# Falcon's Beyond Global, Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Falcon's Beyond Global, Inc.](/companies/fbyd.md) (CIK 1937987)
- Form: 10-Q
- Filed: 2024-05-16
- Accepted by EDGAR: May 16, 2024, 21:05 ET
- Period: 2024-03-31
- Accession: 0001213900-24-044383
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1937987/000121390024044383/ea0206179-10q_falcons.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1937987/000121390024044383/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $1.5m | us-gaap:Revenues |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $16.0k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-01-01 to 2024-03-31 | $6.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$5.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | −$1.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $114.0m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $1.53 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $1.90 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 9,209,020 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$3.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $4.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $1.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $6.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $67.8m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $197.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $442.1m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $20.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $6.7m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2024-03-31 | $8.5m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-03-31 | −$61.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 40,329 characters.

*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 months ended March 31, 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 months ended March 31, 2024 and March 31, 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 generates 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.

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. As a result, the Company has incurred a loss from operations, an accumulated deficit, and negative cash flows from operating activities for the three months ended March 31, 2024. Accordingly, as of May 16, 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 March 31, 2024, the Company has incurred 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 ($36.2) million which excludes non-cash earnout liability balance as of March 31, 2024. Additionally, the Company has $15.1 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.

### 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.

The results of operations for the three months ended March 31, 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 March 31, 2024 | Three months ended March 31, 2023 |
| --- | ---: | ---: |
| Revenue | $1,516 | $9,194 |
| Expenses: |  |  |
| Project design and build expense | - | 6,288 |
| Selling, general and administrative expense | 6,793 | 9,749 |
| Transaction expenses | 7 | - |
| Credit loss expense | 12 | 254 |
| Research and development | 16 | 463 |
| Depreciation and amortization expense | 1 | 1,342 |
| **Loss from operations** | **(5,313)** | **(8,902)** |
| Share of gain or (loss) from equity method investments | 1,154 | (1,279) |
| Interest expense | (269) | (271) |
| Interest income | 3 | - |
| Change in fair value of warrant liabilities | 208 | - |
| Change in fair value of earnout liabilities | 118,615 | - |
| Foreign exchange transaction gain (loss) | (375) | 599 |
| **Net loss** | $114,023 | $(9,853) |
| Income tax benefit | 1 | 3 |
| **Net loss** | $114,024 | $(9,850) |

28

#### Revenue

| Services transferred over time: | Three months ended March 31, 2024 | Three months ended March 31, 2023 |
| --- | ---: | ---: |
| Design and project management services | $- | $5,916 |
| Media production services | - | 75 |
| Attraction hardware and turnkey sales | - | 1,874 |
| Other | 1,516 | - |
| Total revenue from services transferred over time | 1,516 | 7,865 |
| **Services transferred at a point in time:** |  |  |
| Digital media licenses | - | 1,329 |
| Total revenue from services transferred at a point in time | - | 1,329 |
| **Total revenue** | **$1,516** | **$9,194** |

Revenue decreased by $7.7 million to $1.5 million for the three months ended March 31, 2024, compared to $9.2 million for the three months ended March 31, 2023. The decrease was primarily attributable to a $7.9 million decrease in revenue relating to services provided by FCG during the three-month period ending March 31, 2023 which have since been deconsolidated by FBG. As a result of the deconsolidation, there was a $1.5 million increase in revenue associated with shares services provided by FBG to FCG during the three-month period ending March 31, 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 $2.9 million to $6.8 million for the three months ended March 31, 2024, compared to $9.7 million for the three months ended March 31, 2023. The decrease was primarily related to a $4.7 million decrease in audit fees and professional services fees, and the deconsolidation of FCG, partially offset by incremental shared-services headcount to support the expansion of the business and for public company related costs.

#### Credit loss expense

Credit loss expenses decreased by $ 0.3 million to less than $0.1 million for the three months ended March 31, 2024, compared to $0.3 million for the three months ended March 31, 2023, which was related to digital media sales to Sierra Parima joint venture. Katmandu Park DR was closed to visitors on March 7, 2024 and all remaining Sierra Parima receivables were written off as credit loss expense during the year ended December 31, 2023. The Katmandu Park DR related receivables accounted for most of the delinquent receivables, therefore the amount of credit loss expense is lower during the three months ended March 31, 2024.

