UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly
period ended
OR
For the transition period from __________ to __________
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whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
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As of August 13, 2024, a total of
FALCON’S BEYOND GLOBAL, INC.
TABLE OF CONTENTS
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains statements that the Company believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements relating to expectations for future financial performance, business strategies or expectations for our business. These statements are based on the beliefs and assumptions of the management of the Company. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, it cannot provide assurance that it will achieve or realize these plans, intentions or expectations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this in this Quarterly Report, words such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “should,” “target,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
You should not place undue reliance on these forward-looking statements. Should one or more of a number of known and unknown risks and uncertainties materialize, or should any of our assumptions prove incorrect, the Company’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements. The following important factors, risks, and uncertainties could cause actual results to differ materially from those indicated by the forward-looking statements in this Quarterly Report:
● | We may not be able to sustain our growth, effectively manage our anticipated future growth, implement our business strategies or achieve the results we anticipate. |
● | The impairments of our intangible assets and equity method investment in our joint ventures, have materially and adversely impacted our business and results of operations and may do so again in the future. |
● | Our current liquidity resources raise substantial doubt about our ability to continue as a going concern and holders of our securities could suffer a total loss of their investment. |
● | We will require additional capital, which additional financing may result in restrictions on our operations or substantial dilution to our stockholders, to support the growth of our business, and this capital might not be available on acceptable terms, if at all. |
● | Following the closure of Katmandu Park DR, our FBD business is in transition, and the repositioning and rebranding of FBD projects will be subject to timing, budgeting and other risks which could have a material adverse effect on us. In addition, the ongoing need for capital expenditures to develop our FBD business could have a material adverse effect on us, including our financial condition, liquidity and results of operations. |
● | Our growth plans in FCG may take longer than anticipated or may not be successful. |
● | Our ability to execute on our strategy and business model is dependent on the quality of our services, and our failure to offer high quality services could have a material adverse effect on its sales and results of operations. |
● | Anticipated synergies across our three business lines may not create the diversified revenue streams that we believe they will. |
● | A significant portion of FCG’s revenue is derived from one large client and any loss of, or decrease in services to, that client could harm FCG’s results of operations. |
● | Following the completion of the Strategic Investment, the Company, Falcon’s Opco and FCG LLC are subject to contractual restrictions that may affect our ability to access the public markets and expand our business. |
ii
● | The significance of our operations and partnerships outside of the United States makes us susceptible to the risks of doing business internationally, which could lower our revenues, increase our costs, reduce our profits, disrupt our business, or damage our reputation. |
● | We are exposed to risks related to operating in the Kingdom of Saudi Arabia. |
● | Our indebtedness and liabilities could limit the cash flow available for our operations, which may adversely affect our financial condition and future financial results. The principal, premium, if any, and interest payment obligations of such debt may restrict our future operations and impair our ability to invest in our businesses. |
● | We may expand into new lines of business in our FBB division and may face risks associated with such expansion. |
● | We have entered and expect to continue to enter into joint venture, strategic collaborations, teaming and other business arrangements, and these activities involve risks and uncertainties. A failure of any such relationship could have a material adverse effect on our business and results of operations. |
● | In certain jurisdictions into which we are currently contemplating expanding, we will rely on strategic relationships with local partners in order to be able to offer and market our products and services. If we cannot establish and maintain these relationships, our business, financial condition and results of operations could be adversely affected. |
● | We are dependent on the continued contributions of our senior management and other key employees, and the loss of any of whom could adversely affect our business, operating results, and financial condition. |
● | If we are unable to hire, retain, train and motivate qualified personnel and senior management for our businesses and deploy our personnel and resources to meet customer demand around the world, our business could suffer. |
● | Failures in, material damage to, or interruptions in our information technology systems, software or websites, and difficulties in updating our systems or software or implementing new systems or software could adversely affect our businesses or operations. |
● | Protection of electronically stored data and other cybersecurity is costly, and if our data or systems are materially compromised in spite of this protection, we may incur additional costs, lost opportunities, damage to our reputation, disruption of services or theft of our assets. |
● | Our insurance may not be adequate to cover the potential losses, liabilities and damages of our FBD division, the cost of insurance may continue to increase materially, including as a result of natural disasters, some of which may be related to climate change, and we may not be able to secure insurance to cover all of our risks, all of which could have a material adverse effect on us. |
● | Theft of our intellectual property, including unauthorized exhibition of our content, may decrease our licensing, franchising and programming revenue which may adversely affect our business and profitability. |
● | We are a holding company and our only material asset is our interest in Falcon’s Opco, and accordingly we will generally be dependent upon distributions from Falcon’s Opco to pay taxes, make payments under the Tax Receivable Agreement and pay dividends. |
● | Under the Tax Receivable Agreement, the Company is required to make payments to the Company’s unitholders for certain tax benefits to which the Company may become entitled, and those payments may be substantial. |
iii
● | In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits the Company realizes in respect of the tax attributes subject to the Tax Receivable Agreement. |
● | If Falcon’s Opco were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, the Company and Falcon’s Opco might be subject to potentially significant tax inefficiencies, and the Company would not be able to recover payments previously made by it under the Tax Receivable Agreement even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status. |
● | As a public reporting company, we are subject to rules and regulations established from time to time by the SEC and Public Company Accounting Oversight Board regarding our internal control over financial reporting. If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results or report them in a timely manner. |
● | We have identified material weaknesses in our internal controls over financial reporting. If we are unable to remediate these material weaknesses, if management identifies additional material weaknesses in the future or if we otherwise fail to maintain effective internal controls over financial reporting, we may not be able to accurately or timely report our financial position or results of operations, which may adversely affect our business and stock price or cause our access to the capital markets to be impaired. |
● | The Demerau Family is expected to have significant influence over stockholder decisions because of its share ownership. |
● | Cecil D. Magpuri, our Chief Executive Officer, controls over twenty percent of our voting power and is able to exert significant influence over the direction of our business. |
● | There can be no assurance that we will be able to comply with the continued listing standards of Nasdaq. |
In addition, this Quarterly Report includes important information as to risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. See “Note 10: Commitments and Contingencies” within Item 1 of this Quarterly Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within Item 2 of this Quarterly Report. Additional important information as to these factors is included in our Annual Report on Form 10-K for the year ended December 31, 2023 (“Annual Report”) in the sections titled Item 1, “Business”, Item 1A, “Risk Factors,” Item 3, “Legal Proceedings,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The forward-looking statements speak only as of the date of this Quarterly Report or, in the case of any document incorporated by reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information as to factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements is disclosed from time to time in our other filings with the Securities and Exchange Commission (“SEC”).
iv
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
FALCON’S BEYOND GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands of U.S. dollars)
As of June 30, 2024 | As of December 31, 2023 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable, net ($ | ||||||||
Other current assets | ||||||||
Total current assets | ||||||||
Investments and advances to equity method investments | ||||||||
Property and equipment, net | ||||||||
Other non-current assets | ||||||||
Total assets | $ | $ | ||||||
Liabilities and stockholders’ equity (deficit) | ||||||||
Current liabilities: | ||||||||
Accounts payable ($ | $ | $ | ||||||
Accrued expenses and other current liabilities ($ | ||||||||
Short-term debt ($ | ||||||||
Current portion of long-term debt ($ | ||||||||
Earnout liabilities – current portion | ||||||||
Total current liabilities | ||||||||
Other long-term payables | ||||||||
Long-term debt, net of current portion ($ | ||||||||
Earnout liabilities, net of current portion | ||||||||
Warrant liabilities | ||||||||
Total liabilities | ||||||||
Commitments and contingencies – Note 10 | ||||||||
Stockholders’ equity (deficit) | ||||||||
Class A common stock ($ | ||||||||
Class B common stock ($ | ||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
Total equity attributable to common stockholders | ( | ) | ( | ) | ||||
Non-controlling interests | ( | ) | ( | ) | ||||
Total equity | ( | ) | ( | ) | ||||
Total liabilities and equity | $ | $ |
See accompanying notes to unaudited condensed consolidated financial statements.
1
FALCON’S BEYOND GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands of U.S. dollars, except share and per share data)
For the three months ended | For the six months ended | |||||||||||||||
June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
Revenue ($ | $ | $ | $ | $ | ||||||||||||
Operating expenses: | ||||||||||||||||
Project design and build expense | ||||||||||||||||
Selling, general and administrative expense | ||||||||||||||||
Transaction expenses | ||||||||||||||||
Credit loss expense – related party ($ | ||||||||||||||||
Research and development expense ($ | ||||||||||||||||
Depreciation and amortization expense | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Share of gain (loss) from equity method investments | ( | ) | ( | ) | ||||||||||||
Interest expense ($( | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Interest income | ||||||||||||||||
Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||||||||||
Change in fair value of earnout liabilities | ||||||||||||||||
Foreign exchange transaction gain (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
Net income (loss) before taxes | ( | ) | ( | ) | ||||||||||||
Income tax benefit | ||||||||||||||||
Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Net income attributable to noncontrolling interest | ||||||||||||||||
Net income attributable to common stockholders | ||||||||||||||||
Net income per share, basic | ||||||||||||||||
Net income per share, diluted | ||||||||||||||||
Weighted average shares outstanding, basic | ||||||||||||||||
Weighted average shares outstanding, diluted | ||||||||||||||||
Other Comprehensive income (loss): | ||||||||||||||||
Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Foreign currency translation loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Total other comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
Comprehensive income attributable to noncontrolling interest | ||||||||||||||||
Total comprehensive income (loss) attributable to common stockholders | $ | $ | ( | ) | $ | $ | ( | ) |
See accompanying notes to unaudited condensed consolidated financial statements.
2
FALCON’S BEYOND GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands of U.S. dollars)
For the six months ended | ||||||||
June 30, | June 30, | |||||||
2024 | 2023 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | ( | ) | ||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation and amortization | ||||||||
Deferred loss on sales to equity method investments | ||||||||
Foreign exchange transaction loss (gain) | ( | ) | ||||||
Share of (gain) loss from equity method investments | ( | ) | ||||||
Loss on sale of equipment | ||||||||
Change in deferred tax asset | ( | ) | ||||||
Credit loss expense ($ | ||||||||
Change in fair value of earnouts | ( | ) | ||||||
Change in fair value of warrants | ||||||||
Share based compensation expense | ||||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable, net ($ | ( | ) | ||||||
Other current assets | ( | ) | ( | ) | ||||
Inventories | ( | ) | ||||||
Contract assets ($ | ||||||||
Capitalization of ride media content | ( | ) | ||||||
Deferred transaction costs | ( | ) | ||||||
Long term receivable – related party | ( | ) | ||||||
Other non-current assets | ( | ) | ||||||
Accounts payable ($ | ( | ) | ||||||
Accrued expenses and other current liabilities ($ | ||||||||
Contract liabilities ($ | ||||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | ( | ) | ( | ) | ||||
Investments and advances to unconsolidated joint ventures | ( | ) | ||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Cash flows from financing activities | ||||||||
Short-term advances from affiliates ($796 related party for the six months ended June 30, 2024) | ||||||||
Principal payment on finance lease obligation | ( | ) | ||||||
Proceeds from debt – related party | ||||||||
Proceeds from debt – third-party | ||||||||
Repayment of debt – related party | ( | ) | ( | ) | ||||
Repayment of debt – third-party | ( | ) | ( | ) | ||||
Proceeds from related party credit facilities | ||||||||
Repayment of related party credit facilities | ( | ) | ( | ) | ||||
Equity contributions | ||||||||
Proceeds from exercised warrants | ||||||||
Proceeds from RSUs issued to affiliates | ||||||||
Net cash provided by financing activities | ||||||||
Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
Foreign exchange impact on cash | ( | ) | ( | ) | ||||
Cash and cash equivalents – beginning of period | ||||||||
Cash and cash equivalents at end of period | ||||||||
Supplemental disclosures: | ||||||||
Cash paid for interest | ||||||||
Non-cash activities: | ||||||||
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities (all operating lease assets and liabilities have been deconsolidated as of July 27, 2023) | ||||||||
Finance lease right-of-use assets obtained in exchange for new finance lease liabilities | ||||||||
Conversion of warrants to common shares, Class A | ||||||||
Conversion of Class B Common Stock to Class A Common Stock | ||||||||
Release of earnout Common shares from escrow |
See accompanying notes to unaudited condensed consolidated financial statements.
3
FALCON’S
BEYOND GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)/MEMBERS’ EQUITY (UNAUDITED)
(in thousands of U.S. dollars, except unit and share data)
Units | Members’ capital | Accumulated deficit | Accumulated other comprehensive income (loss) | Members’ equity | ||||||||||||||||
December 31, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
Net loss | ( | ) | ( | ) | ||||||||||||||||
Foreign currency translation gain | ||||||||||||||||||||
March 31, 2023 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||
Net loss | ( | ) | ( | ) | ||||||||||||||||
Foreign currency translation loss | ( | ) | ( | ) | ||||||||||||||||
Units issued | ||||||||||||||||||||
June 30, 2023 | $ | $ | ( | ) | $ | ( | ) | $ |
Common Stock, Class A | Common Stock, Class B | Additional paid-in | Accumulated other comprehensive | Accumulated | Total equity attributable to common | Non- Controlling | Total | |||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | loss | deficit | stockholders | Interest | equity | |||||||||||||||||||||||||||||||
December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
Conversion of warrants to common shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
Conversion of Class B common stock to Class A common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
RSU Issuances | ||||||||||||||||||||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation gain | ||||||||||||||||||||||||||||||||||||||||
March 31, 2024 | $ | $ | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
Release of earnout Common shares from escrow and other | ||||||||||||||||||||||||||||||||||||||||
RSU Issuances | ||||||||||||||||||||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
June 30, 2024 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) |
See accompanying notes to unaudited condensed consolidated financial statements.
