0 thousand to $17,955.0 thousand, issued between May 2021 and March 2024, converted into TMTG common stock upon the SPAC merger or IPO[247][248][250][251] - DWAC Convertible Notes, issued on February 8, 2024, for up to $50,000.0 thousand, accrued 8.00% interest and were convertible into common stock and warrants, with all notes converted by June 20, 2024[254] Liquidity and Going Concern Assesses TMTG's current liquidity position and its ability to continue as a going concern for the foreseeable future - As of September 30, 2024, TMTG held $672,878.2 thousand in cash, cash equivalents, and short-term investments, a significant increase from $2,572.7 thousand at December 31, 2023[256] - The Company's positive working capital and absence of debt on the balance sheet support its ability to continue as a going concern for at least the next twelve months[256] - TMTG believes it has sufficient working capital to fund operations for at least the next twelve months, mitigating prior concerns about its ability to continue as a going concern[256] Off-Balance Sheet Arrangements Confirms that TMTG had no material off-balance sheet arrangements as of September 30, 2024 - As of September 30, 2024, TMTG did not have any material off-balance sheet arrangements[257] Quantitative and Qualitative Disclosures about Market Risk Discusses TMTG's exposure to market risks, including interest rates, credit risk, and foreign currency exchange rates - TMTG is exposed to market risks including interest rates, access to credit, and foreign currency exchange rates, which could impact revenue, gross margin, and profitability[258] - Interest rate risk primarily affects interest earned on short-term repurchase agreements, which have a 1 to 3 day duration[259] - Credit risk is minimal as cash and cash equivalents are held with a large financial institution, and two advertising partners represent over 90% of accounts receivable[262] - As an emerging growth company, TMTG has elected to use the extended transition period for complying with new accounting standards, which may affect comparability with other public companies[263] Critical Accounting Policies and Significant Management Estimates Outlines TMTG's key accounting policies and estimates, including revenue recognition, software development, and stock-based compensation - TMTG's critical accounting policies involve significant judgment and estimates, including revenue recognition (acting as an agent for advertising services), software development costs (expensed before technological feasibility), and stock-based compensation (fair value measurement)[264][266][268][274][277] - Income taxes are accounted for under the asset and liability method, with a full valuation allowance against deferred tax assets due to uncertainty of realization[278] - Convertible promissory notes' embedded derivative features were bifurcated and revalued at each reporting date, with changes in fair value reported in operations[279] Recent Accounting Pronouncements Discusses the expected impact of recently adopted and future accounting standards on TMTG's financial statements - TMTG does not expect the adoption of ASU 2023-09 (Income Tax Disclosures) or ASU 2023-07 (Segment Reporting) to have a material impact on its financial statements[47][49] - The adoption of ASU 2020-06 (Convertible Instruments) effective January 1, 2024, did not have a material effect on TMTG's financial statements[50] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Reports on the dismissal of the previous accounting firm and the engagement of a new independent registered public accounting firm - TMTG dismissed BF Borgers CPA PC as its independent registered public accounting firm on May 3, 2024, and engaged Semple, Marchal & Cooper, LLP (SMC) on May 4, 2024[285] - There were no disagreements with BF Borgers on accounting principles, financial statement disclosure, or auditing scope/procedure[287] Interest Rate Fluctuation Risk Addresses TMTG's exposure to interest rate risks on its short-term investments and its risk management approach - TMTG's investments in short-term interest-bearing obligations, including repurchase agreements, are subject to interest rate risks, though the short duration (1-3 days) of repurchase agreements limits impact to future earnings[289][259] - TMTG does not use derivative financial instruments for interest rate risk management and does not invest for trading or speculative purposes[261][289] Foreign Currency Exchange Risk Discusses potential exposure to foreign currency exchange rate fluctuations if TMTG expands internationally - TMTG may be exposed to foreign currency exchange rate fluctuations if it expands internationally, which could negatively affect revenue and operating results when expressed in U.S. dollars[290] Financial Market Risk Outlines TMTG's investment strategy focused on capital preservation, liquidity, and minimizing market risk - TMTG's investment strategy prioritizes capital preservation and liquidity, aiming to maximize income without significantly increased risk[291] - The company may diversify its portfolio across various securities to minimize market risk from interest rate changes[291] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable for smaller reporting companies, with relevant disclosures provided within Item 2 - This item is not applicable for smaller reporting companies[292] Item 4. Control and Procedures Management evaluated disclosure controls and procedures, identifying a material weakness in internal control over financial reporting, with ongoing remediation efforts - TMTG identified a material weakness in its internal control over financial reporting, primarily due to insufficient accounting personnel and lack of formal accounting policies, processes, and controls[293][300] - Remediation efforts include hiring additional accounting staff, engaging third parties for complex transactions, formalizing business processes, and strengthening supervisory reviews[293][301] - All identified material weaknesses continue to exist as of the report date, and full remediation is expected to potentially extend beyond December 31, 2024[294][303] PART II - OTHER INFORMATION Item 1. Legal Proceedings. This section refers to Note 15 – Commitments and Contingencies for detailed information on legal proceedings - Refer to Note 15 – Commitments and Contingencies for details on legal proceedings[297] Item 1A. Risk Factors. Outlines significant risks to TMTG's operations and financial condition, including internal control weaknesses and risks related to President Donald J. Trump Risks Related to TMTG's Business Discusses risks associated with internal control weaknesses and potential issues with the streaming content rollout - TMTG identified material weaknesses in internal control over financial reporting, which could lead to misstatements, reporting failures, increased compliance costs, and adverse regulatory consequences[298][299][300] - Issues with the rollout and implementation of TMTG's streaming content plans could delay or prevent full service implementation, negatively affecting growth strategy and operations[305][307] Risks Related to President Donald J. Trump Highlights risks stemming from President Donald J. Trump's legal proceedings and the terms of his license agreement with TMTG - President Donald J. Trump is involved in numerous legal proceedings, and adverse outcomes could negatively impact TMTG and its Truth Social platform[309][311][313][315][316][317][318] - The license agreement with President Donald J. Trump is not terminable by TMTG even if his conduct negatively reflects on the company's reputation or brand[322][326][327] - President Trump's 'Exclusivity Obligation' to post non-political content first on Truth Social is limited to 6 hours and can be terminated by him after February 2, 2025; he can post politically-related content on any platform at any time[323][324][325] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Details the unregistered sales of common stock to Yorkville under the SEPA and the application of the proceeds - During the quarter ended September 30, 2024, Yorkville purchased 17,330,365 shares of Common Stock for approximately $339,463.1 thousand under the SEPA[329] - These issuances were made in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act[329] - The proceeds from these sales were used for working capital and general corporate purposes[329] Item 3. Defaults Upon Senior Securities. States that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[330] Item 4. Mine Safety Disclosures. This item is not applicable to TMTG - This item is not applicable[330] Item 5. Other Information. Includes information regarding a trading plan adopted by TMTG's Chief Financial Officer - On August 9, 2024, Phillip Juhan, TMTG's Chief Financial Officer, adopted a trading plan under Rule 10b5-1(c) for the sale of 400,000 shares of common stock between November 2024 and December 2005[331] Item 6. Exhibits Lists all exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q - Key exhibits include the Agreement and Plan of Merger, Amended and Restated Certificate of Incorporation, Asset Acquisition Agreement, Standby Equity Purchase Agreement, and various certifications[332] SIGNATURES - The report was signed on November 5, 2024, by Devin Nunes, Chief Executive Officer, and Phillip Juhan, Chief Financial Officer[335]