#### Research and Development

Research and development expense decreased by $0.5 million to less than $0.1 million for the three months ended March 31, 2024, compared to $0.5 million for the three months ended March 31, 2023 due to completion of FBB division projects in 2023. There were no FBB research and development projects in the three-month period ended March 31, 2024.

#### Depreciation and amortization expense

Depreciation and amortization expense decreased by $1.3 million to less than $0.1 million for the three months ended March 31, 2024, compared to $1.3 million for three months ended March 31, 2023, relating primarily to the amortization of the digital ride media asset of $1.1 million recognized in the three months ended March 31, 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 three months ended March 31, 2024.

#### Share of gain or (loss) from equity method investments

|  | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Change |
| --- | ---: | ---: | ---: |
| PDP | $534 | $91 | $443 |
| Sierra Parima | - | (1,372) | 1,372 |
| Karnival | 87 | 2 | 85 |
| FCG | 533 | - | 533 |
| **Total share of gain or (loss) from equity method investments** | $1,154 | $(1,279) | $2,433 |

Share of gain from equity method investments increased by $2.4 million to 1.1 million for the three months ended March 31, 2024, compared to a ($1.3) million loss for the three months ended March 31, 2023. The change in gain or loss from equity method investments was driven by:

- ***FCG:*** Share of net income from FCG was $0.5 million for the three months ended March 31, 2024 which was consolidated by the Company during the three months ended March 31, 2023.

FCG recorded revenues of $14.9 million in the three-month period ended March 31, 2024 representing an increase of $6.9 million or 87% over the corresponding period of 2023 when FCG was fully consolidated by the Company. Operating income of $1.6 million, and net income of $1.8 million were earned during the three months ended March 31, 2024, compared with an operating loss of $1.2 million and net loss of $1.2 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. There were adjustments of $(1.3) million comprised of $(0.5) million in accretion of preference dividend and fees, and $(0.8) million in amortization of basis difference, which further reduced the share of FCG income recorded to $0.5 million. See Note 4– Investments and advances to equity method investments in the Company’s unaudited condensed consolidated financial statements. 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. The Company recognized $9.8 million in revenue relating to this Dragon Ball consultancy agreement during the three months ended March 31, 2024
- ***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 March 31, 2024, compared with a $1.4 million share of net loss during the three months ended March 31, 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 March 31, 2024, primarily driven by a $1.1 million increase in revenue and a $0.4 million favorable change in derivatives which changed from loss to income, driven by interest rate swaps within the hotel group. These favorable changes were offset by a $0.3 million increase in hotel expenses and a $0.5 million unfavorable change in income taxes, which changed from a benefit to a loss.
- ***Karnival:*** A $0.1 million increase in share of net income from Karnival for three months ended March 31, 2024, primarily driven by interest income.

#### Change in fair value of warrant liability

Gain due to change in fair value of warrant liabilities was $0.2 million for the three months ended March 31, 2024. The warrant liability relates to the Business Combination which occurred after March 31, 2023, therefore there was no such loss during the three months ended March 31, 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 $118.6 million for the three months ended March 31, 2024, driven by a decrease in the market price of the Company’s stock between December 31, 2023 and March 31, 2024. The earnout liability relates to the Business Combination which occurred after March 31, 2023, therefore, there was no such loss during the three months ended March 31, 2023. The valuation of performance-based awards, such as earnouts, are sensitive to revenue, EBITDA, and changes in share market price.

#### Foreign exchange transaction loss

Foreign exchange transaction loss decreased by $1.0 million to ($0.4) million for the three months ended March 31, 2024, compared to $0.6 million for the three months ended March 31, 2023. The decrease was primarily attributable to the unrealized foreign exchange gain (loss) on U.S. denominated related party debt with a Spanish subsidiary as the U.S. dollar strengthened against the Euro during the quarter ended March 31, 2024 and weakened against the Euro during the quarter ended March 31, 2023.

#### Income tax

Income tax benefit was less than $0.1 million for both the three months ended March 31, 2024 and March 31, 2023.