4
FALCON’S BEYOND GLOBAL, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(in thousands of U.S. dollars, unless otherwise stated)
1. | Description of business and basis of presentation |
Merger with FAST II
Falcon’s Beyond Global, Inc., a Delaware corporation (“Pubco”, “FBG”, or the “Company”), entered into a Plan of Merger, dated as of January 31, 2023 (the “Merger Agreement”), by and among Pubco, FAST Acquisition Corp. II, a Delaware corporation (“FAST II”), Falcon’s Beyond Global, LLC, a Florida limited liability company that has since redomesticated as a Delaware limited liability company (“Falcon’s Opco”), and Palm Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Pubco (“Merger Sub”).
On October 5, 2023 FAST II merged with and into Pubco (the “SPAC Merger”), with Pubco surviving as the sole owner of Merger Sub, followed by a contribution by Pubco of all of its cash (except for cash required to pay certain transaction expenses) to Merger Sub to effectuate the “UP-C” structure; and on October 6, 2023 Merger Sub merged with and into Falcon’s Opco (the “Acquisition Merger,” and collectively with the SPAC Merger, the “Business Combination”), with Falcon’s Opco as the surviving entity of such merger. Following the consummation of the transactions contemplated by the Merger Agreement (the “Closing”), the direct interests in Falcon’s Opco were held by Pubco and certain holders of the limited liability company units of Falcon’s Opco outstanding as of immediately prior to the Business Combination.
FAST II and Falcon’s Opco’s transaction
costs related to the Business Combination of $
Nature of Operations
The Company operates at the intersection of content, technology, and experiences. We aim to engage, inspire and entertain people through our creativity and innovation, and to connect people with brands, with each other, and with themselves through the combination of digital and physical experiences. At the core of our business is brand creation and optimization, facilitated by our multi-disciplinary creative teams. The Company has three business divisions, which are conducted through five operating segments. Our three business lines feed into each other to accelerate our growth strategy: (i) Falcon’s Creative Group, LLC (“FCG”) creates master plans, designs attractions and experiential entertainment, and produces content, interactives and software; (ii) Falcon’s Beyond Destinations develops a diverse range of entertainment experiences using both owned and third-party licensed intellectual property, consisting of Producciones de Parques, S.L. (“PDP”), Sierra Parima, S.A.S. (“Sierra Parima”) (Sierra Parima’s Katmandu Park in Punta Cana, Dominican Republic (“Katmandu Park DR”) was closed to visitors on March 7, 2024), and Destination Operations, which develops a diverse range of entertainment experiences using both Company owned and third-party licensed intellectual property, spanning location-based entertainment, dining, and retail; and (iii) Falcon’s Beyond Brands brings brands and intellectual property to life through animation, movies, licensing and merchandising, gaming, as well as ride and technology sales.
Basis of presentation
The Business Combination was accounted for similar to a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Following the closing of the Business Combination, Falcon’s Opco’s Executive Chairman, Mr. Scott Demerau, together with other members of the Demerau family, continue to collectively have a controlling interest of Pubco. As the Business Combination represents a common control transaction from an accounting perspective, the Business Combination was treated similar to a reverse recapitalization. As there was no change in control, Falcon’s Opco has been determined to be the accounting acquirer and Pubco was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Falcon’s Opco issuing stock for the net assets of Pubco, accompanied by a recapitalization. The net assets of Pubco were stated at historical cost, with no goodwill or other intangible assets recorded. Subsequently, results of operations presented for the period prior to the Business Combination are those of Falcon’s Opco.
5
Falcon’s Opco was formed on April 22,
2021, in the state of Florida, for the purpose of acquiring the outstanding membership units of Katmandu Group, LLC and its subsidiaries
(“Katmandu”), Falcon’s Treehouse, LLC and its subsidiaries (“Treehouse”) and Falcon’s Treehouse National,
LLC (“National”). On April 30, 2021, The Magpuri Revocable Trust, owner of Treehouse and National, and Katmandu Collections,
LLLP, (“Collections”) owner of Katmandu, entered into a Consolidation Agreement, whereby The Magpuri Revocable Trust contributed
The accompanying condensed consolidated financial statements of the Company are unaudited. In the opinion of management, all adjustments necessary for a fair statement of results of operations, cash flows, and financial position have been made. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. The year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles.
The unaudited condensed consolidated financial statements and notes are presented in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not contain certain information included in the Company’s Annual Report. Therefore, these interim statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report.
The unaudited condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries for which it exercises control. Long-term investments in affiliated companies in which the Company exercises significant influence, but which it does not control, are accounted for using the equity method. The Company does not have any significant variable interest entities or special purpose entities whose financial results are not included in the unaudited condensed consolidated financial statements.
The financial statements of the Company’s operating foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average monthly exchange rates prevailing during the period. Resulting translation adjustments are included in Accumulated other comprehensive income (loss).
A reclassification of the credit loss expense
of $
Principles of Consolidation
The non-controlling interest represents the membership interest in Falcon’s Opco held by holders other than the Company.
The results of operations attributable to the non-controlling interests are included in the Company’s unaudited condensed consolidated statements of operations and comprehensive income (loss), and the non-controlling interests are reported as a separate component of equity.
The Company consolidates the assets, liabilities and operating results of Falcon’s Opco and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in the consolidation. The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP.
6
Liquidity
The Company has been engaged in expanding its
physical operations through its equity method investments, developing new product offerings, raising capital and recruiting personnel.
As a result, the Company has incurred a loss from operations of $
The Company has committed to fund its share of
additional investment in its equity investment, Karnival TP-AQ Holdings Limited (“Karnival”), for the purpose of constructing
the Vquarium Entertainment Centers in the People’s Republic of China. See Note 10 – Commitments and contingencies. On
July 27, 2023, Falcon’s Creative Group, LLC, a wholly owned subsidiary of the Company, received a net closing payment from Qiddiya
Investment Company (“QIC”), on behalf QIC Delaware, Inc., of $
The Company’s development plans, and investments
have been funded by a combination of debt and committed equity contributions from its stockholders and third-parties, and the Company
is reliant upon its stockholders and third-parties for obtaining additional financing through debt or equity raises to fund its working
capital needs, contractual commitments, and expansion plans. As of June 30, 2024, the Company has accrued material amounts of expenses
in relation to its external advisors, accountants and legal costs in relation to its Form S-4 and other filings. The Company has a working
capital deficiency of ($
Deconsolidation of Falcon’s Creative Group, LLC
On July 27, 2023, pursuant to the Subscription
Agreement by and between FCG and QIC Delaware, Inc., (the “Subscription Agreement”), QIC Delaware, Inc., a Delaware corporation
and an affiliate of QIC, invested $
QIC is entitled to redeem its preferred units
on the earlier of (a) the five-year anniversary of the Strategic Investment or (b) any date on which a majority of key persons cease
to be employed by FCG. The LLCA contains contractual provisions regarding the distribution of FCG’s income or loss. Pursuant to
these provisions, QIC is entitled to a redemption amount of the initial $
QIC, as the holder of the preferred units of
FCG, has priority with respect to any distributions by FCG, to the extent there is cash available. Under the LLCA, such distributions
are payable (i) first, to QIC until the holders’ preferred return is reduced to zero, (ii) second, to QIC until the investment
amount is reduced to zero, (iii) third, to the Company until it has received an amount equal to the amount paid to QIC, and (iv) fourth,
to QIC and the Company on a pro-rata basis of
7
The LLCA grants QIC the right to block or participate in certain significant operating and capital decisions of FCG, including the approval of FCG’s budget and business plan, strategic investments, and incurring additional debt, among others. These rights allow QIC to effectively participate in significant financial and operating decisions of FCG that are made in FCG’s ordinary course of business. As such, as of July 27, 2023 the Company does not have a controlling financial interest since QIC has the substantive right to participate in FCG’s business decisions. Therefore, FCG was deconsolidated and accounted for as an equity method investment in the Company’s unaudited condensed consolidated financial statements.
After July 27, 2023, the assets and liabilities of FCG are no longer included within the Company’s consolidated balance sheet as of June 30, 2024 and December 31, 2023.
See Note 4– Investments and advances to equity method investments for the Company’s recognition of its retained investment in FCG. The Company’s retained interest in FCG will continue to be presented separately as a reportable segment in Note 11– Segment Information.
2. | Summary of significant accounting policies |
Concentration of credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of Cash and cash equivalents and Accounts receivable. The Company places its Cash and cash equivalents with financial institutions of high credit quality. At times, such amounts exceed federally insured limits. Management believes that no significant concentration of credit risk exists with respect to these cash balances because of its assessment of the creditworthiness and financial viability of the respective financial institutions.
The Company provides credit to its customers located both inside and outside the United States in its normal course of business. Receivables are presented net of an allowance for credit losses based on the Company’s assessment of the collectability of customer accounts. The Company maintains an allowance that provides for an adequate reserve to cover estimated losses on receivables as well as contract assets. The Company determines the adequacy of the allowance by estimating the probability of loss based on the Company’s historical credit loss experience and taking into consideration current market conditions and supportable forecasts that affect the collectability of the reported amount. The Company regularly evaluates receivable and contract asset balances considering factors such as the customer’s creditworthiness, historical payment experience and the age of the outstanding balance. Changes to expected credit losses during the period are included in Credit loss expense in the Company’s unaudited condensed consolidated statements of operations and comprehensive income (loss). After concluding that a reserved accounts receivable is no longer collectible, the Company reduces both the gross receivable and the allowance for credit losses.
The Falcon’s Creative Group segment has
significant revenue concentration associated with a few customers. The Falcon’s Creative Group segment is now comprised of the
Company’s retained equity method investment in FCG. FCG revenue continues to depend on one customer, QIC. FCG had
The Company had one customer with revenue greater
than 10% of total revenue for the three months ended June 30, 2024, approximately $
The Company had one customer with revenues greater
than 10% of total revenue, approximately $
Accounts receivable, net balances with this one
customer totaled less than $
Recently issued accounting standards
Recently issued accounting standards not yet adopted as of June 30, 2024
November 27, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Improvements to Reportable Segment Disclosures.” This ASU requires additional reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. In addition, the ASU enhances interim disclosure requirements effectively making the current annual requirements a requirement for interim reporting. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating these new disclosure requirements.
8
On December 14, 2023, the FASB issued Accounting Standards Update 2023-09 entitled Improvements to Income Tax Disclosures (ASU 2023-09), which is primarily applicable to public companies and requires a significant expansion of the granularity of the income tax rate reconciliation as well as an expansion of other income tax disclosures. ASU 2023-09 requires a company to disclose specific income tax categories within the rate reconciliation table and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate. There are also additional disclosures related to income taxes paid disaggregated by jurisdictions, and to income taxes paid. The ASU is effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of adoption of ASU 2023-09 on its consolidated financial statements and disclosures.
In March 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-01, “Scope Application of Profits Interest and Similar Awards”. This ASU demonstrates how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether profits interest and similar awards should be accounted for in accordance with Topic 718, Compensation-Stock Compensation. The amendments in this update related to the scope application issue apply to all reporting entities that account for profits interest awards as compensation to employees or non-employees in return for goods or services. For public business entities, this ASU is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2025, and interim periods within those annual periods. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company evaluated the effect of this update on the Company’s financial statements and anticipates no material impact to the consolidated financial statements when adopted in the fiscal year beginning 2025.
In March 2024, the FASB issued ASU 2024-02, “Codification Improvements-Amendments to Remove References to the Concepts Statements”. The amendments in this Update affect a variety of Topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance. This update contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior statements to provide guidance in certain topical areas. This ASU is effective for public business entities for fiscal years beginning after December 15, 2024. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2025. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company evaluated the effect of this update on the Company’s financial statements and anticipates no material impact to the consolidated financial statements when adopted in the fiscal year beginning 2025.
3. | Revenue |
As of July 27, 2023, FCG was deconsolidated and accounted for as an equity method investment in the Company’s unaudited condensed consolidated financial statements. The unaudited condensed consolidated statements of operations and comprehensive income (loss) therefore does not include activity related to FCG after deconsolidation during the six months ended June 30, 2024, and includes six months of activity related to FCG prior to deconsolidation during the six months ended June 30, 2023. Prior to deconsolidation, FCG’s operations generated a majority of the Company’s consolidated revenue and contract asset and liability balances. See total revenues of Falcon’s Creative Group, LLC under Note 4 – Investments and advances to equity method investments.
9
For the three months ended June 30 | For the six months ended June 30 | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Services transferred over time: | ||||||||||||||||
Design and project management services | $ | $ | $ | $ | ||||||||||||
Media production services | ||||||||||||||||
Attraction hardware and turnkey sales | ||||||||||||||||
Other | ||||||||||||||||
Total revenue from services transferred over time | $ | $ | $ | $ | ||||||||||||
Services transferred at a point in time: | ||||||||||||||||
Digital media licenses | $ | $ | $ | $ | ||||||||||||
Total revenue from services transferred at a point in time | $ | $ | $ | $ | ||||||||||||
Total revenue | $ | $ | $ | $ |
In March 2023, the Company licensed the right
to use Ride Media Content to Sierra Parima. See Note 7– Related party transactions for further discussion. After the deconsolidation
of FCG, the Company recognizes related party revenue for corporate shared service support provided to FCG. Total related party revenues
from services provided to our equity method investments were $
As of | ||||||||
June 30, 2024 | December 31, 2023 | |||||||
Related party | $ | $ | ||||||
Other | ||||||||
Total | $ | $ |
Revenue recognized for the six months ended
June 30, 2023 that was included in the contract liability balance as of December 31, 2022 was $
Geographic information
For the three months ended June 30 | For the six months ended June 30 | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Saudi Arabia | $ | $ | $ | $ | ||||||||||||
Caribbean | ||||||||||||||||
USA | ||||||||||||||||
Hong Kong | ||||||||||||||||
Other | ||||||||||||||||
Total revenue | $ | $ | $ | $ |
10
Destinations Operations
The Company had $
4. | Investments and advances to equity method investments |
The Company accounts for its investments in unconsolidated joint ventures using the equity method of accounting. The Company’s joint ventures are as follows:
i) | Falcon’s Creative Group |
As of July 27, 2023, FCG was deconsolidated and
accounted for as an equity method investment in the Company’s unaudited condensed consolidated financial statements. As of July
27, 2023, the Company recorded the investment in FCG at fair value, which was determined to be $
As described in Note 1, the LLCA contains contractual provisions regarding
the distribution of FCG’s income or loss. Pursuant to these provisions, QIC is entitled to a redemption amount of the initial $
ii) | PDP |
PDP is an unconsolidated joint venture with Meliá
Hotels International, S.A. (“Meliá Group”) for the development and operation of hotel resorts and theme parks. The
Company has
iii) | Sierra Parima |
Sierra Parima is an equity method investment
with Meliá Group focused on the development and operation of hotel resorts and theme parks. The Company has
Full Impairment of Investment in Sierra Parima
Katmandu Park DR completed construction and opened to visitors in early 2023. Although various operational challenges encountered upon opening were resolved, Katmandu Park DR visitor levels were below management’s expectations. Melia and the Company jointly decided to wind down operations and are evaluating avenues for potential liquidation or sale of the property. On March 7, 2024, Katmandu Park DR was closed to visitors.
