Trump Media & Technology Group Corp. (DJT) FY 2023 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of Digital World’s financial condition and results of operations should be read in conjunction with Digital World’s financial statements and
related notes that appear elsewhere in this Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, assumptions and other factors that could
cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and
elsewhere, particularly in the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections of this Report.
Unless otherwise indicated or the context otherwise requires, references in this section to “we,” “our,” “us” and other
similar terms refer to Digital World before the Business Combination.
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Overview
Digital World was formed as a blank check company under the laws of the State of Delaware on December 11, 2020 for the
purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar initial business combination with one or more businesses. Digital World intended to effectuate its initial
business combination using cash from the proceeds of its initial public offering and the sale of the Placement Units, our capital stock, debt or a combination of cash, stock and debt.
Recent Development
In February 2024, Digital World issued Digital World Convertible Notes to certain accredited investors in the aggregate principal amount of up to $770,000. The proceeds of the
promissory notes are expected to be used to pay costs and expenses in connection with completing the Business Combination. Of such Digital World Convertible Notes (i) $620,000 have a conversion price of $10.00 per Working Capital Unit
and (ii) $150,000 have a conversion price of $8.00 per Working Capital Unit. The issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On February 7, 2024, Digital World entered into warrant subscription agreements with certain
institutional investors for the issuance of the Digital World Alternative Warrants in settlement of the terminated PIPE Investment. Each such warrant entitles the holder thereof to purchase one share of Digital World Class A common
stock for $11.50 per share. Digital World issued the Digital World Alternative Warrants concurrently with the closing of the Business Combination, and such warrants had substantially the same terms as the Public Warrants issued by
Digital World in connection with its IPO, except that such Digital World Alternative Warrants may only be transferred to the applicable holder’s.
On February 8, 2024, Digital World entered into a subscription agreement with certain institutional
investors for the issuance of the Digital World Alternative Financing Notes, issuing $10,000,000 in Digital World Alternative Financing Notes to such institutional investors. Digital World issued the remaining up to $40,000,000 of
such Digital World Alternative Financing Notes concurrently with the Closing of the Business Combination on March 25, 2024. The Digital World Alternative Financing Notes:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| (a) | are initially drawable for 20% of the applicable investor’s commitment amount and a final drawdown for the remaining 80% to occur upon the closing of the Business Combination, with the proceeds of such final drawdown to be deposited into a control account as indicated by Digital World (the “Control Account”). The proceeds from such final drawdown deposited into the Control Account shall remain therein and may not be withdrawn by Digital World until such time as (i) Digital World exercises the Alternative Notes Redemption Right using the proceeds in the Control Account, (ii) any portion of the applicable Digital World Alternative Financing Note has been converted, at which time such portion shall be released from the Control Account or (iii) if prior to the conversion, a resale registration statement of Digital World covering all common stock issued pursuant to the Digital World Alternative Financing Notes has been declared effective by the SEC; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| (b) | are subject to specified events of default; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| (c) | have registration rights pursuant to the registration rights agreement entered into by Digital World and the parties thereto as of September 2, 2021. |
As of December 31, 2023, Digital World had approximately $395,011 in cash. Digital World incurred significant costs in
the pursuit of the Business Combination. On March 25, 2024 the Business Combination was consummated.
Results of Operations
Digital World neither engaged in any operations nor generated any revenues through the Closing Date. Its activities
from inception through December 31, 2023 were organizational activities and those necessary to prepare for Digital World’s IPO and the search for targets for the Business Combination, including the Merger with TMTG. Digital World
did not expect to generate any operating revenues until after the completion of the Business Combination. Digital World generated non-operating income in the form of interest income on marketable securities held. Digital World
incurred expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence in connection with its search for targets for its initial business
combination.
For the year ended December 31, 2023, Digital World had a net loss of $21,890,641, which consists primarily of
formation and operating expenses of $12,523,232, legal investigations expense of $19,671,581 and income taxes of $3,548,603, partially offset by income on the trust assets of $13,852,774. The increase in legal investigations expense
is primarily due to the $18.0 million settlement with SEC. The increase in income on the trust assets is due to the increase in interest rates.
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For the year ended December 31, 2022, Digital World had a net loss of $15,642,548, which consists of formation and
operating expenses of $8,916,023, legal investigations expense of $10,004,519 and income taxes of 979,475, partially offset by income on the trust assets of $4,257,469.