### Segment Reporting

The following table presents selected information about our segment’s results for the three months ended March 31, 2024, and 2023. Subsequent to FCG’s deconsolidation on July 27, 2023, FCG segment income or loss is comprised of only of the Company’s equity method share of FCG’s income or loss:

| Revenues: | Three months ended March 31, 2024 | Three months ended March 31, 2023 |
| --- | ---: | ---: |
| Falcon’s Creative Group | $- | $8,002 |
| Destinations Operations | (2) | - |
| Falcon’s Beyond Brands | - | 1,477 |
| Intersegment eliminations | - | (285) |
| Unallocated corporate revenue | 1,518 | - |
| **Total revenue** | 1,516 | 9,194 |
| Segment income (loss) from operations: |  |  |
| Falcon’s Creative Group | 533 | (413) |
| Destinations Operations | (414) | (547) |
| PDP | 534 | 91 |
| Sierra Parima | - | (1,372) |
| Falcon’s Beyond Brands | (663) | 129 |
| Intersegment eliminations | - | (226) |
| **Total segment loss from operations** | (10) | (2,338) |
| Unallocated corporate overhead | (4,148) | (6,501) |
| Depreciation and amortization expense | (1) | (1,342) |
| Interest expense | (269) | (271) |
| Interest income | 3 | - |
| Change in fair value of warrant liabilities | 208 | - |
| Change in fair value of earnout liabilities | 118,615 | - |
| Foreign exchange transaction (loss) gain | (375) | 599 |
| **Net loss before income taxes** | $114,023 | $(9,853) |
| Income tax benefit | 1 | 3 |
| **Net loss** | $114,024 | $(9,850) |

Total revenue for the three months ended March 31, 2024, decreased by $7.7 million to $1.5 million compared to $9.2 million for the three months ended March 31, 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 loss from operations for the three months ended March 31, 2024, decreased by $2.2 million to less than ($0.1) million compared to ($2.3) million for the three months ended March 31, 2023, due to the following:

- FCG segment income from operations for the three months ended March 31, 2024, increased by $0.9 million to $0.5 million as compared to loss of $0.4 million in the three months ended March 31, 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 $(1.3) million comprised of $(0.5) million in accretion of preference dividend and fees, and $(0.8) million in amortization of basis difference, which further reduced the share of FCG income recorded to $0.5 million.
- Destinations Operations segment loss from operations for the three months ended March 31, 2024, decreased $0.1 million to $0.4 million loss compared to loss of $0.5 million for the three months ended March 31, 2023. The small decrease in loss is related to a $0.1 million increase in share of equity method income allocated to Destinations Operations, related to interest income, for the quarter ended March 31, 2024 compared to March 31, 2023.
- PDP segment income for the three months ended March 31, 2024, increased to $0.5 million from $0.1 million for the three months ended March 31, 2023. PDP’s underlying revenues increased $1.3 million to $7.5 million for the three-months ended March 31, 2024 driven by increases in rate at the Mallorca and Tenerife hotel properties. Net income increased to $1.0 million from $0.2 million for the three -months ended March 31, 2024 driven by a $0.8 million flow through of increased revenues to operating profit and a $0.5 million increase in derivative and other net income, partially offset by a $0.5 million increase in income tax expenses. The Company recognized its 50% share of earnings within the PDP segment.
- Sierra Parima segment loss for the three months ended March 31, 2024, was zero compared to ($1.4) million for the three months ended March 31, 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 quarter ending March 31, 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 income (loss) from operations for the three months ended March 31, 2024 decreased $0.8 million to ($0.7) million compared to income of $0.1 million for the three months ended March 31, 2023. For the quarter ended March 31, 2023, FBB recognized $1.5 million of revenue related to a digital media licensing contract with Sierra Parima. This revenue was offset by $1.0 million selling, general and administrative expenses and $0.4 million research and development expense, resulting in income of $0.1 million for FBB for the quarter ended March 31, 2023. For the quarter ended March 31, 2024, income decreased by $1.5 million to $0 since FBB did not have any income, and additionally, selling, general, and administrative expenses as well as research and development expense both decreased by $0.3 and 0.4 million, respectively, resulting in segment loss of $(0.7) million.
- Intersegment eliminations decreased by $0.2 million for the three months ended March 31, 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 16 – 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 interest expense, net, 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, 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 March 31, 2024 | Three months ended March 31, 2023 |
| --- | ---: | ---: |
| **Net income (loss)** | $114,024 | $(9,850) |
| Interest expense | 269 | 271 |
| Interest income | (3) | **—** |
| Income tax benefit | (1) | (3) |
| Depreciation and amortization expense | 1 | 1,342 |
| **EBITDA** | 114,290 | **(8,240)** |
| Transaction expenses | 7 | **—** |
| Credit loss expense | 12 | 254 |
| Change in fair value of warrant liabilities | (208) | **—** |
| Change in fair value of earnout liabilities | (118,615) | **—** |
| **Adjusted EBITDA** | **$(4,514)** | **$(7,986)** |