As of December 31, 2023, equity investment in Sierra Parima was deemed to be other-than-temporarily impaired. The Company estimated the fair value of its investment in Sierra Parima utilizing a discounted cash flow analysis and supported by a market multiples approach. The impairment is the result of management’s estimates and assumptions regarding the likelihood of certain outcomes related to various liquidation and sale scenarios and pending legal matters, the timing of which remains uncertain. These estimates were determined primarily using significant unobservable inputs (Level 3). The estimates that the Company makes with respect to its equity method investment are based upon assumptions that management believes are reasonable, and the impact of variations in these estimates or the underlying assumptions could be material.
Based on the estimated sale or liquidation proceeds from Sierra Parima, and Sierra Parima’s outstanding debts remaining to be settled, the fair value of the Company’s investment in Sierra Parima was determined to be
. There are no other liquidity arrangements, guarantees or other financial commitments between the Company and Sierra Parima. The Company is not committed to provide any additional funding as of June 30, 2024. Any future capital fundings will be discretionary.
11
iv) | Karnival |
On November 2, 2021, the Company entered into
a joint venture agreement to acquire a
As of | ||||||||
June 30, 2024 | December 31, 2023 | |||||||
FCG | $ | $ | ||||||
PDP | ||||||||
Karnival | ||||||||
$ | $ |
For the three months ended June 30 | For the six months ended June 30 | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
FCG(1) | $ | $ | $ | $ | ||||||||||||
PDP | ||||||||||||||||
Sierra Parima | ( | ) | ( | ) | ||||||||||||
Karnival | ||||||||||||||||
$ | $ | ( | ) | $ | $ | ( | ) |
(1) |
12
As of June 30, 2024 | ||||||||||||
FCG | PDP | Karnival | ||||||||||
Current assets | $ | $ | $ | |||||||||
Non-current assets | ||||||||||||
Current liabilities | ||||||||||||
Non-current liabilities |
As of December 31, 2023 | ||||||||||||||||
FCG | PDP | Sierra Parima | Karnival | |||||||||||||
Current assets | $ | $ | $ | $ | ||||||||||||
Non-current assets | ||||||||||||||||
Current liabilities | ( | ) | ||||||||||||||
Non-current liabilities |
As of June 30, 2024 | ||||||||
FCG | PDP | |||||||
Assets | $ | $ | ||||||
Liabilities |
As of December 31, 2023 | ||||||||||||
PDP | FCG | Sierra Parima | ||||||||||
Assets | $ | $ | $ | |||||||||
Liabilities |
For the three months ended June 30 | ||||||||||||||||
2024 | 2023 | |||||||||||||||
FCG | PDP | PDP | Sierra Parima | |||||||||||||
Total revenues | $ | $ | $ | $ | ||||||||||||
Income (loss) from operations | ( | ) | ||||||||||||||
Net income (loss) | ( | ) |
For the six months ended June 30 | ||||||||||||||||
2024 | 2023 | |||||||||||||||
FCG | PDP | PDP | Sierra Parima | |||||||||||||
Total revenues | $ | $ | $ | $ | ||||||||||||
Income (loss) from operations | ( | ) | ||||||||||||||
Net income (loss) | ( | ) |
13
The results of operations for Karnival for the three and six months ended June 30, 2024 and 2023 were not material for the periods presented and, as such, not included in the tables above. As of December 31, 2023, the equity investment in Sierra Parima was deemed to be other-than-temporarily impaired, and therefore, not included in the table above.
For the three months ended June 30 | ||||||||||||||||
2024 | 2023 | |||||||||||||||
FCG | PDP | PDP | Sierra Parima | |||||||||||||
Total revenues | $ | $ | $ | $ | ||||||||||||
Total expenses |
For the six months ended June 30 | ||||||||||||||||
2024 | 2023 | |||||||||||||||
FCG | PDP | PDP | Sierra Parima | |||||||||||||
Total revenues | $ | $ | $ | $ | ||||||||||||
Total expenses |
5. | Accrued expenses and other current liabilities |
As of | ||||||||
June 30, 2024 | December 31, 2023 | |||||||
Audit and professional fees | $ | $ | ||||||
Excise tax payable on FAST II stock redemptions | ||||||||
Accrued payroll and related expenses | ||||||||
Accrued interest | ||||||||
Demand note payable | ||||||||
Short-term advance from affiliate | ||||||||
Other | ||||||||
$ | $ |
Accrued expenses and other current liabilities
with related parties were $
14
6. | Long-term debt and borrowing arrangements |
As of June 30, 2024 | Interest Rate | As of December 31, 2023 | Interest Rate | |||||||||||||
$10 million revolving credit arrangement – related party (due December 2026) | $ | % | $ | % | ||||||||||||
€1.5 million term loan (due April 2026) | % | % | ||||||||||||||
$12.785 million term loan – related party (due December 2026) | % | % | ||||||||||||||
€7 million term loan (due April 2027) | % | % | ||||||||||||||
$7.25 million term loan – related party (due December 2027) | % | % | ||||||||||||||
$1.25 million term loan – (due March 31, 2025) | % | |||||||||||||||
$7.22 million term loan – related party (due March 31, 2025) | % | |||||||||||||||
Less: Current portion of long-term debt and short-term debt | ||||||||||||||||
$ | $ |
Available Capacity | ||||
$ | $ |
$10 million revolving credit arrangement
In December 2021, the Company entered into
a $
€1.5 million term loan
In April 2020, the Company entered into
a six-year €
$12.785 million term loan
In December 2021, the Company entered into
a five-year $
€7 million term loan
In March 2019, the Company entered into
a seven-year €
$7.25 million Term Loan
In December 2022, the Company entered into
a five-year $
15
$1.25 million Term Loan
In March 2024, Falcon’s Opco entered into
a one-year $
Following the amendment above, Universal Kat assigned the entire loan to FAST Sponsor II, LLC (“FAST II Sponsor”), in exchange for the sale by FAST II Sponsor to Universal Kat of Class A shares of Falcon’s Opco held by FAST II Sponsor. Falcon’s Opco provided written consent on the assignment. This transfer was between FAST II and Universal Kat, and therefore there was no impact to the Company’s financial statements as a result of this transfer. There were no additional changes to the loan agreement terms due to this reassignment.
$7.221 million Term Loan
In March 2024, Falcon’s Opco entered into
a one-year $
Following the amendment above, Katmandu Ventures
assigned $
7. | Related-party transactions |
Related party notes
In January 2023, the Company loaned $
Accrued expenses and other current liabilities
The Company has a short-term advance from PDP
to Fun Stuff, S.L., a wholly-owned subsidiary of Falcon’s Opco (“Fun Stuff”) for $
Related party debt
The Company has various long-term debt instruments
with Infinite Acquisitions with accrued interest of $
Services provided to equity method investments
FCG has been contracted for various design, master planning, attraction design, hardware sales and commercial services for themed entertainment offerings by the Company’s equity method investments. As of July 27, 2023 FCG has been deconsolidated and is also now accounted for as an equity method investment. Destinations Operations recognizes management and incentive fees from the Company’s equity method investments. See Note 3 – Revenue.
16
Intercompany Services Agreement between FCG and the Company
In conjunction with the closing of the Subscription
Agreement described in Note 1 – Description of business and basis of presentation, the Intercompany Services Agreement was established
between FCG and the Company. Accounts receivable balances due from FCG to the Company of less than $
FCG also provides marketing, R&D, and other
services to FBG. The Company does not owe anything to FCG related to these services as of June 30, 2024, and less than $
Digital media license revenue and related receivable with equity method investment
During March 2023, the Company licensed the right
to use digital ride media content to Sierra Parima. The Company recognized digital media license revenue of $
On March 7, 2024, Sierra Parima’s Katmandu Park DR was closed to visitors. Development plans for future parks, where this digital media license would have been deployed, have been deferred indefinitely, and the Company does not expect any future revenue from this digital media license in the near term.
Subscription agreement with Infinite Acquisitions
On October 4, 2023, in connection with the Business
Combination, Infinite Acquisitions irrevocably committed to fund an additional approximately $
$7.221 million Term Loan
In April 2024, Falcon’s Opco entered into
a one-year $
8. | Income taxes |
The tax provisions for the three and six months
ended June 30, 2024 and 2023 were computed using the estimated effective tax rates applicable to the taxable jurisdictions for the full
year. The Company’s tax rate is subject to management’s quarterly review and revision, as necessary. The Company’s
effective tax rate was
The Company records a provision or benefit for
income taxes on pre-tax income or loss based on its estimated effective tax rate for the year. Given the Company’s uncertainty
regarding future taxable income, the Company maintains a full valuation allowance on its deferred tax assets. The Company did not record
any income tax benefit for the three months ended June 30, 2024, and it recorded an income tax benefit of less than $
9. | Tax Receivable Agreement |
On October 6, 2023, the partners of Falcon’s
Opco at the time of the Acquisition Merger (“Exchange TRA Holders”), along with the Company (collectively the “TRA
Holders”), entered into a Tax Receivable Agreement with Falcon’s Opco that provides for the payment by Falcon’s Opco
to the TRA Holders of
17
During the six months ended June 30, 2024, the Company did not recognize an increase to its net deferred tax assets due to the full valuation allowance.
10. | Commitments and contingencies |
Litigation — The
Company is named from time to time as a party to lawsuits and other types of legal proceedings and claims in the normal course of business.
As previously disclosed in the Company’s Annual Report and its Current Report on Form 8-K filed with the SEC on May 6, 2024, and
further disclosed in Form 10-Q filed on May 16, 2024, a lawsuit was filed against the Company by Guggenheim Securities, LLC (“Guggenheim”)
on March 27, 2024 in which Guggenheim alleges that the Company owes certain fees and expenses of $
Indemnification — In the ordinary course of business, the Company enters into certain agreements that provide for indemnification by the Company of varying scope and terms to customers, vendors, directors, officers, employees, and other parties with respect to certain matters. Indemnification includes losses from breach of such agreements, services provided by the Company, or third-party intellectual property infringement claims. These indemnities may survive termination of the underlying agreement and the maximum potential amount of future indemnification payments, in some circumstances, are not subject to a cap. As of June 30, 2024 and December 31, 2023, there were no known events or circumstances that have resulted in a material indemnification liability.
Commitments — As
of January 1, 2024 the Company has entered into a commitment with The Hershey Licensing Company (“Hershey”) to develop venues
themed with Hershey’s licensed trademarks and intellectual property in at least four locations by 2028. For each location, the
Company is required to pay a one-time $
As of June 30, 2024 the Company has unfunded
commitments to its unconsolidated joint venture Karnival of $
11. | Segment information |
The Company has
18
Falcon’s Creative Group provides master planning, media, interactive and audio production, project management, experiential technology and attraction hardware development services and attraction hardware sales on a work-for-hire model. Pursuant to the Subscription Agreement, Falcon’s Creative Group is now deconsolidated effective July 27, 2023, and accounted for as an equity method investment in the Company’s unaudited condensed consolidated financial statements. The operating segment still remains a reportable segment for the Company.
The Company’s equity method investments, PDP and Sierra Parima (before Katmandu Park DR was closed to visitors on March 7, 2024), develop, own and operate hotels, theme parks and retail, dining and entertainment venues. Destinations Operations provides development and management services for themed entertainment to PDP, Sierra Parima and new development opportunities, including our investment in Karnival. The Company collectively refers to the Destination Operations, PDP and Sierra Parima as Falcon’s Beyond Destinations.
