Falcons Beyond Global Inc

Previous wording

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.

Current wording

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 nine months ended September 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.

Previous wording

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.

Current wording

The Company operates at the intersection of three potential high-growth business opportunities: content, technology, and experiences. We create immersive entertainment experiences by designing theme parks, developing engaging content, and bringing brands to life through innovative storytelling and technology. 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.

Previous wording

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.

Current wording

We went public and listed our shares on Nasdaq on October 6, 2023, in connection with a Business Combination with FAST Acquisition Corp. II.

Previous wording

The following reflects our results of operations for the three and six months ended June 30, 2024 and June 30, 2023.

Current wording

The following reflects our results of operations for the three and nine months ended September 30, 2024, and September 30, 2023.

Previous wording

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 ofAugust 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.

Current wording

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 nine months ended September 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.

Previous wording

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.

Current wording

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 distributions from equity method investments, 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 September 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. As of September 30, 2024, the Company has a working capital deficiency of $(27.0) million which excludes debt maturing in the next 12 months. Additionally, the Company has $10.3 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.

Previous wording

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.

Current wording

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 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.

Previous wording

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.

Current wording

Following the amendment 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 of 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 reassignment. The repayment schedules of these two loans were modified again on October 18, 2024. See Note 17 – Subsequent Events in the Company’s unaudited condensed consolidated financial statements.

Previous wording

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.

Current wording

Selling, general and administrative expense increased by $0.2 million to $4.5 million for the three months ended September 30, 2024, compared to $4.3 million for the three months ended September 30, 2023. The increase was primarily related to a $0.4 million increase in audit fees and professional services fees and a $0.6 million increase in payroll, payroll taxes and benefits to support the expansion of the business and for public company related costs. This was partially offset by a $0.5 million decrease in sales and marketing expenses, and a $0.3 million decrease in office and administrative expenses due to the deconsolidation of FCG.

Previous wording

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.

Current wording

Research and development expense decreased by $0.3 million to less than $0.1 million for the three months ended September 30, 2024, compared to $0.3 million for the three months ended September 30, 2023, due to completion of several major FBB division projects in 2023.

Previous wording

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:

Current wording

Share of gain from equity method investments increased by $1.6 million to less than $0.1 million gain for the three months ended September 30, 2024, compared to a ($1.6) million loss for the three months ended September 30, 2023. The change in gain or loss from equity method investments was driven by:

Previous wording

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.

Current wording

Gain due to change in fair value of warrant liabilities was $0.7 million for the three months ended September 30, 2024. The warrant liability relates to the Business Combination which occurred after September 30, 2023, therefore there was no such loss during the three months ended September 30, 2023. Changes in the fair value of warrant liabilities are related primarily to changes in share market price.

Previous wording

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.

Current wording

Gain due to change in fair value of earnout liability was $40.6 million for the three months ended September 30, 2024. The change was driven by a decrease in the market price of the Company’s stock between June 30, 2024, and September 30, 2024. The earnout liability relates to the Business Combination which occurred after September 30, 2023, therefore, there was no such loss during the three months ended September 30, 2023. As of September 30, 2024, all EBITDA and revenue based earnout shares have been earned or forfeited. The remaining earnout shares based on Company stock price targets have been reclassified to equity and will not require subsequent fair value measurement. See Note 12 – Earnouts in the Company’s unaudited condensed consolidated financial statements.

Previous wording

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.

Current wording

The results of operations for the nine months ended September 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.

Previous wording

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.

Current wording

Revenue decreased by $10.7 million to $5.4 million for the nine months ended September 30, 2024, compared to $16.1 million for the nine months ended September 30, 2023. The decrease was primarily attributable to a $14.4 million decrease due to the deconsolidation of FCG. This was partially offset by a $5.0 million increase in revenue for shares services provided by FBG to FCG during the nine-month period ended September 30, 2024.

Previous wording

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.