Liquidity and Capital Resources
Until Digital World’s IPO, Digital World’s only source of liquidity was an initial purchase of Class B common stock by
the Sponsor and loans from the Sponsor.
On September 8, 2021, Digital World consummated the IPO of 28,750,000 Units, at a price of $10.00 per Unit, generating
gross proceeds of $287,500,000. Simultaneously with the closing of the IPO, Digital World consummated the sale of 1,133,484 Placement Units at a price of $10.00 per Placement Unit in a Private Placement to our Sponsor, generating
gross proceeds of $11,334,840.
Following the IPO and the sale of the Placement Units, a total of $293,250,000 was placed in the Trust
Account. Digital World incurred $15,668,029 in transaction costs, including $3,593,750 of underwriting fees, $10,062,500 of deferred underwriting fees, fair value of representative shares of $1,437,500 and $574,279 of other offering
costs.
For the year ended December 31, 2023, cash used in operating activities was $5,135,588, which was primarily comprised of a net loss of $35,722,601 (excluding cash interest earned
on the Trust Account), partially offset by a net increase in operating liabilities of $30,587,013.
For the year ended December 31, 2022, cash used in operating activities was $1,455,883, which was primarily comprised of a net loss of $19,900,017 (excluding cash interest earned
on the Trust Account), partially offset by a net increase in operating liabilities of $18,444,134.
As of December 31, 2023, Digital World had cash of $310,623,083 held in the Trust Account. Digital World
intended to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account, to complete its initial business combination and to withdraw cash to pay taxes. To
the extent that Digital World capital stock or debt was used, in whole or in part, as consideration to complete the Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance
TMTG's business, make other acquisitions and pursue our growth strategies.
On April 21, 2023, Digital World issued two promissory notes (one for $625,700 and the other for
$500,000) in the aggregate principal amount of $1,125,700 to the Sponsor to pay costs and expenses in connection with completing the Business Combination. Each of the two notes bears no interest and is repayable in full upon the
earlier of (i) the date on which Digital World consummates its Business Combination and (ii) the date that the winding up of Digital World is effective. At the election of the Sponsor and subject to certain conditions, all of the
unpaid principal amount of each of the two notes may be converted into Units of Digital World (the “Conversion Units”) immediately prior to the consummation of the Business Combination with the total Conversion Units so issued equal
to: (x) the portion of the principal amount of the respective note being converted divided by (y) the conversion price of ten dollars ($10.00), rounded up to the nearest whole number of Units. The issuances of the two notes were
made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On June 2, 2023, Digital World issued two convertible notes to Renatus in the aggregate principal amounts of (a)
$2,000,000 and (b) $10,000,000. The proceeds of the Notes were used to pay costs and expenses in connection with completing an initial business combination. Mr. Swider, a current director of TMTG, is a founder and partner of
Renatus.
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Off-Balance Sheet Arrangements
Digital World did not have any off-balance sheet arrangements as of December 31, 2023.
Contractual Obligations
Digital World did not have any long-term debt, capital lease obligations, operating lease obligations or long-term
liabilities as of December 31, 2023.
Critical Accounting Policies and Estimates
Digital World Class A Common Stock Subject to Possible Redemption
Digital World accounted for Digital World Class A
common stock subject to possible Redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Digital World Class A common stock subject to mandatory
Redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features Redemption Rights that is either within the control of the holder or
subject to Redemption upon the occurrence of uncertain events not solely within Digital World's control) is classified as temporary equity. At all other times, shares of common stock are classified
as stockholders’ equity. Shares of Digital World Class A common stock feature certain Redemption Rights that are considered to be outside of Digital World's control and subject to occurrence of uncertain future events. Accordingly, Digital World Class A common stock subject to possible Redemption is presented as temporary equity, outside of the stockholders’ equity
section of Digital World's condensed interim balance sheets.
Derivative Financial Instruments
Digital World evaluated its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC
Topic 815, “Derivatives and Hedging.” Derivative instruments are initially recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the statements of operations.
Derivative assets and liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Digital World accounts for the Warrants in accordance with the guidance contained in ASC 815-40. Digital World has determined that the Warrants qualify for equity treatment in Digital World’s financial statements.