Three months ended June 30, 2024 | ||||||||||||||||||||||||||||
Falcon’s | Falcon’s Beyond Destinations | Falcons | Unallocated | |||||||||||||||||||||||||
Creative Group | Destination Operations | PDP | Beyond Brands | Intersegment eliminations | corporate overhead | Total | ||||||||||||||||||||||
Revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Share of gain or (loss) from equity method investments | ||||||||||||||||||||||||||||
Segment income (loss) from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
Depreciation and amortization expense | ( | ) | ||||||||||||||||||||||||||
Interest expense | ( | ) | ||||||||||||||||||||||||||
Interest income | ||||||||||||||||||||||||||||
Change in fair value of warrant liabilities | ( | ) | ||||||||||||||||||||||||||
Change in fair value of earnout liabilities | ||||||||||||||||||||||||||||
Foreign exchange transaction loss | ( | ) | ||||||||||||||||||||||||||
Net income | $ |
Three months ended June 30, 2023 | ||||||||||||||||||||||||||||||||
Falcon’s | Falcon’s Beyond Destinations | Falcons | Unallocated | |||||||||||||||||||||||||||||
Creative Group | Destination Operations | PDP | Sierra Parima | Beyond Brands | Intersegment eliminations | corporate overhead | Total | |||||||||||||||||||||||||
Revenue | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||
Share of gain or (loss) from equity method investments | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
Segment income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Depreciation and amortization expense | ( | ) | ||||||||||||||||||||||||||||||
Interest expense | ( | ) | ||||||||||||||||||||||||||||||
Interest income | ||||||||||||||||||||||||||||||||
Foreign exchange transaction loss | ( | ) | ||||||||||||||||||||||||||||||
Income tax benefit | ||||||||||||||||||||||||||||||||
Net loss | $ | ( | ) |
19
Six months ended June 30, 2024 | ||||||||||||||||||||||||||||
Falcon’s | Falcon’s Beyond Destinations | Falcons | Unallocated | |||||||||||||||||||||||||
Creative Group | Destination Operations | PDP | Beyond Brands | Intersegment eliminations | corporate overhead | Total | ||||||||||||||||||||||
Revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Share of gain from equity method investments | ||||||||||||||||||||||||||||
Segment income (loss) from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
Depreciation and amortization expense | ( | ) | ||||||||||||||||||||||||||
Loss on sale of assets | ( | ) | ||||||||||||||||||||||||||
Interest expense | ( | ) | ||||||||||||||||||||||||||
Interest income | ||||||||||||||||||||||||||||
Change in fair value of warrant liabilities | ( | ) | ||||||||||||||||||||||||||
Change in fair value of earnout liabilities | ||||||||||||||||||||||||||||
Foreign exchange transaction loss | ( | ) | ||||||||||||||||||||||||||
Income tax benefit | ||||||||||||||||||||||||||||
Net income | $ |
Six months ended June 30, 2023 | ||||||||||||||||||||||||||||||||
Falcon’s | Falcon’s Beyond Destinations | Falcons | Unallocated | |||||||||||||||||||||||||||||
Creative Group | Destination Operations | PDP | Sierra Parima | Beyond Brands | Intersegment eliminations | corporate overhead | Total | |||||||||||||||||||||||||
Revenue | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||
Share of gain or (loss) from equity method investments | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
Segment income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Depreciation and amortization expense | ( | ) | ||||||||||||||||||||||||||||||
Interest expense | ( | ) | ||||||||||||||||||||||||||||||
Other income | ||||||||||||||||||||||||||||||||
Foreign exchange transaction gain | ||||||||||||||||||||||||||||||||
Income tax benefit | ||||||||||||||||||||||||||||||||
Net loss | $ | ( | ) |
20
12. | Fair value measurement |
June 30, 2024 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities: | ||||||||||||||||
Warrant liabilities | $ | $ | $ | $ | ||||||||||||
Earnout liabilities | ||||||||||||||||
$ | $ | $ | $ |
December 31, 2023 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities: | ||||||||||||||||
Warrant liabilities | $ | $ | $ | |||||||||||||
Earnout liabilities | ||||||||||||||||
$ | $ | $ |
The warrant liability fair value is based on quoted market prices in active markets, and therefore is classified within Level 1 of the fair value hierarchy. The earnouts based on revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) as well as the earnouts based on the Company’s stock price have been classified within Level 3 of the hierarchy as the fair value is derived using a Monte Carlo simulation analysis in a risk neutral framework, which uses a combination of observable (Level 2) and unobservable (Level 3) inputs. Key estimates and assumptions impacting the fair value measurement include the Company’s revenue and EBITDA forecasts as well as the assumptions listed in the tables below. The fair value measurement associated with the earnout liability is highly sensitive to changes in stock price and forecasted amounts for revenue through 2024. Any changes to stock price and forecasted revenues in 2024 will result in remeasurement of the earnout liability and could result in material gains or losses being recognized in the condensed consolidated statement of operations and comprehensive income (loss).
The Company estimated the fair value per share of the underlying common stock based, in part, on the results of third-party valuations and additional factors deemed relevant. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the earnouts. The Company has not paid dividends and does not intend to do so in the foreseeable future, based on the fact that prior to the Business Combination, the Company had never paid or declared dividends and does not intend to do so in the foreseeable future. Prior to the Business Combination, the Company was a private company and lacked company-specific historical and implied volatility information of its stock, and as such, the expected stock volatility was based on the historical volatility of publicly traded peer companies for a term equal to the remaining expected term of the warrants.
21
June 30, 2024 | December 31, 2023 | |||||||
Current stock price | ||||||||
Earnout period – beginning | ||||||||
Earnout period – end | ||||||||
Equity volatility, EBITDA volatility | % | % | ||||||
Operational leverage ratio | % | % | ||||||
Revenue volatility | % | % | ||||||
Revenue/stock price correlation | % | % | ||||||
EBITDA/stock price correlation | % | % | ||||||
Revenue discount rate | % | % | ||||||
Dividend yield | % | % |
June 30, 2024 | December 31, 2023 | |||||||
Term (years) | ||||||||
Volatility | % | % | ||||||
Risk-free rate | % | % | ||||||
Dividend yield | % | % | ||||||
Current stock price |
Earnout Liabilities | ||||
Balance as of December 31, 2023 | $ | |||
Issuances | ||||
Change in fair value | ( | ) | ||
Balance as of March 31, 2024 | $ | |||
Release of earnout shares | ( | ) | ||
Change in fair value | ( | ) | ||
Balance as of June 30, 2024 | $ |
There were no transfers between Level 1 and Level 2, nor into and out of Level 3, during the periods presented.
13. | Equity and net loss per share |
Authorized Capitalization
The total amount of the Company’s authorized
capital stock consists of (a)
Common Stock
The rights of the holders of Class A Common Stock and Class B Common Stock have various terms, as follows:
Each holder of common stock is entitled to one vote for each share of common stock held of record by such holder on all matters on which stockholders generally are entitled to vote. Shares of Class B Common Stock carry the same voting rights as shares of Class A Common Stock but have no economic terms. Class B Common Stock is exchangeable, along with common units of Falcon’s Opco, into Class A Common Stock.
22
Preferred Stock
There are no outstanding shares of preferred stock as of June 30, 2024 or December 31, 2023.
For three months ended | For six months ended | |||||||
(amounts in thousands, except number of shares and amount per share) | June 30, 2024 | June 30, 2024 | ||||||
Numerator: | ||||||||
Net income | ||||||||
Net income attributable to noncontrolling interests | ||||||||
Net income available to Class A common stockholders | ||||||||
Adjustment for dilutive earnout units at Falcon’s Beyond Global, LLC | ( | ) | ( | ) | ||||
Dilutive net income attributable to Class A common stockholders | ||||||||
Denominator: | ||||||||
Weighted average Class A common stock outstanding – basic | ||||||||
Adjustment for dilutive Class A earnout shares | ||||||||
Weighted average Class A common stock outstanding – diluted | ||||||||
Net income per Class A common share – basic: | ||||||||
Net income per Class A common share – diluted: |
The Company applies the treasury stock method
to the Warrants and restricted stock units (“RSUs”), the contingently issuable shares method to the Earnout shares, and the
if-converted method for the Exchangeable noncontrolling interests, if dilutive.
For the three months ended | For the six months ended | |||||||
June 30, 2024 | June 30, 2024 | |||||||
Class A earnout shares | ||||||||
Class B earnout shares | ||||||||
Warrants to purchase common stock | ||||||||
RSUs |
23
14. | Stock warrants |
As
of June 30, 2024, there are
The
Company remeasures the fair value of the warrants based on their quoted market price. For the three and six months ended June 30, 2024,
the Company recognized $
Year of Issue | Number of Shares Issuable | Exercise Price | Expiration Date | Classification | ||||||||
2023 |
15. | Earnouts |
At
the closing of the Business Combination, the Company issued
On
May 10, 2024, shareholders owning Earnout Shares were notified of the Earnout Shares forfeited for the 2023 performance awards, based
on the issued Annual Report in the Form 10-K.
Earnout
Shares were deposited into escrow at the Closing and will be earned, released and delivered upon satisfaction of certain milestones related
to the EBITDA of the Company and the gross revenue of the Company during periods between July 1, 2023 and December 31, 2024 and the volume
weighted average closing sale price of the Company’s shares of Class A Common Stock during the five-year period beginning on the
one-year anniversary of the Acquisition Merger and ending on the six-year anniversary of the Acquisition Merger. During the three and
six months ended June 30, 2024,
The Earnout Shares are classified as a liability and measured at fair value, with changes in fair value included in the unaudited condensed consolidated statements of operations and comprehensive income (loss).
The
fair value of the earnout liability was $
24
16. | Share-Based Compensation |
The
Company adopted a share-based compensation plan (the “Plan”) under which
The
RSUs do not provide the grantee with an option to choose settlement in cash or stock. The holder of the RSU shall not be, nor have any
of the rights or privileges of, a shareholder of the Company, including, without limitation, voting rights and rights to dividends, in
respect to the RSUs and any shares underlying the RSUs and deliverable under the Plan unless and until such shares shall have been issued
by the Company and held of record by such holder.
Restricted Stock Units | ||||
Nonvested at January 1, 2024 | ||||
Granted | ||||
Forfeited | ||||
Vested | ||||
Nonvested at June 30, 2024 | ||||
Vested at June 30, 2024 |
The
RSUs under the Plan will vest over a
Vesting Date for RSUs granted on December 21, 2023 | RSU
Vested (% of total) | |||
December 21, 2024 | % | |||
December 21, 2025 | % | |||
December 21, 2026 | % | |||
December 21, 2027 | % | |||
December 21, 2028 | % |
Vesting Date for RSUs granted on May 21, 2024 | RSU
Vested (% of total) | |||
May 21, 2025 | % | |||
May 21, 2026 | % | |||
May 21, 2027 | % | |||
May 21, 2028 | % | |||
May 21, 2029 | % |
Vesting Date for RSUs granted on June 25, 2024 | RSU
Vested (% of total) | |||
June 25, 2025 | % | |||
June 25, 2026 | % | |||
June 25, 2027 | % | |||
June 25, 2028 | % | |||
June 25, 2029 | % |
The Company elected the straight-line attribution method to account for the compensation cost over the five-year requisite service period for the entire award, as long as the participant continues to provide service to the Company. Forfeitures are accounted for at the time the forfeiture occurs.
The
Company recognized stock-based compensation expense of $
17. | Subsequent events |
Subsequent
to June 30, 2024, Infinite Acquisitions has loaned an additional $
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations of the Company is provided to supplement the unaudited condensed consolidated financial statements and the accompanying notes of the Company as of and for the three and six months ended June 30, 2024, and 2023, included elsewhere in this Quarterly Report. We intend for this discussion to provide the reader with information to assist in understanding the Company’s unaudited condensed consolidated financial statements and the accompanying notes, the changes in those financial statements and the accompanying notes from period to period along with the primary factors that accounted for those changes. Certain information contained in this management’s discussion and analysis includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. Please see “Cautionary Note Regarding Forward-Looking Statements,” in this Quarterly Report.
Overview of Business
The Company operates at the intersection of three potential high-growth business opportunities: content, technology, and experiences. We aim to engage, inspire and entertain people through our creativity and innovation, and to connect people with brands, with each other, and with themselves through the combination of digital and physical experiences. At the core of our business is brand creation and optimization, facilitated by our multi-disciplinary creative teams. The Company has three business divisions, which are conducted through five operating segments.
Our business divisions complement each other as we pursue our growth strategy: (i) the Company’s Falcon’s Creative Group division (“FCG”) creates master plans, designs attractions and experiential entertainment, and produces content, interactives and software; (ii) the Company’s Falcon’s Beyond Destinations division (“FBD”), consisting of Producciones de Parques, S.L., a joint venture between Falcon’s and Meliá Hotels International, S.A. (“Meliá”) (“PDP”), Sierra Parima S.A.S., a joint venture between Falcon’s and Meliá (“Sierra Parima”) (Sierra Parima’s Katmandu Park DR was closed to visitors on March 7, 2024), and Destinations Operations, develops a diverse range of entertainment experiences using both Falcon’s owned and third party licensed intellectual property, spanning location-based entertainment, dining, and retail; and (iii) the Company’s Falcon’s Beyond Brands division (“FBB”) endeavors to bring brands and intellectual property to life through animation, movies, licensing and merchandising, gaming, as well as ride and technology sales.
We recently went public and listed our shares on Nasdaq on October 6, 2023 in connection with a Business Combination with FAST Acquisition Corp. II.
Our unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”). All amounts are shown in thousands of U.S. dollars unless otherwise stated.
The following reflects our results of operations for the three and six months ended June 30, 2024 and June 30, 2023.
Overview of FCG
Since July 27, 2023, FCG has been deconsolidated and accounted for as an equity method investment in the Company’s unaudited condensed consolidated financial statements. FCG generated a majority of the Company’s consolidated revenue and contract asset and liability balances. Any discussions related to results, operations, and accounting policies associated with FCG are referring to the periods prior to deconsolidation. After deconsolidation, as of July 27, 2023, FCG’s results of operations are included in the Company’s consolidated statement of operations and comprehensive income (loss) as a component of Share of gain (loss) from equity method investments.
26
On July 27, 2023, pursuant to the Subscription Agreement (the “Subscription Agreement”) by and between FCG and QIC Delaware, Inc., a Delaware corporation and an affiliate of Qiddiya Investment Company (“QIC”), QIC agreed to invest $30.0 million in FCG (the “Strategic Investment”). On July 27, 2023, in connection with the Strategic Investment, FCG received a net closing payment from QIC of $17.5 million (net of $0.5 million in reimbursements). In addition, in March 2024, the Company established the Falcon’s Beyond Global, LLC Long-Term Incentive Plan, effective as of January 1, 2024 (the “Opco Incentive Plan”) to allow Falcon’s Opco to reward certain eligible employees of Falcon’s Opco and its subsidiaries, including FCG. As a result of establishing the Opco Incentive Plan, in April 2024, QIC released the remaining $12.0 million investment into FCG pursuant to the terms of the Subscription Agreement. These funds are to be used exclusively by FCG to fund its operations and growth and cannot be used to satisfy the commitments of other segments.
