‘Substantial doubt’ Trump’s Truth Social will survive, accountants warn

New York (CNN) — Former President Donald Trump’s social media venture Truth Social is burning cash and piling up losses so rapidly that accountants warn it might not survive unless it soon completes a long-delayed merger, according to corporate filings.

Trump Media & Technology Group (TMTG), which is chaired by the former president, has lost $31.6 million since the company launched in early 2021, SEC filings released Monday show.

Truth Social launched in early 2022 as an alternative to Twitter, which is now known as X and is owned by billionaire Elon Musk. At the time, Trump had been banned from what was then Twitter for breaking the platform’s rules on promoting violence during the January 6 riot. His account has since been reinstated.

But Trump’s social media platform has struggled to gain popularity, with its 861,000 monthly active users on iOS and Android as of October amounting to barely 1% of those on X, according to Similarweb.

With cash levels dwindling, Trump Media’s management and accountants are warning there is no guarantee the company will stay afloat.

“TMTG has suffered negative cash flows and recurring losses from operations that raise substantial doubt about its ability to continue as a going concern,” the filing said, citing an assessment from an independent accounting firm and financial statements.

Trump Media’s management believes capital raised from the merger will be “sufficient” to retire debt and fund operations, the filing said.

Still, as of the end of June management had “substantial doubt” that the company will have “sufficient funds to meet its liabilities as they fall due,” according to a filing.

Trump Media’s management indicated that having sufficient funds is “directly conditional” on completing its merger by the end of this year and added that additional bridge funding “may be required” before then. Trump Media executives are also in talks with investors about extending debt maturity dates and raising new funds through convertible debt, the filings say.

Trump Media and Digital World said the filing of the financial documents on Monday mark a key step forward towards finalizing their merger.

“We believe that today marks a monumental milestone toward completing the Business Combination, and we look forward to working with the SEC to bring this deal to a close as quickly as possible,” Trump Media CEO Devin Nunes said in a statement. “Truth Social aims to be more than a social media platform—we aspire to become the centerpiece of a movement, as well as a method for Americans to invest in their freedom.”

Trump, whose companies have a long history of bankruptcy, announced plans in 2021 to launch a new social media platform that would “stand up to the tyranny of Big Tech.”

But Trump Media’s plan to go public by merging with a blank-check company known as a SPAC, or special purpose acquisition company, has been delayed by a series of investigations into the controversial deal. That merger is key for the survival of Trump Media as it would unlock hundreds of millions of dollars in funding.

“Based on the financials, I’d expect they want to get the deal done ASAP,” said Matthew Kennedy, principal analyst at Renaissance Capital, a provider of pre-IPO research and IPO-focused ETFs. “TMTG is currently not able to fund itself through operations.”

Kennedy said the “substantial doubt” warning is a “good reminder to investors that it’s a very real possibility that TMTG could shut down, given its operating losses and cash-on-hand.”

However, Kennedy added that this concern would be eased if Trump Media is able to raise cash through the merger.

The SEC filings indicate Trump Media lost $59.1 million in 2021 before posting a net profit of $50.5 million in 2022. Trump Media incurred $23 million of losses during the first six months of this year, the filings say.

Trump Media burned through $7.4 million of cash through the first six months of this year alone, according to filings. It was sitting on just $2.4 million of cash as of the end of June, down from $9.8 million at the end of 2022 and $18.7 million at the end of 2021.

Matthew Tuttle, CEO of Tuttle Capital Management, said the filings make it look like Trump Media “may be circling the drain.”

The company acknowledges it “may not be successful in its efforts to grow and monetize Truth Social” and it faces “significant competition” for ad dollars.

To preserve cash, Trump Media previously paused hiring; this past March it eliminated “several” positions, according to the filings. The company has also cut spending on travel, rent, consulting fees and professional services.

Still, Digital World, the blank-check firm seeking to merge with Trump Media, is bullish on the venture.

Digital World’s board believes that if Trump Media is “properly capitalized,” it is “very well positioned to grow a user base at an accelerated base,” the SEC filings say. Citing Trump’s massive social media following, the board argued Trump Media is “positioned to exceed” the blockbuster growth of Facebook when it went from 1 million users to 10 million in three years.

The SPAC deal to bring Trump Media public has been clouded by legal issues.

Earlier this year, federal prosecutors leveled insider trading charges against three investors, alleging they made more than $22 million by illegally trading on nonpublic knowledge of the Trump Media secret merger plan. There is no allegation that Donald Trump had any involvement at all in the alleged insider trading.

Digital World settled charges in July from the Securities and Exchange Commission that alleged the company violated anti-fraud laws by failing to disclose it was actively pursuing a deal with Trump Media before news went public.

There are also risks related to Trump himself, of course.

The SEC filings note that Trump Media’s success depends in part on the “reputation and popularity of its Chairman, President Donald J. Trump.”

“The value of TMTG’s brand may diminish if the popularity of President Trump were to suffer,” the filing said. Already, according to the filing, “several potential third-party partners have expressed an unwillingness or reluctance to work on TMTG’s products or provide services for reasons including TMTG’s connection with President Trump.”

Another risk, according to Trump Media, is if Trump were to “cease to be able to devote substantial time to Truth Social,” a development that would “adversely” impact the business.

Trump is the frontrunner for the 2024 GOP nomination for president. He has also been indicted on federal and state charges in four separate cases. He denies all wrongdoing.

CNN’s Chris Isidore contributed to this report.

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