Net income increased by $123.9 million to $114.0 million for the three months ended March 31, 2024, compared to ($9.9) million loss for the three months ended March 31, 2023, primarily driven by a $118.6 million gain from change in fair value of earnout liabilities. Adjusted EBITDA increased from $(8.0) to ($4.5) million for three months ended March 31, 2024, primarily driven by lower selling, general and administrative expenses and depreciation due to deconsolidation of FCG on July 27, 2023, and due to reduction in third party accounting, audit, and legal fees relating to public company readiness.

### 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 March 31, 2024, our total indebtedness was approximately $35.6 million. We had approximately $1.1 million of unrestricted cash and $3.9 million available for borrowing under our lines of credit.

During the three months ended March 31, 2024, Infinite Acquisitions loaned an additional $4.7 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 $1.279 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. See Note 6 – Long-term debt and borrowing arrangements and Note 17 – Subsequent events in the Company’s unaudited condensed consolidated financial statements.

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 three months ended March 31, 2024, we have operational losses and negative cash flows from operating activities that raise substantial doubt about our ability to continue as a going concern. As of March 31, 2024, we have $20.7 million of accrued expenses and other current liabilities, which include $17.3 million of transaction expenses relating to the Business Combination, $2.2 million of excise tax payable on FAST II stock redemptions which is not payable until forthcoming treasury regulations are finalized, $0.7 million of accrued payroll and related expenses, and approximately $0.5 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 March 31, 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.”*

### 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 March 31, 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 March 31, 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.

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, the Company was served with a complaint (the “Guggenheim Complaint”) on March 27, 2024 in which Guggenheim Securities, LLC (“Guggenheim”) alleges breach of a contract with Guggenheim. 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 which was consummated on October 6, 2023. 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 a contract 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 March 31, 2024, we have aggregate outstanding balances of $21.9 million under these financing agreements. Additionally, in March 2024, the Company entered into a one-year $7.221 million term loan with Katmandu Ventures LLC, a greater than 10% shareholder of the Company. The loan bears interest at 8.875% per annum, which is payable quarterly in arrears.

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:

|  | Three months ended March 31, 2024 | Three months ended March 31, 2023 |
| --- | ---: | ---: |
| Cash used in operating activities | $(3,768) | $(6,498) |
| Cash used in investing activities | (2,096) | (133) |
| Cash provided by (used in) financing activities | 6,231 | (178) |

### 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 three months ended March 31, 2024 was ($3.8) million compared to ($6.5) million for the three months ended March 31, 2023, representing $2.7 million less cash used in operating activities due to a reduction in legal and professional fees, the deconsolidation of FCG and changes in working capital driven by the expansion of the business.

### Cash Flows from Investing Activities

Our primary investing activities consisted of the purchase of property, plant and equipment and proceeds from the sale of equipment. Net cash used in investing activities was ($2.1) million during the three months ended March 31, 2024, compared to ($0.1) million net cash used by investing activities during the three months ended March 31, 2023, primarily related to purchases of computer equipment and $2.1 million short-term advance made to FCG.

### Cash Flows from Financing Activities

Net cash provided by financing activities increased to $6.2 million in the three months ended March 31, 2024, compared to $(0.1) million in the three months ended March 31, 2023. The cash provided by financing activities in the three months ended March 31, 2024 consisted primarily of (i) $4.7 million in proceeds from and $5.4 million in repayment of the $10.0 million related party revolving credit arrangement with Infinite Acquisitions, (ii) $1.2 million repayment of related party term loans, (iii) $7.2 million of proceeds from related part term loans (iv) $0.4 million repayment of third party term loans, (v) $1.3 million proceeds from third party term loans, and (vi) $0.1 million in proceeds from exercised warrants. See Note 6 — Long-term debt and borrowing arrangements.

## Controls and procedures

As filed, 10,104 characters.

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 March 31, 2024, our disclosure controls and procedures were not effective 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.

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.

#### 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 March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 690 characters.

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.

Filed May 16, 2024.
Source: SEC EDGAR, the filing index for accession 0001213900-24-044383. Last ingested by Listed: Oct 24, 2026, 15:16 ET. No prices; not investment advice.