Liquidity and Going Concern
The Company has been engaged in expanding its operations through its equity method investments, developing new product offerings, raising capital and recruiting personnel. The Company has incurred a loss from operations, an accumulated deficit, and negative cash flows from operating activities for the three and six months ended June 30, 2024. Accordingly, as of August 13, 2024, the Company performed an evaluation of its ability to continue as a going concern through at least twelve months from the date of the issuance of the interim unaudited condensed consolidated financial statements.
The Company’s development plans, and investments have been funded by a combination of debt and committed equity contributions from its stockholders, and the Company is reliant upon its stockholders and third parties for obtaining additional financing through debt or equity raises to fund its working capital needs, contractual commitments, and expansion plans. As of June 30, 2024, the Company has accrued material amounts of expenses in relation to its external advisors, accountants and legal costs in relation to the Business Combination. The Company has a working capital deficiency of ($24.6) million which excludes non-cash earnout liability balance and debt that is maturing in the next 12 months as of June 30, 2024. Additionally, the Company has $15.7 million in debt that is maturing in the next 12 months. The Company does not currently have sufficient cash or liquidity to pay liabilities that are owed or are maturing at this time. There can be no assurance that additional capital or financing raises, if completed, will provide the necessary funding for the next twelve months from the date of this Quarterly Report. This Quarterly Report does not reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
In April 2024, Falcon’s Opco entered into a term loan agreement with Katmandu Ventures, LLC (“Katmandu Ventures”), a greater than 10% shareholder of the Company, pursuant to which Katmandu Ventures made a loan to Falcon’s Opco in the principal amount of approximately $7.2 million, and a term loan agreement with Universal Kat Holdings, LLC (“Universal Kat”) pursuant to which Universal Kat has made a loan to Falcon’s Opco in the principal amount of approximately $1.3 million. Such term loans bear interest at a rate of 8.88% per annum, payable quarterly in arrears, and will mature on March 31, 2025. Approximately $5.4 million of the proceeds of the term loans was used to repay a portion of the outstanding loans under the Infinite Acquisitions revolving credit arrangement.
On June 14, 2024, Falcon’s Opco entered into a loan amendment with Katmandu Ventures and Universal Kat to defer the first interest and principal payment from June 30, 2024 to the earlier of 1) September 30, 2024; 2) within five business days after the date upon which Falcon’s Opco receives a distribution of funds from Producciones De Parques, S.L. as result of an asset sale transaction; or 3) within five business days after the date upon which Falcon’s Opco receives cash proceeds as the result of a debt or equity fundraising transaction with a third party resulting in net proceeds of $20 million or more.
Following the amendments above, Universal Kat assigned its entire loan, and Katmandu Ventures assigned $6.3 million of its loan, to FAST Sponsor II, LLC (“FAST II Sponsor”), in exchange for the sale of Class A shares of Falcon’s Opco held by FAST II Sponsor. Falcon’s Opco provided written consent on the assignment. This transfer was between FAST II Sponsor and Katmandu Ventures and Universal Kat, respectively. There were no additional changes to the loan agreement terms due to this assignment.
Results of Operations
The following comparisons are historical results and are not indicative of future results, which could differ materially from the historical financial information presented.
27
Three months ended June 30, 2024, compared to three months ended June 30, 2023
The results of operations for the three months ended June 30, 2023 include activity related to FCG prior to deconsolidation on July 27, 2023. Any discussions related to results, operations, and accounting policies associated with FCG are referring to the periods prior to deconsolidation. See Deconsolidation of Falcon’s Creative Group LLC under Note 1 – Description of business and basis of presentation and Note 4 – Investments and advances to equity method investments in the Company’s unaudited condensed consolidated financial statements.
The following table summarizes our results of operations for the following periods:
Three
months ended June 30, 2024 | Three
months ended June 30, 2023 | |||||||
Revenue | $ | 1,798 | $ | 5,322 | ||||
Expenses: | ||||||||
Project design and build expense | — | 3,141 | ||||||
Selling, general and administrative expense | 5,308 | 9,151 | ||||||
Research and development | 10 | 439 | ||||||
Depreciation and amortization expense | 2 | 174 | ||||||
Loss from operations | (3,522 | ) | (7,583 | ) | ||||
Share of gain or (loss) from equity method investments | 1,720 | (856 | ) | |||||
Interest expense | (438 | ) | (295 | ) | ||||
Interest income | 3 | 45 | ||||||
Change in fair value of warrant liabilities | (2,599 | ) | — | |||||
Change in fair value of earnout liabilities | 13,006 | — | ||||||
Foreign exchange transaction gain (loss) | (142 | ) | (129 | ) | ||||
Net income (loss) | $ | 8,028 | $ | (8,818 | ) | |||
Income tax benefit | — | 16 | ||||||
Net income (loss) | $ | 8,028 | $ | (8,802 | ) |
Revenue
Three
months ended June 30, 2024 | Three
months ended June 30, 2023 | |||||||
Services transferred over time: | ||||||||
Design and project management services | $ | — | $ | 3,568 | ||||
Media production services | — | 1,505 | ||||||
Attraction hardware and turnkey sales | — | 139 | ||||||
Other | 1,798 | 110 | ||||||
Total revenue from services transferred over time | 1,798 | 5,322 | ||||||
Services transferred at a point in time: | ||||||||
Digital media licenses | ||||||||
Total revenue from services transferred at a point in time | — | — | ||||||
Total revenue | $ | 1,798 | $ | 5,322 |
Revenue decreased by $3.5 million to $1.8 million for the three months ended June 30, 2024, compared to $5.3 million for the three months ended June 30, 2023. The decrease was primarily attributable to a $5.2 million decrease in revenue relating to services provided by FCG during the three-month period ended June 30, 2023 which have since been deconsolidated by FBG. As a result of the deconsolidation, there was a $1.7 million increase in revenue associated with shared services provided by FBG to FCG during the three-month period ended June 30, 2024.
28
The Company’s investment in FCG is accounted for under the equity method and, as such, FCG project management and design revenue and related expenses are no longer included in the results of operations subsequent to the deconsolidation of FCG on July 27, 2023.
Selling, general and administrative expense
Selling, general and administrative expense decreased by $3.9 million to $5.3 million for the three months ended June 30, 2024, compared to $9.2 million for the three months ended June 30, 2023. The decrease was primarily related to a $2.9 million decrease in audit fees and professional services fees, a $0.7 million decrease in office and administrative expenses, and a $0.6 million decrease in sales and marketing expenses due to the deconsolidation of FCG. These decreases were partially offset by incremental shared services headcount to support the expansion of the business and for public company related costs, representing a $0.3 million increase to payroll, payroll taxes, and benefits.
Research and Development
Research and development expense decreased by $0.4 million to less than $0.1 million for the three months ended June 30, 2024, compared to $0.4 million for the three months ended June 30, 2023 due to completion of FBB division projects in 2023. There were no FBB research and development projects in the three-month period ended June 30, 2024.
Depreciation and amortization expense
Depreciation and amortization expense decreased by $0.2 million to less than $0.1 million for the three months ended June 30, 2024, compared to $0.2 million for three months ended June 30, 2023. The majority of fixed assets and intangible assets were deconsolidated as part of FCG on July 27, 2023, and therefore, depreciation and amortization related to those fixed assets and intangible assets was not included in the three months ended June 30, 2024.
Share of gain or (loss) from equity method investments
Three
months ended June 30, 2024 | Three
months ended June 30, 2023 | |||||||
PDP | $ | 656 | $ | 284 | ||||
Sierra Parima | — | (1,266 | ) | |||||
Karnival | 76 | 126 | ||||||
FCG | 988 | — | ||||||
Total share of gain or (loss) from equity method investments | $ | 1,720 | $ | (856 | ) |
Share of gain from equity method investments increased by $2.6 million to $1.7 million for the three months ended June 30, 2024, compared to a ($0.9) million loss for the three months ended June 30, 2023. The change in gain or loss from equity method investments was driven by:
● | FCG: Share of net income from FCG was $1.0 million for the three months ended June 30, 2024 which was consolidated by the Company during the three months ended June 30, 2023. |
FCG recorded revenues of $15.7 million in the three-month period ended June 30, 2024 representing an increase of $10.5 million or 202% over the corresponding period of 2023 when FCG was fully consolidated by the Company. Additionally, as previously announced on January 18, 2024, FCG entered into a consultancy agreement with QIC to provide a Dragon Ball theme park over the course of approximately two years. FCG recognized $11.5 million in revenue relating to this Dragon Ball consultancy agreement during the three months ended June 30, 2024. Operating income of $2.3 million, and net income of $2.5 million were earned during the three months ended June 30, 2024, compared to an operating loss of ($1.1) million and net loss of ($1.1) million for the corresponding period of 2023.
● | The Company recognizes 100% of net income from FCG, less the 9% preferred return to QIC and the amortization of the basis difference of deconsolidation of FCG. FCG net income of $2.5 million for the three months ended June 30, 2024 was reduced by adjustments of ($1.5) million comprised of ($0.7) million in accretion of preference dividend and fees, and ($0.8) million in amortization of basis difference. |
29
● | Sierra Parima: As of December 31, 2023, equity investment in Sierra Parima was deemed to be other-than-temporarily impaired and the fair value of the Company’s investment in Sierra Parima was determined to be zero. Therefore, there was no gain or loss recorded during the three months ended June 30, 2024, compared to a $1.3 million share of net loss during the three months ended June 30, 2023. See Note 4– Investments and advances to equity method investments in the Company’s unaudited condensed consolidated financial statements. |
● | PDP: Share of net income from PDP increased by $0.4 million for the three months ended June 30, 2024, compared to the amount in the corresponding period in 2023, primarily driven by a $0.8 million increase in PDP’s underlying income from operations, offset by a less than ($0.1) million unfavorable change in derivatives, driven by interest rate swaps within the hotel group. The $0.8 million increase in PDP’s income from operations was resulted from a $0.9 million increase in PDP’s revenue, offset by a ($0.1) million increase in its hotel expenses. The Company recognized its 50% share of PDP’s earnings. |
● | Karnival: A less than $0.1 million decrease in share of net income from Karnival for three months ended June 30, 2024. |
Change in fair value of warrant liability
Loss due to change in fair value of warrant liabilities was ($2.6) million for the three months ended June 30, 2024. The warrant liability relates to the Business Combination which occurred after June 30, 2023, therefore there was no such loss during the three months ended June 30, 2023. Changes in the fair value of warrant liabilities are related primarily to changes in share market price.
Change in fair value of earnout liability
Gain due to change in fair value of earnout liability was $13.0 million for the three months ended June 30, 2024, driven by a $7.6 million decrease in the market price of the Company’s stock between March 31, 2024 and April 29, 2024 when the 2023 performance-based awards were remeasured prior to release of shares from escrow, and a $9.1 million decrease from change in assumptions regarding performance expectations in Q4 2024 due to timing of contracts, partially offset by a $(3.7) million increase in the remaining earnout liabilities due to an increase in the market price of the Company’s Class A Common Stock between March 31, 2024 and June 30, 2024. The earnout liability relates to the Business Combination which occurred after June 30, 2023, therefore, there was no such loss during the three months ended June 30, 2023. The valuation of performance-based awards, such as earnouts, is sensitive to revenue, EBITDA, and changes in share market price. As of June 30, 2024, the Company determined the EBITDA threshold was not met.
Foreign exchange transaction loss
Foreign exchange transaction loss was ($0.1) million for both the three months ended June 30, 2024 and June 30, 2023.
Income tax
Income tax benefit was less than $0.1 million for both the three months ended June 30, 2024 and June 30, 2023.
30
Segment Reporting
The following table presents selected information about our segment’s results for the three months ended June 30, 2024, and 2023. Subsequent to FCG’s deconsolidation on July 27, 2023, FCG segment income or loss is comprised of only the Company’s equity method share of FCG’s income or loss:
Three months ended June 30, 2024 | Three months ended June 30, 2023 | |||||||
Revenues: | ||||||||
Falcon’s Creative Group | $ | — | $ | 5,245 | ||||
Destinations Operations | 101 | 106 | ||||||
Falcon’s Beyond Brands | — | 4 | ||||||
Intersegment eliminations | — | (33 | ) | |||||
Unallocated corporate revenue | 1,697 | — | ||||||
Total revenue | 1,798 | 5,322 | ||||||
Segment income (loss) from operations: | ||||||||
Falcon’s Creative Group | 988 | (315 | ) | |||||
Destinations Operations | (339 | ) | (251 | ) | ||||
PDP | 656 | 284 | ||||||
Sierra Parima | — | (1,264 | ) | |||||
Falcon’s Beyond Brands | (794 | ) | (1,223 | ) | ||||
Intersegment eliminations | — | (16 | ) | |||||
Total segment income (loss) from operations | 511 | (2,785 | ) | |||||
Unallocated corporate overhead | (2,309 | ) | (5,480 | ) | ||||
Depreciation and amortization expense | (2 | ) | (174 | ) | ||||
Interest expense | (438 | ) | (295 | ) | ||||
Interest income | 3 | 45 | ||||||
Change in fair value of warrant liabilities | (2,599 | ) | — | |||||
Change in fair value of earnout liabilities | 13,006 | — | ||||||
Foreign exchange transaction loss | (144 | ) | (129 | ) | ||||
Net income (loss) before income taxes | $ | 8,028 | $ | (8,818 | ) | |||
Income tax benefit | — | 16 | ||||||
Net income (loss) | $ | 8,028 | $ | (8,802 | ) |
Total revenue for the three months ended June 30, 2024, decreased by $3.5 million to $1.8 million compared to $5.3 million for the three months ended June 30, 2023, primarily driven by the deconsolidation of FCG on July 27, 2023 since FCG accounted for the majority of the revenue at FBG. This decrease in revenue related to the deconsolidation of FCG is partially offset by an increase in revenue relating to shared services agreement between FBG and FCG. See Deconsolidation of Falcon’s Creative Group LLC under Note 1 – Description of business and basis of presentation.