Current wording

Selling, general and administrative expense decreased by$6.6 million to$16.6 million for the nine months ended September 30, 2024, compared to$23.2 million for nine months ended September 30, 2023. The decrease was primarily related to a $5.1 million decrease in audit fees and professional services fees, a $1.5 million decrease in office and administrative expenses, and a $1.6 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 $1.6 million increase in payroll, payroll taxes, and benefits.

Previous wording

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.

Current wording

Research and development expense decreased$1.2 million to less than$0.1 million for the nine months ended September 30, 2024, compared to$1.3 million for the nine months ended September 30, 2023, due to completion of several major FBB division projects.

Previous wording

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:

Current wording

Share of gain or loss from equity method investments increased by$6.6 million to a$2.9 million gain for the nine months ended September 30, 2024, compared to a ($3.7) million loss for the nine months ended September 30, 2023. The change in gain or loss from equity method investments was driven by:

Previous wording

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.

Current wording

FCG recorded revenues of $43.8 million in the nine-month period ended September 30, 2024, representing an increase of $26.0 million or 146% over the corresponding period of 2023. 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 $29.2 million in revenue relating to this Dragon Ball consultancy agreement during the nine months ended September 30, 2024. Operating income of $3.9 million, and net income of $4.2 million were earned during the nine months ended September 30, 2024, compared to an operating loss of ($7.5) million and net loss of ($7.5) million for the corresponding period of 2023.

Previous wording

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.

Current wording

Interest expense increased by $0.2 million to $1.1 million for the nine months ended September 30, 2024, compared to $0.9 million for the nine months ended September 30, 2023.

Previous wording

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.

Current wording

Loss due to change in fair value of warrant liabilities was ($1.7) million for the nine months ended September 30, 2024. The warrant liability relates to the Business Combination which occurred after September 30, 2023, therefore there was no loss during the nine months ended September 30, 2023. Changes in the fair value of warrant liabilities are related primarily to changes in share market price.

Previous wording

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.

Current wording

Gain due to change in fair value of earnout liability was $172.3 million for the nine months ended September 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 regarded performance expectations in Q4, 2024 due to timing of contracts, and a $142.3 million decrease in the remaining earnout liabilities due to a decrease in the market price of the Company’s stock between December 31, 2023 and September 30, 2024. The earnout liability relates to the Business Combination which occurred after September 30, 2023, therefore, there was no such loss during the nine months ended September 30, 2023. As of September 30, 2024, all EBITDA and revenue based earnout shares have been earned or forfeited. The remaining earnout shares based on Company stock price targets have been reclassified to equity and will not require subsequent fair value measurement. See Note 12 – Earnouts in the Company’s unaudited condensed consolidated financial statements.

Previous wording

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.

Current wording

Foreign exchange transaction gain increased$0.7 million to$0.3 million for the nine months ended September 30, 2024, compared to ($0.4) million loss for the nine months ended September 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 nine months ended September 30, 2023, and weakened against the Euro during the nine months ended September 30, 2024.

Previous wording

Income tax benefit was less than $0.1 million for both the six months ended June 30, 2024 and June 30, 2023.

Current wording

Income tax benefit was less than $0.1 million for both the nine months ended September 30, 2024, and September 30, 2023.

Previous wording

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:

Current wording

The following table presents selected information about our segments’ results for the nine months ended September 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:

Previous wording

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. SeeDeconsolidation of Falcon’s Creative Group LLC under Note 1 – Description of business and basis of presentation.

Current wording

Total revenue for the nine months ended September 30, 2024 decreased $10.7 million to $5.4 million compared to $16.1 million for the nine months ended September 30, 2023, primarily driven by a decrease of $14.5 million due to the deconsolidation of FCG. This decrease is partially offset by an increase of $4.9 million for services provided to equity method investees. SeeDeconsolidation of Falcon’s Creative Group LLC under Note 1 – Description of business and basis of presentation in the Company’s unaudited condensed consolidated financial statements.

