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Trump’s Truth Social business risks revealed in new SEC filing

Former president Donald Trump’s social network, Truth Social, is facing “substantial doubt” about its future after burning through tens of millions of dollars in operating costs, a new filing shows.

A financial filing Monday by Digital World Acquisition, the investment partner of Trump’s start-up, said the accountants of Trump Media & Technology Group believed the Trump company’s “financial condition” had left it at risk.

In the first six months of the year, Trump Media lost $22.9 million on only $2.3 million in net sales, according to the document, which was filed with the Securities and Exchange Commission.

“TMTG has suffered negative cash flows and recurring losses from operations that raise substantial doubt about its ability to continue as a going concern,” the document said, citing a report from Trump Media’s independent registered public accounting firm.

In the filing, Digital World said that Trump Media’s management believes that the money they expect to raise from a proposed merger would be “sufficient to retire existing debt and to fund existing operations should projected cash flow be insufficient.”

Trump Media chief executive Devin Nunes said in a statement that the filing was a “monumental milestone” toward completing the merger and said Truth Social aspires “to become the centerpiece of a movement, as well as a method for Americans to invest in their freedom.”

Digital World, which announced plans to merge with Trump Media in October 2021, has seen its progress toward the deal delayed for months, preventing Trump Media from tapping the $300 million Digital World raised from shareholders.

The document, which runs more than 500 pages, is a revision of Digital World’s initial registration form, known as a Form S-4.

In July, the SEC said Digital World had agreed to file the amended form as part of a settlement of fraud charges related to “material misrepresentations” the company had made about its initial merger plans with Trump Media. In its original registration statement, Digital World “mischaracterized and omitted information about the history of its interactions with TMTG,” according to the SEC statement.

The SEC also said that as part of the settlement, Digital World had agreed to pay an $18 million penalty if the merger is completed.

The revised document offers some of the first internal details of Trump’s company, which was launched after he lost the White House and has become the centerpiece of his post-presidential business ambitions. Trump posts almost exclusively to Truth Social, the company’s primary business.

The Monday filing said that Trump Media has a number of outstanding promissory notes worth millions of dollars that are scheduled to come due within the next year.

In May, Trump Media filed a lawsuit against The Washington Post, alleging an article had made false and defamatory statements in describing a loan from an entity called ES Family Trust.

The Digital World filing Monday named ES Family Trust and said that, in June, Trump Media received a demand to repay part of the loan. The filing said ES Family Trust later agreed to extend the terms of the loan until next year.

According to the filing, Trump Media’s revenue included $2.3 million in net sales in the first half of this year and $1.4 million last year. For comparison, X, the social network formerly called Twitter, took in more than $2.3 billion in revenue in the first six months of 2022, according to an SEC filing last year.

Truth Social has struggled to build an online audience.

Trump Media projected in 2021 that the site would have 41 million total users by the end of this year, but its online traffic has so far remained below those expectations. In the United States in July, Truth Social’s mobile apps had roughly 500,000 monthly active users, and its website was visited about 1 million times, according to estimates from Similarweb, a data firm that analyzes web traffic. On Tuesday, Similarweb shared estimates that showed Truth Social’s website traffic from unique U.S. visitors in October was down 24 percent from the previous year.

In 2021, Trump Media pledged that its merger with Digital World would create a Big Tech-style giant worth $875 million at the start and potentially up to $1.7 billion, depending on its stock performance. In a campaign financial filing in April, Trump valued his stake in the company, of which he owns 90 percent, at between $5 million and $25 million.

Trump Media had also pledged in 2021 to build up other media businesses, including a subscription video service, TMTG+, that pledged to offer “Trump-specific programming” and other “non-woke” entertainment. In the Monday filing, Digital World said Trump Media eliminated several jobs that had “significantly impacted TMTG’s streaming video on demand (SVOD) and infrastructure teams.”

The new Digital World filing said Trump Media’s business is heavily dependent on the former president’s “popularity and presence” and noted that Trump is “the subject of numerous legal proceedings, the scope and scale of which are unprecedented for a former president.” An “adverse outcome” in those cases could hurt the company, the filing said.

“The death, incarceration or incapacity of President Trump,” the filing stated, could also “negatively impact TMTG’s business.”

Digital World has faced its own financial issues, telling the SEC in filings earlier this year that its financial statements for 2021 and 2022 should “no longer be relied upon” due to “a material weakness in its internal control over financial reporting.”

In an amended statement this month, Digital World said it had spent $10.8 million, or nearly half of its total expenses, on legal fees related to government investigations in 2021 and 2022.

Digital World has said in filings it has faced investigations by the Justice Department, the SEC and the Financial Industry Regulatory Authority related to stock trades made before the company’s merger deal was announced.

The filing Monday warned that Digital World faces “mandatory liquidation” unless it can complete the merger by September 2024.

In June, the SEC charged a former Digital World board member, Bruce Garelick, and two others with insider trading related to the deal. In July, Digital World said it had settled charges with the SEC related to “material misrepresentations” in its filings and agreed to pay the $18 million penalty if the merger deal completes.

In October, Digital World said investors had pulled out of roughly $467 million in commitments to what’s known as a private investment in public equity, or PIPE, and that the company was working to cancel the remaining $533 million.

The company, which once said the $1 billion PIPE would be key to growing the business, said in a statement last month that ending the PIPE was a positive move that would help finalize the deal “as soon as possible.”

Aaron Gregg contributed to this report.

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