Total segment income (loss) from operations for the three months ended June 30, 2024, increased by $3.3 million to $0.5 million income compared to ($2.8) million loss for the three months ended June 30, 2023, due to the following:
● | FCG segment income from operations for the three months ended June 30, 2024, increased by $1.3 million to $1.0 million income as compared to loss of ($0.3) million in the three months ended June 30, 2023, primarily as a result of an increase in revenues and improved margins on new long-term contracts. These positive results were partially offset by adjustments of ($1.5) million comprised of ($0.7) million in accretion of preference dividend and fees, and ($0.8) million in amortization of basis difference. |
● | Destinations Operations segment loss from operations was ($0.3) million for both the three months ended June 30, 2024 and June 30, 2023. |
● | PDP segment income for the three months ended June 30, 2024, increased by $0.4 million to $0.7 million from $0.3 million for the three months ended June 30, 2023. PDP’s underlying income from operations increased to $1.6 million for the three months ended June 30, 2024, compared to $0.8 million for the three months ended June 30, 2023. The $0.8 million increase in PDP’s income from operations was driven by a $0.9 million increase in revenue from $10.4 million for the three months ended June 30, 2023 to $11.3 million for the three months ended June 30, 2024, resulted from increases in occupancy and rates at the Mallorca and Tenerife hotel properties, partially offset by a ($0.1) million unfavorable increase in hotel expenses. The favorable change in PDP’s net income due to the increase in the income from operations was further offset by a less than ($0.1) million unfavorable change in derivative income. The Company recognized its 50% share of earnings within the PDP segment. |
31
● | Sierra Parima segment loss for the three months ended June 30, 2024, was $0.0 compared to ($1.3) million for the three months ended June 30, 2023. The park closed in March of 2024 following financial, operational, and infrastructure challenges, closing the segment going forward. There were no segment operations to report for Sierra Parima segment for the three months ended June 30, 2024 since the investment has been fully impaired as of December 31, 2023 and the Company has no further obligation to participate in losses of Sierra Parima. |
● | FBB segment loss from operations for the three months ended June 30, 2024 decreased by $0.4 million to ($0.8) million compared to loss of ($1.2) million for the three months ended June 30, 2023. For the three months ended June 30, 2024, FBB did not have any revenue and incurred selling, general and administrative expenses of $0.8 million, resulting in segment loss of ($0.8) million. For the three months ended June 30, 2023, FBB recorded revenue of less than $0.1 million and recognized $0.8 million of selling, general and administrative expenses and $0.4 million of research and development expense, resulting in a loss of ($1.2) million for FBB for the quarter ended June 30, 2023. |
● | Intersegment eliminations decreased by less than $0.1 million for the three months ended June 30, 2024 due to the deconsolidation of FCG on July 27, 2023. There are no other intersegment eliminations. |
Reportable segment measures of profit and loss are earnings before interest, foreign exchange gains and losses, unallocated corporate expenses, impairments and depreciation and amortization expense. Results of operating segments include costs directly attributable to the segment including project costs, payroll and payroll-related expenses and overhead directly related to the business segment operations. Unallocated corporate overhead costs include costs related to accounting, audit, and corporate legal expenses. Unallocated corporate overhead costs are presented as a reconciling item between total income (losses) from reportable segments and the Company’s consolidated financial results. For more information about our Segment Reporting, see Note 11 – Segment information in the Company’s unaudited condensed consolidated financial statements.
Six months ended June 30, 2024, compared to six months ended June 30, 2023
The results of operations for the six months ended June 30, 2023 include activity related to FCG prior to deconsolidation on July 27, 2023. Any discussions related to results, operations, and accounting policies associated with FCG are referring to the periods prior to deconsolidation. See Deconsolidation of Falcon’s Creative Group LLC under Note 1 – Description of business and basis of presentation and Note 4 – Investments and advances to equity method investments in the Company’s unaudited condensed consolidated financial statements.
The following table summarizes our results of operations for the following periods:
Six months ended June 30, 2024 | Six months ended June 30, 2023 | |||||||
Revenue | $ | 3,314 | $ | 14,516 | ||||
Expenses: | ||||||||
Project design and build expense | — | 9,429 | ||||||
Selling, general and administrative expense | 12,101 | 18,900 | ||||||
Transaction expenses | 7 | — | ||||||
Credit loss expense | 12 | 254 | ||||||
Research and development | 26 | 902 | ||||||
Depreciation and amortization expense | 3 | 1,516 | ||||||
Loss from operations | (8,835 | ) | (16,485 | ) | ||||
Share of gain or (loss) from equity method investments | 2,874 | (2,135 | ) | |||||
Interest expense | (707 | ) | (566 | ) | ||||
Interest income | 6 | 45 | ||||||
Change in fair value of warrant liabilities | (2,391 | ) | — | |||||
Change in fair value of earnout liabilities | 131,621 | — | ||||||
Foreign exchange transaction gain (loss) | (517 | ) | 470 | |||||
Net income (loss) | $ | 122,051 | $ | (18,671 | ) | |||
Income tax benefit | 1 | 19 | ||||||
Net income (loss) | $ | 122,052 | $ | (18,652 | ) |
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Revenue
Six months ended June 30, 2024 | Six months ended June 30, 2023 | |||||||
Services transferred over time: | ||||||||
Design and project management services | $ | — | $ | 9,484 | ||||
Media production services | — | 1,578 | ||||||
Attraction hardware and turnkey sales | — | 2,013 | ||||||
Other | 3,314 | 110 | ||||||
Total revenue from services transferred over time | 3,314 | 13,185 | ||||||
Services transferred at a point in time: | ||||||||
Digital media licenses | — | 1,331 | ||||||
Total revenue from services transferred at a point in time | — | 1,331 | ||||||
Total revenue | $ | 3,314 | $ | 14,516 |
Revenue decreased by $11.2 million to $3.3 million for the six months ended June 30, 2024, compared to $14.5 million for the six months ended June 30, 2023. The decrease was primarily attributable to a $13.1 million decrease in revenue relating to services provided by FCG during the six-month period ended June 30, 2023 which has since been deconsolidated by FBG. As a result of the deconsolidation, there was a $3.2 million increase in revenue associated with shares services provided by FBG to FCG during the six-month period ended June 30, 2024.
The Company’s investment in FCG is accounted for under the equity method and, as such, FCG project management and design revenue and related expenses are no longer included in the results of operations subsequent to the deconsolidation of FCG on July 27, 2023.
Selling, general and administrative expense
Selling, general and administrative expense decreased by $6.8 million to $12.1 million for the six months ended June 30, 2024, compared to $18.9 million for six months ended June 30, 2023. The decrease was primarily related to a $5.5 million decrease in audit fees and professional services fees, a $1.1 million decrease in office and administrative expenses, and a $1.1 million decrease in sales and marketing expenses due to and the deconsolidation of FCG, These decreases were partially offset by incremental shared-services headcount to support the expansion of the business and for public company related costs, representing a less than $1.0 million increase in payroll, payroll taxes, and benefits.
Credit loss expense
Credit loss expense decreased $0.3 million to less than $0.1 million for the six months ended June 30, 2024, compared to $0.3 million for the six months ended June 30, 2023.
Research and Development
Research and development expense decreased $0.9 million to less than $0.1 million for the six months ended June 30, 2024, compared to $0.9 million for the six months ended June 30, 2023 due to completion of FBB division projects. There were no FBB research and development projects in the six-month period ended June 30, 2024.
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Depreciation and amortization expense
Depreciation and amortization expense decreased $1.5 million to less than $0.1 million for six months ended June 30, 2024, compared to $1.5 million for six months ended June 30, 2023, relating primarily to the amortization of the digital ride media asset of $1.1 million recognized in the six months ended June 30, 2023 when the asset was licensed for use by Sierra Parima. The majority of fixed assets and intangible assets were deconsolidated as part of FCG on July 27, 2023, and the digital ride media asset fully impaired during the year ended December 31, 2023, and therefore depreciation and amortization related to those fixed assets and intangible assets was not included in the six months ended June 30, 2024.
Share of gain or loss from equity method investments
Six months ended June 30, 2024 | Six months ended June 30, 2023 | |||||||
PDP | $ | 1,190 | $ | 375 | ||||
Sierra Parima | — | (2,638 | ) | |||||
Karnival | 163 | 128 | ||||||
FCG | 1,521 | — | ||||||
Total share of gain or (loss) from equity method investments | $ | 2,874 | $ | (2,135 | ) |
Share of gain or loss from equity method investments increased by $5.0 million to a $2.9 million gain for the six months ended June 30, 2024, compared to a ($2.1) million loss for the six months ended June 30, 2023. The change in gain or loss from equity method investments was driven by:
● | FCG: Share of net income from FCG was $1.5 million for the six months ended June 30, 2024 which was consolidated by the Company during the six months ended June 30, 2023. |
FCG recorded revenues of $30.6 million in the six-month period ended June 30, 2024 representing an increase of $17.5 million or 134% over the corresponding period of 2023 when FCG was fully consolidated by the Company. Additionally, as previously announced on January 18, 2024, FCG entered into a consultancy agreement with QIC to provide a Dragon Ball theme park over the course of approximately two years. FCG recognized $21.3 million in revenue relating to this Dragon Ball consultancy agreement during the six months ended June 30, 2024. Operating income of $3.9 million, and net income of $4.3 million were earned during the six months ended June 30, 2024, compared to an operating loss of ($2.3) million and net loss of ($2.4) million for the corresponding period of 2023.
● | The Company recognizes 100% of net income, 9% preferred return to QIC and amortization of the basis difference of deconsolidation of FCG. FCG net income of $4.3 million for the six months ended June 30, 2024 was reduced by adjustments of $2.8 million comprised of $1.1 million in accretion of preference dividend and fees, and $1.7 million in amortization of basis difference. See Note 4– Investments and advances to equity method investments in the Company’s unaudited condensed consolidated financial statements. |
● | Sierra Parima: As of December 31, 2023, equity investment in Sierra Parima was deemed to be other-than-temporarily impaired and the fair value of the Company’s investment in Sierra Parima was determined to be zero. Therefore, there was no gain or loss recorded during the six months ended June 30, 2024, compared to a $2.6 million share of net loss during the six months ended June 30, 2023. See Note 4– Investments and advances to equity method investments in the Company’s unaudited condensed consolidated financial statements. |
● | PDP: Share of net income from PDP increased by $0.8 million for the six months ended June 30, 2024 compared to the corresponding period in 2023, primarily driven by a $1.6 million increase in PDP’s underlying income from operations, a $0.1 million favorable change in finance costs, $0.3 million favorable change in PDP’s derivatives, driven by interest rate swaps within the hotel group, and a ($0.5) unfavorable increase in PDP’s income tax expenses. The $1.6 million increase in PDP’s income from operations was resulted from a $2.0 million increase in PDP’s revenue, offset by a ($0.4) million unfavorable increase in hotel expenses. The Company recognized its 50% share of PDP’s earnings. |
● | Karnival: A $0.1 million increase in share of net income from Karnival for the six months ended June 30, 2024, primarily driven by interest income. |
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Interest expense
Interest expense increased by $0.1 million to $0.7 million for the six months ended June 30, 2024, compared to $0.6 million for the six months ended June 30, 2023.
Change in fair value of warrant liability
Loss due to change in fair value of warrant liabilities was ($2.4) million for the six months ended June 30, 2024. The warrant liability relates to the Business Combination which occurred after June 30, 2023, therefore there was no such loss during the six months ended June 30, 2023. Changes in the fair value of warrant liabilities are related primarily to changes in share market price.
Change in fair value of earnout liability
Gain due to change in fair value of earnout liability was $131.6 million for the six months ended June 30, 2024, driven by a $20.6 million decrease in the market price of the Company’s stock between December 31, 2023 and April 29, 2024 when the 2023 performance based awards were remeasured prior to release of shares from escrow, a $9.4 million change in assumptions regarding performance expectations in Q4, 2024 due to timing of contracts, and a $101.6 million decrease in the remaining earnout liabilities due to a decrease in the market price of the Company’s Class A Common Stock between December 31, 2023 and June 30, 2024. The earnout liability relates to the Business Combination which occurred after June 30, 2023, therefore, there was no such loss during the six months ended June 30, 2023. The valuation of performance-based awards, such as earnouts, are sensitive to revenue, EBITDA, and changes in share market price. As of June 30, 2024, the Company determined the EBITDA threshold was not met.
Foreign exchange transaction loss
Foreign exchange transaction loss increased $1.0 million to ($0.5) million loss for the six months ended June 30, 2024, compared to $0.5 million gain for the six months ended June 30, 2023. The decrease was primarily attributable to the unrealized foreign exchange loss on U.S. denominated related party debt with a Spanish subsidiary as the U.S. dollar strengthened against the Euro during the six months ended June 30, 2023 and weakened against the Euro during the six months ended June 30, 2024.
Income tax
Income tax benefit was less than $0.1 million for both the six months ended June 30, 2024 and June 30, 2023.