Previous wording

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:

Current wording

Total segment loss from operations decreased$13.1 million to a ($0.3)million loss for the nine months ended September 30, 2024, compared to ($13.4) million loss for the nine months ended September 30, 2023, due to the following:

Previous wording

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.

Current wording

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, intangible asset impairment loss, and gain on deconsolidation of FCG.

Previous wording

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.

Current wording

Adjusted EBITDA increased by $4.6 million from ($6.2) million loss to ($1.6) million loss for three months ended September 30, 2024, primarily due to an increase of $1.6 million in gain from equity method investments, an increase of $1.7 million in foreign exchange transaction gains, a decrease in project design and build expenses due to FCG’s deconsolidation of $0.7 million, a decrease in research and development expenses due to FCG’s deconsolidation of $0.3 million, and an increase in net sales of $0.5 million for the three months ended September 30, 2024. These increases were partially offset by increase in selling, general and administrative expenses of $0.2 million for the three months ended September 30, 2024. Adjusted EBITDA increased by $14.5 million from ($22.6) million loss to ($8.1) million loss for nine months ended September 30, 2024, primarily driven by a decrease of $6.5 million selling, general, and administrative expenses due to reduction in third party accounting, audit, and legal fees relating to public company readiness, an increase of $6.6 million in the share of gain from equity method investments, a decrease in project design and build expenses due to FCG’s deconsolidation of $10.2 million, a decrease in research and development expenses due to FCG’s deconsolidation of $1.2 million for the nine months ended September 30, 2024. These increases were partially offset by a $10.7 million decrease in net sales for the nine months ended September 30, 2024.

Previous wording

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.

Current wording

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, location-based entertainment, media production, and research and development for growth initiatives. Our principal sources of liquidity are funds from borrowings, equity contributions from our existing investors, distributions from equity method investees and cash on hand.

Previous wording

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.

Current wording

As of September 30, 2024, our total indebtedness was approximately $35.9 million. We had approximately $0.8 million of unrestricted cash and $6.9 million available for borrowing under our lines of credit.

Previous wording

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.

Current wording

Following the amendments to the loans above, Katmandu Ventures and Universal Kat assigned the loans (in part for Kat 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. For more detail, see Note 6 – Long-term debt and borrowing arrangements in the Company’s unaudited condensed consolidated financial statements. The repayment schedules of these two loans were modified again on October 18, 2024, see Note 17 – Subsequent Events in the Company’s unaudited condensed consolidated financial statements for further details.

Previous wording

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.

Current wording

We anticipate managing our operations to ensure that our existing cash on hand and unused capacity on our existing lines of credit, along with distributions from equity method investees, 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.

Previous wording

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.

Current wording

For the nine months ended September 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 September 30, 2024, we have $24.3 million of accrued expenses and other current liabilities, which include $18.2 million of transaction related professional fees, $2.2 million of excise tax payable on FAST II stock redemptions, $1.2 million of accrued payroll and related expenses, and approximately $2.7 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 September 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.

Previous wording

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.

Current wording

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. This agreement was amended on October 24, 2024. See Note 17 – Subsequent Events in the Company’s unaudited condensed consolidated financial statements.

Previous wording

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.

Current wording

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 $6.3 million and $15.7 million, respectively, are not yet settled as of September 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.

Previous wording

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.

Current wording

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 and in Form 10-Q filed on August 13, 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 thealleged 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.

Previous wording

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.

Current wording

The Company has entered into various financing agreements with Infinite Acquisitions. As of September 30, 2024, we have aggregate outstanding balances of $22.8 million under these financing agreements.

Previous wording

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.

Current wording

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 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.

Previous wording

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.

Current wording

For more information regarding our related party transactions, see Note 6 — Long-term debt and borrowing arrangements and Note 7 — Related party transactions in the Company’s unaudited condensed consolidated financial statements.