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Segment Reporting
The following table presents selected information about our segment’s results for the six months ended June 30, 2024, and 2023. Subsequent to FCG’s deconsolidation on July 27, 2023, FCG segment income or loss is comprised of only the Company’s equity method share of FCG’s income or loss:
Six months ended June 30, 2024 | Six months ended June 30, 2023 | |||||||
Revenues: | ||||||||
Falcon’s Creative Group | $ | — | $ | 13,247 | ||||
Destinations Operations | 99 | 106 | ||||||
Falcon’s Beyond Brands | — | 1,481 | ||||||
Intersegment eliminations | — | (318 | ) | |||||
Unallocated corporate revenue | 3,215 | — | ||||||
Total revenue | 3,314 | 14,516 | ||||||
Segment income (loss) from operations: | ||||||||
Falcon’s Creative Group | 1,521 | (728 | ) | |||||
Destinations Operations | (753 | ) | (798 | ) | ||||
PDP | 1,190 | 375 | ||||||
Sierra Parima | — | (2,636 | ) | |||||
Falcon’s Beyond Brands | (1,457 | ) | (1,094 | ) | ||||
Intersegment eliminations | — | (242 | ) | |||||
Total segment income (loss) from operations | 501 | (5,123 | ) | |||||
Unallocated corporate overhead | (6,457 | ) | (11,981 | ) | ||||
Depreciation and amortization expense | (3 | ) | (1,516 | ) | ||||
Loss on sale of assets | (2 | ) | — | |||||
Interest expense | (707 | ) | (566 | ) | ||||
Interest income | 6 | 45 | ||||||
Change in fair value of warrant liabilities | (2,391 | ) | — | |||||
Change in fair value of earnout liabilities | 131,621 | — | ||||||
Foreign exchange transaction (loss) gain | (517 | ) | 470 | |||||
Net income (loss) before income taxes | $ | 122,051 | $ | (18,671 | ) | |||
Income tax benefit | 1 | 19 | ||||||
Net income (loss) | $ | 122,052 | $ | (18,652 | ) |
Total revenue for the six months ended June 30, 2024 decreased $11.2 million to $3.3 million compared to $14.5 million for the six months ended June 30, 2023, primarily driven by the deconsolidation of FCG on July 27, 2023 since FCG accounted for the majority of the revenue at FBG. This decrease in revenue related to the deconsolidation of FCG is partially offset by an increase in revenue relating to shared services agreement between FBG and FCG. See Deconsolidation of Falcon’s Creative Group LLC under Note 1 – Description of business and basis of presentation.
Total segment gain from operations increased $5.4 million to a $0.4 million gain for the six months ended June 30, 2024, compared to ($5.0) million loss for the six months ended June 30, 2023 due to the following:
● | FCG segment income from operations increased $2.2 million from ($0.7) million segment loss in the six months ended June 30, 2023 to $1.5 million segment gain in the six months ended June 30, 2024, primarily as a result of an increase in revenues and improved margins on new long-term contracts. These positive results were partially offset by adjustments of ($2.8) million comprised of ($1.1) million in accretion of preference dividend and fees, and ($1.7) million in amortization of basis difference. |
● | Destination Operations segment loss from operations for the six months ended June 30, 2024 remained consistent at ($0.8) million for the six months ended June 30, 2023. |
● | PDP segment income for the six months ended June 30, 2024, increased by $0.8 million to $1.2 million from $0.4 million for the six months ended June 30, 2023. PDP’s income from operations increased to $2.9 million for the six months ended June 30, 2024, compared to $1.3 million for the six months ended June 30, 2023. The $1.6 million increase in PDP’s income from operations was driven by a $2.0 million increase in revenue from $16.8 million for the six months ended June 30, 2023 to $18.8 million for the six months ended June 30, 2024, resulted from increases in occupancy and rates at the Mallorca and Tenerife hotel properties, partially offset by a ($0.4) million unfavorable increase in hotel expenses. The favorable change in PDP’s net income due to the increase in the income from operations was further increased by $0.1 million favorable change in finance costs, $0.3 million favorable change in derivative income and offset by ($0.5) million increase in income tax expenses. The Company recognized its 50% share of earnings within the PDP segment. |
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● | Sierra Parima segment loss for the six months ended June 30, 2024 decreased $2.6 million to $0 million compared to ($2.6) million the six months ended June 30, 2023. The park closed in March of 2024 following financial, operational, and infrastructure challenges, closing the segment going forward. There were no segment operations to report for Sierra Parima segment for the six months ended June 30, 2024 since the investment has been fully impaired as of December 31, 2023 and the Company has no further obligation to participate in losses of Sierra Parima. |
● | FBB segment loss from operations for the six months ended June 30, 2024 increased by $0.4 million to ($1.5) million compared to ($1.1) million for the six months ended June 30, 2023. For the six months ended June 30, 2024, FBB did not record any revenue but incurred $1.5 million in selling, general and administrative expenses, resulting in segment loss of ($1.5) million. For the six months ended June 30, 2023, FBB recorded revenue of $1.5 million and recognized $1.8 million of selling, general and administrative expenses and $0.8 million of research and development expenses, resulting in segment loss of ($1.1) million. |
● | Intersegment eliminations for the six months ended June 30, 2024 decreased $0.2 million to $0 million compared to ($0.2) million for the six months ended June 30, 2023 due to the deconsolidation of FCG on July 27, 2023. There are no other intersegment eliminations. |
Reportable segment measures of profit and loss are earnings before interest, foreign exchange gains and losses, unallocated corporate expenses, impairments and depreciation and amortization expense. Results of operating segments include costs directly attributable to the segment including project costs, payroll and payroll-related expenses and overhead directly related to the business segment operations. Unallocated corporate overhead costs include costs related to accounting, audit, and corporate legal expenses. Unallocated corporate overhead costs are presented as a reconciling item between total income (losses) from reportable segments and the Company’s consolidated financial results. For more information about our Segment Reporting, see Note 11 – Segment information in the Company’s unaudited condensed consolidated financial statements.
Non-GAAP Financial Measures
We prepare our unaudited condensed consolidated financial statements in accordance with US GAAP. In addition to disclosing financial results prepared in accordance with US GAAP, we disclose information regarding Adjusted EBITDA which is a non-GAAP measure. We define Adjusted EBITDA as net income (loss), determined in accordance with US GAAP, for the period presented, before net interest and expense, income tax expense, depreciation and amortization, transaction expenses related to the business combination, credit loss expense, change in fair value of warrant liabilities, and change in fair value of earnout liabilities.
We believe that Adjusted EBITDA is useful to investors as it eliminates the non-cash depreciation and amortization expense that results from our capital investments and intangible assets recognized in any business combination and improves comparability by eliminating the interest expense associated with our debt facilities and eliminating the change in fair value of warrant and earnout liabilities, which may not be comparable with other companies based on our structure.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under US GAAP. Some of these limitations are (i) it does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) it does not reflect changes in, or cash requirements for, our working capital needs, (iii) it does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements, (v) it does not adjust for all non-cash income or expense items that are reflected in our statements of cash flows, and (vi) other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.
The following table sets forth reconciliations of net loss under US GAAP to Adjusted EBITDA for the following periods:
Three months ended June 30, 2024 | Three months ended June 30, 2023 | |||||||
Net income (loss) | $ | 8,028 | $ | (8,802 | ) | |||
Interest expense | 438 | 295 | ||||||
Interest income | (3 | ) | (45 | ) | ||||
Income tax benefit | — | (16 | ) | |||||
Depreciation and amortization expense | 2 | 174 | ||||||
EBITDA | 8,465 | (8,394 | ) | |||||
Change in fair value of warrant liabilities | 2,599 | — | ||||||
Change in fair value of earnout liabilities | (13,006 | ) | — | |||||
Adjusted EBITDA | $ | (1,942 | ) | $ | (8,394 | ) |
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Six months ended June 30, 2024 | Six months ended June 30, 2023 | |||||||
Net income (loss) | $ | 122,052 | $ | (18,652 | ) | |||
Interest expense | 707 | 566 | ||||||
Interest income | (6 | ) | (45 | ) | ||||
Income tax benefit | (1 | ) | (19 | ) | ||||
Depreciation and amortization expense | 3 | 1,516 | ||||||
EBITDA | 122,755 | (16,634 | ) | |||||
Transaction expenses | 7 | — | ||||||
Credit loss expense | 12 | 254 | ||||||
Change in fair value of warrant liabilities | 2,391 | — | ||||||
Change in fair value of earnout liabilities | (131,621 | ) | — | |||||
Adjusted EBITDA | $ | (6,456 | ) | $ | (16,380 | ) |
Net income increased by $16.8 million to $8.0 million for the three months ended June 30, 2024, compared to ($8.8) million loss for the three months ended June 30, 2023, primarily driven by a $13.0 million gain from change in fair value of earnout liabilities. Net income increased by $140.8 million to $122.1 million for the six months ended June 30, 2024, compared to ($18.7) million losses for the six months ended June 30, 2023, primarily driven by a $131.6 million gain from change in fair value of earnout liabilities.
Adjusted EBITDA increased by $6.5 million from ($8.4) million loss to ($1.9) million loss for three months ended June 30, 2024, primarily due to an increase of $2.6 million in the share of gain from equity method investments and a $3.9 million decrease in selling, general and administrative expenses due to reduction in third party accounting, audit, and legal fees relating to public company readiness. Adjusted EBITDA increased by $9.9 million from ($16.4) million loss to ($6.5) million loss for six months ended June 30, 2024, primarily driven by a decrease of $6.7 million selling, general, and administrative expenses due to reduction in third party accounting, audit, and legal fees relating to public company readiness, and an increase of $5.0 million in the share of gain from equity method investments for the six months ended June 30, 2024, partially offset by a $1.8 million decrease in operating income flow through due to the $11.2 million decrease in revenue due to the deconsolidation of FCG.
Liquidity and Capital Resources
Sources and Uses of Liquidity
Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations. Our primary short-term cash requirements are to fund working capital, short-term debt, acquisitions, contractual obligations and other commitments. Our medium-term to long-term cash requirements are to service and repay debt and to invest in facilities, equipment, technologies, and research and development for growth initiatives. Our principal sources of liquidity are funds from borrowings, equity contributions from our existing investors and cash on hand.
As of June 30, 2024, our total indebtedness was approximately $35.5 million. We had approximately $1.7 million of unrestricted cash and $3.0 million available for borrowing under our lines of credit.
During the three months ended June 30, 2024, Infinite Acquisitions loaned an additional $1.0 million to the Company pursuant to the revolving credit arrangement. The revolving credit arrangement is subject to an annual fixed interest rate of 2.75% and matures in December 2026. Further, in April 2024, Falcon’s Opco entered into a one-year term loan agreement with Katmandu Ventures for $7.221 million and a one-year term loan agreement with Universal Kat for $1.25 million. The term loan with Katmandu Ventures and the term loan with Universal Kat both bear interest at a rate of 8.88% per annum, payable quarterly in arrears, and will mature on March 31, 2025. Approximately $5.4 million of the combined proceeds of the term loans from Katmandu Ventures and Universal Kat were used to repay a portion of the Infinite Acquisitions revolving credit arrangement.
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Falcon’s Opco entered into a loan amendment with Katmandu Ventures and Universal Kat, respectively, on June 14, 2024, to defer the first interest and principal payment from June 30, 2024 to the earlier of 1) September 30, 2024; 2) within five business days after the date upon which Falcon’s Opco receives a distribution of funds from Producciones De Parques, S.L. as result of asset sale transaction; or 3) within five business days after the date upon which Falcon’s Opco receives cash proceeds as the result of a debt or equity fundraising transaction with a third party resulting in net proceeds of $20 million or more.
Following the amendments to the loans above, Katmandu Ventures and Universal Kat assigned the loans (in part for Katmandu Ventures of $6.3 million and in full for Universal Kat) to FAST II Sponsor in exchange for the sale of Class A shares of the Company held by FAST II Sponsor. This transfer is solely between Universal Kat, Katmandu Ventures and FAST II Sponsor. Falcon’s Opco provided written consent on the assignment. There were no additional changes to the loan agreement terms due to this reassignment. See Note 6 – Long-term debt and borrowing arrangements.
We anticipate managing our operations to ensure that our existing cash on hand and unused capacity on our existing lines of credit, along with additional debt and equity capital raises, and reviewing our portfolio of assets to provide additional liquidity over the next twelve months to meet our short-term needs. Currently, we do not have sufficient cash from operations and unused capacity to meet the next twelve months of our operations.
For the six months ended June 30, 2024, we have operational losses, accumulated deficits, and negative cash flows from operating activities that raise substantial doubt about our ability to continue as a going concern. As of June 30, 2024, we have $23.5 million of accrued expenses and other current liabilities, which include $18.8 million of transaction related professional fees, $2.2 million of excise tax payable on FAST II stock redemptions, $1.0 million of accrued payroll and related expenses, and approximately $0.2 million of other accrued expenses and current liabilities. The transaction expenses are actively being negotiated, and actual settlement may vary from the amounts recorded. Additionally, as of June 30, 2024, we have unfunded commitments to Karnival of $2.4 million (HKD 18.7 million), to be used for the purpose of constructing the Vquarium Entertainment Centers in Hong Kong which need to be paid in 2024. On July 27, 2023, FCG received a closing payment from QIC of $17.5 million (net of $0.5 million in reimbursements). On April 16, 2024, QIC released the remaining $12.0 million of the $30.0 million investment to Falcon’s Creative Group, LLC, a deconsolidated subsidiary which is 75% owned by Falcon’s Opco and 25% owned by QIC (“FCG LLC”) upon the establishment of the employee retention and attraction incentive program. These funds are to be used exclusively by the FCG segment to fund its operations and growth and cannot be used to satisfy the commitments of other segments. Until we can generate sufficient revenue from our five reportable segments to cover operating expenses, working capital and capital expenditures, we expect funds raised from additional debt and/or capital to fund our cash needs.
Our capital requirements will depend on many factors, including the timing and extent of spending to support our research and development efforts, investments in technology, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features. In addition, we expect to incur additional costs as a result of operating as a public company. We expect our capital expenditures and working capital requirements to increase materially in the near future. Our ability to generate cash in the future depends on our financial results which are subject to general economic, financial, competitive, legislative and regulatory factors that may be outside of our control. Our future access to, and the availability of credit on acceptable terms and conditions, is impacted by many factors, including capital market liquidity and overall economic conditions. In the event that additional financing is required from outside sources, we cannot be sure that any additional financing will be available to us on acceptable terms if at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition could be adversely affected. See the section of our Annual Report titled “Risk Factors – We will require additional capital, which additional financing may result in restrictions on our operations or substantial dilution to our stockholders, to support the growth of our business, and this capital might not be available on acceptable terms, if at all.”
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Contractual and Other Obligations
Tax Receivable Agreement
In connection with the Closing of the Business Combination, the Company entered into the Tax Receivable Agreement with Falcon’s Opco, the TRA holder representative, certain members of Falcon’s Opco (the “TRA Holders”) and other persons from time-to-time party thereto. Pursuant to the Tax Receivable Agreement, among other things, the Company is required to pay to each TRA Holder 85% of certain tax benefits, if any, that it realizes (or in certain cases is deemed to realize) as a result of the increases in tax basis resulting from any exchange of new Falcon’s Opco units for Class A Common Stock or cash in the future and certain other tax benefits arising from payments under the Tax Receivable Agreement. In certain cases, the Company’s obligations under the Tax Receivable Agreement may accelerate and become due and payable, based on certain assumptions, upon a change in control and certain other termination events, as defined in the Tax Receivable Agreement.
Commitments
Partnership with Raging Power Limited
Pursuant to the terms of our joint venture agreement with Raging Power, Falcon’s and Raging Power are each required to provide funding to Karnival in the form of non-interest-bearing advances, which will be repaid based on a percentage of gross revenues from the operation of the themed virtual ocean adventure attraction we are developing at the new 11 SKIES complex adjacent to the Hong Kong Airport. Accordingly, the joint venture agreement provides that we receive 16.6% to 20.6% of gross revenue of such location. As of June 30, 2024, we have unfunded commitments to Karnival of $2.4 million (HKD 18.7 million).
Transaction costs
Pursuant to the Business Combination during the year ended December 31, 2023, the Company received net cash proceeds from the Business Combination totaling $0.9 million, net of $1.3 million of FAST II transaction costs and $1.6 million of Falcon’s Opco transaction costs paid at Closing. FAST II and Falcon’s Opco transaction costs related to the Business Combination of $6.4 million and $15.7 million, respectively, are not yet settled as of June 30, 2024 and the Company is actively negotiating to settle them over the next 24 months. These transaction costs are recorded in accrued expenses and long-term payables. Negotiations regarding the terms of the costs yet to be settled are still ongoing and may change materially from these amounts accrued.
The Company is named from time to time as a party to lawsuits and other types of legal proceedings and claims in the normal course of business. As previously disclosed in the Company’s Annual Report and its Current Report on Form 8-K filed with the SEC on May 6, 2024, and further disclosed in Form 10-Q filed on May 16, 2024, a lawsuit was filed against the Company by Guggenheim Securities, LLC (“Guggenheim”) on March 27, 2024 in which Guggenheim alleges that the Company owes certain fees and expenses of $11.1 million for services allegedly performed by Guggenheim in connection with the Business Combination consummated on October 6, 2023 (the “Guggenheim Complaint”). The Company has denied all liability in response to the Guggenheim Complaint. In addition, the Company has filed counterclaims against Guggenheim for fraudulent inducement, breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, negligence, fraudulent misrepresentation and negligent misrepresentation. Guggenheim has moved to dismiss the counterclaims. The case is in its early stages, discovery has commenced, and the Court has set a certificate of readiness for trial/note of issue date for June 28, 2025. As part of the Company’s accounting approach to transaction expenses related to the Business Combination, prior to the Company’s receipt of the Guggenheim Complaint, the Company accrued $11.1 million as of December 31, 2023 with respect to the alleged amended engagement agreement with Guggenheim. The Company intends to vigorously defend itself against the claims alleged in the Guggenheim Complaint and contest the amounts Guggenheim asserts are owed.
Related Party Loans
The Company has entered into various financing agreements with Infinite Acquisitions. As of June 30, 2024, we have aggregate outstanding balances of $23.1 million under these financing agreements.
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On June 14, 2024, Falcon’s Opco entered into a loan amendment with Katmandu Ventures to defer the first interest and principal payment from June 30, 2024 to the earlier of 1) September 30, 2024; 2) within five business days after the date upon which Falcon’s Opco receives a distribution of funds from Producciones De Parques, S.L. as result of an asset transaction; or 3) within five business days after the date upon which Falcon’s Opco receives cash proceeds as the result of a debt or equity fundraising transaction with a third party resulting in net proceeds of $20 million or more. Following the amendment above, Katmandu Ventures assigned $6.3 million of the loan to FAST II Sponsor, in exchange for the sale of Class A shares of Falcon’s Opco held by FAST II Sponsor. This transfer is solely between Katmandu Ventures and FAST II Sponsor. Falcon’s Opco provided written consent on the assignment. There were no additional changes to the loan agreement terms due to this reassignment.
For more information regarding our related party transactions, see Note 6 — Long-term debt and borrowing arrangements and Note 7 — Related party transactions included in the notes to the Company’s unaudited condensed consolidated financial statements.
Cash Flows
The following table summarizes our cash flows for the period presented:
Six months ended June 30, 2024 | Six months ended June 30, 2023 | |||||||
Cash used in operating activities | $ | (6,385 | ) | $ | (12,610 | ) | ||
Cash used in investing activities | (5 | ) | (1,662 | ) | ||||
Cash provided by financing activities | 7,397 | 7,100 |
Cash Flows from Operating Activities
Our cash flows from operating activities are primarily driven by the activities associated with our FBB segment and corporate overhead activities.
Cash used in operating activities for the six months ended June 30, 2024 was ($6.4) million compared to ($12.6) million for the six months ended June 30, 2023, representing a $6.2 million decrease in cash used in operating activities due to a reduction in legal and professional fees, and the deconsolidation of FCG.
Cash Flows from Investing Activities
Our primary investing activities consisted of the purchase of property, plant and equipment and changes in advances to unconsolidated joint ventures. Net cash used in investing activities was less than $0.1 million during the six months ended June 30, 2024, compared to ($1.7) million net cash used in investing activities during the six months ended June 30, 2023, primarily related to $0.3 million purchases of computer equipment and $1.4 million in advances made to unconsolidated joint ventures.
Cash Flows from Financing Activities
Net cash provided by financing activities increased to $7.4 million in the six months ended June 30, 2024, compared to $7.1 million in the six months ended June 30, 2023. The cash provided by financing activities in the six months ended June 30, 2024 consisted primarily of (i) ($3.4) million decrease in proceeds from and a $2.8 million increase in repayments of the $10.0 million related party revolving credit arrangement with Infinite Acquisitions, (ii) $1.6 million increase in repayment of related party term loans, (iii) $7.3 million increase in proceeds from related party term loans (iv) $0.8 million in advances from affiliates, (v) $1.3 million increase in proceeds from third party term loans, (vi) $0.1 million in proceeds from exercised warrants, (vii) ($1.8) million decrease in equity contributions, and (viii) $0.4 million in proceeds from RSUs issued by affiliates. See Note 6 — Long-term debt and borrowing arrangements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
This item is not applicable as we are a smaller reporting company.
Item 4. Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”)) as of the end of the period covered by this Quarterly Report. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2024, our disclosure controls and procedures were not effective due to the identification of material weaknesses in our internal control over financial reporting.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
In connection with the preparation and audit of the 2023 consolidated financial statements, we identified the following material weaknesses in the Company’s internal control over financial reporting:
Risk Assessment – We did not design and implement an effective risk assessment based on the criteria established in the COSO framework. Specifically, these control deficiencies constitute material weaknesses, either individually or in the aggregate, relating to: (i) identifying, assessing, and communicating appropriate objectives, (ii) identifying and analyzing risks to achieve these objectives, (iii) contemplating fraud risks, and (iv) identifying and assessing changes in the business that could impact our system of internal controls.
Control Activities – We did not design and implement effective control activities based on the criteria established in the COSO framework. We have identified deficiencies in the principles associated with the control activities component of the COSO framework. Specifically, these control deficiencies constitute material weaknesses, either individually or in the aggregate, relating to: (i) selecting and developing control activities and information technology that contribute to the mitigation of risks and support achievement of objectives; and (ii) deploying control activities through policies that establish what is expected and procedures that put policies into action.
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The following deficiencies, individually and in the aggregate, contributed to material weaknesses in control activities, including:
● | We did not have an adequate segregation of duties or appropriate level of review that is needed to comply with financial reporting requirements. |
● | We did not design or maintain controls over period end close procedures. |
● | We did not design or maintain effective controls over the period end financial reporting process and preparation of financial statements. Specifically, we did not design and implement a sufficient level of formal accounting policies and procedures that define how transactions across the business cycles should be initiated, recorded, processed and reported and appropriately authorized and approved. |
● | We did not design or maintain controls or document segregation of duties over information technology systems used to create or maintain financial reporting records. |
Monitoring – We did not design and implement effective monitoring activities based on the criteria established in the COSO framework. We have identified deficiencies in the principles associated with the monitoring component of the COSO framework. Specifically, these control deficiencies constitute material weaknesses, either individually or in the aggregate, relating to: (i) selecting, developing, and performing ongoing evaluation to ascertain whether the components of internal controls are present and functioning; and (ii) evaluating and communicating internal control deficiencies in a timely manner to those parties responsible for taking corrective action.
Control Environment – We did not maintain an effective control environment based on the criteria established in the COSO framework. We have identified deficiencies in the principles associated with the control environment of the COSO framework. Specifically, these control deficiencies constitute material weaknesses, either individually or in the aggregate, relating to: (i) appropriate organizational structure, reporting lines, and authority and responsibilities in pursuit of objectives; (ii) our commitment to attract, develop, train, and retain an appropriate complement of accounting employees; and (iii) establishing a control environment and holding individuals accountable for their internal control related responsibilities.
We did not design or maintain an effective control environment to enable the identification and mitigation of risks of accounting errors based on the contributing factors to material weaknesses in the control environment, including:
● | The Company did not create the proper environment for effective internal control over financial reporting and to ensure that: (i) there were adequate processes for oversight; (ii) there was accountability for the performance of internal control over financial reporting responsibilities; (iii) personnel with key positions had the appropriate training and capacity to carry out their responsibilities. |
● | The Company did not maintain a sufficient complement of management, accounting, financial reporting personnel who had appropriate levels of knowledge, experience, and training in accounting and internal control matters commensurate with the nature, growth and complexity of our business. The lack of sufficient appropriately skilled and trained personnel contributed to our failure to: (i) adequately identify potential risks; (ii) include in the scope of our internal controls framework certain systems relevant to financial reporting and the preparation of our consolidated financial statements; and (iii) design and implement certain risk-mitigating internal controls. |
Information and Communication – We did not generate or provide adequate quality supporting information and communication based on the criteria established in the COSO framework. We have identified deficiencies in the principles associated with the information and communication component of the COSO framework. Specifically, these control deficiencies constitute material weaknesses, either individually or in the aggregate, relating to: (i) obtaining, generating, and using relevant quality information to support the function of internal control; and (ii) communicating accurate information internally and externally, including providing information pursuant to objectives, responsibilities, and functions of internal control.
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Remediation Efforts
We are in the process of designing and implementing a plan to remediate the material weaknesses discussed above. Our remediation plans include strengthening our control environment with an immediate focus on hiring experienced personnel, designing and implementing risk assessment processes, implementing and enhancing our business processes and control activities, consistently generating and providing quality information and communication and re-designing and implementing monitoring controls.
Our detailed remediation plans include actions such as implementing systems and controls to enhance our review of significant accounting transactions and other new technical accounting and financial reporting issues and preparing and reviewing accounting memoranda addressing these issues, hiring experienced personnel, implementing controls to enable an effective and timely review period end close procedures, and implementing controls to enable an accurate and timely review of accounting records that support our accounting processes and maintain documents for internal accounting reviews.
We have also engaged a third-party consulting firm to assist us with our formal internal control plan and to provide accounting services related to complex accounting transactions. In addition, as we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify our remediation plan.
In light of the material weaknesses discussed above, we performed additional procedures to ensure that our consolidated financial statements included in this Quarterly Report were prepared in accordance with U.S. GAAP. Following such additional procedures, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in this Quarterly Report, in conformity with U.S. GAAP.
Changes in Internal Control over Financial Reporting
Except as otherwise described herein, there was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is named from time to time as a party to lawsuits and other types of legal proceedings and claims in the normal course of business. As previously disclosed in the Company’s Annual Report and its Current Report on Form 8-K filed with the SEC on May 6, 2024, and further disclosed in Form 10-Q filed on May 16, 2024, a lawsuit was filed against the Company by Guggenheim Securities, LLC (“Guggenheim”) on March 27, 2024 in which Guggenheim alleges that the Company owes certain fees and expenses of $11.1 million for services allegedly performed by Guggenheim in connection with the Business Combination consummated on October 6, 2023 (the “Guggenheim Complaint”). The Company has denied all liability in response to the Guggenheim Complaint. In addition, the Company has filed counterclaims against Guggenheim for fraudulent inducement, breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, negligence, fraudulent misrepresentation and negligent misrepresentation. Guggenheim has moved to dismiss the counterclaims. The case is in its early stages, discovery has commenced, and the Court has set a certificate of readiness for trial/note of issue date for June 28, 2025. As part of the Company’s accounting approach to transaction expenses related to the Business Combination, prior to the Company’s receipt of the Guggenheim Complaint, the Company accrued $11.1 million as of December 31, 2023 with respect to the alleged amended engagement agreement with Guggenheim. The Company intends to vigorously defend itself against the claims alleged in the Guggenheim Complaint and contest the amounts Guggenheim asserts are owed.
Item 1A. Risk Factors.
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in the Annual Report. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report:
* | Filed herewith |
** | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 13, 2024 | FALCON’S BEYOND GLOBAL, INC. | |
(Registrant) | ||
By | /s/ Joanne Merrill | |
Joanne Merrill | ||
Principal Financial Officer, Principal Accounting Officer and Authorized Signatory |
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