2017 年 9 月 1 日に開始したベンの主な事業は、流動性および信託管理製品およびサービスに関するものです。ベンは、以下を含む営業子会社を通じて製品およびサービスを提供する、または提供する計画です。 （ i ） Ben AltAccess ， L. L.C. 、デラウェア州の有限責任会社 （ 「 Ben AltAccess 」 ） は、代替資産の流動性、保管、信頼およびデータサービスを求めるお客様にデジタルエクスペリエンスを提供するように設計されたオンラインプラットフォームを提供している。 （ ii ） Ben Liquidity， L. L.C.流動性商品を提供するデラウェア州有限責任会社およびその子会社 （ 総称して「 Ben Liquidity 」 ） 、 （iii） Ben Custody， L. L.C. 、プライベートファンド、受託者、および信託管理のためのサービスを提供するデラウェア州有限責任会社、およびその子会社 （ 総称して、「 Ben Custody 」 ） 、 （ iv ） Ben Data， L. L.C. 、デラウェア州
2023年6月6日，Beneficient Company Group，L.P.はその規制と税務地位をデラウェア州有限組合からネバダ州社に変更し，その名称をBeneficient Company Group，L.P.からBeneficientに変更した。受益者は税務選択を行い、アメリカの税務については会社とみなされ、即日から発効する。
再編によりBeneficientが会社になるまで，Beneficientはデラウェア州有限共同企業として納税されていた。その後の実体であるBeneficient a Corporationが税務機関の監査を受け、前の納税年度の減納税で追加額を評価した場合、経営陣は米国財務省が許可した推選を行う予定だ。今回の選挙は、Beneficientが現在の納税申告書で推定した少額額のシェアをパートナーに通知することを可能にした。
2023年6月7日、会社はこれまでに発表されたAvalonのDe-SPACとの合併取引を完了した。その日の直前に発行·発行された1株当たりAvalon普通株は自動的に1つは クラス A 普通株式の株式と 1つは シリーズ A の優先株のシェア。さらに、各アバロン令状 （ 下記に定義 ） は自動的に令状 （ 下記に定義 ） に変換されます。
そのため、当社は(I)合共を発行します99,649 Avalon のクラス A 普通株式およびクラス b 普通株式の元保有者にクラス A 普通株式の株式を、額面価値 $0.0001 1 株当たり （ 「アバロンクラス b 普通株式」 ） 、 2023 年 6 月 7 日直前に発行済、および （ ii ） の合計 34,961 Beneficial Series A の優先株式を償還しない Avalon Class A 株主に、 Avalon ワラントの合計に換算しました。 295,313 償還可能な令状。閉店時、 $27.9アバロンの信託口座にはまだ1億8千万ドルの現金がある。ドルがあります26.12000万ドルの取引費用、ドル20.0このうち1，000，000ドルは長期購入プロトコルの下での備蓄金額であり，Avalonが成約前に支払うか，会社が成約時に受け取った収益と相殺した結果，#ドルであった1.8純収益1000万ドルを会社に渡す。取引所が得たお金は取引に関連する費用の支払いに使われる。
業務統合に続いて2,358,429 クラス A 普通株式が発行され、発行済。 239,256 クラス b 普通株式が発行され、発行済。 34,962 Beneficiant Series A 優先株の発行と発行 296,969 命令状が発行され、未払い。シリーズ A 優先株は上場する予定ではないため、ベネフィアシリーズ A 優先株の条件は、発行時に、シリーズ A 優先株の各株が自動的にベネフィアのクラス A 普通株の 4 分の 1 、または以下の合計に転換されることを規定しています。 8,595 クラス A 普通株式の追加株式。このような転換の後、 2,367,244 事業合併後のベネフィアーのクラス A 普通株式の株式。
【 As of 2024 年 9 月 30 日 2024年3月31日, 当社は、 Beneficient Management Partners ， L. P. の下で優秀な株式ベースの賞を有しています。“骨形態発生蛋白”)持分インセンティブ計画(“BMP持分インセンティブ計画”)、利益2023年長期インセンティブ計画(“2023年インセンティブ計画”)、およびBCH 第一選択A.1以下でより完全に説明する。
清盤か解散かそれは.A系列優先株の初期清算優先権は$0.001 1 株当たり、および未払い配当 （ 「清算優先権」 ） を加算します。当社の清算、解散または清算の場合、シリーズ A 優先株式の保有者は、シリーズ A 優先株式 1 株当たり、清算優先権、またはシリーズ A 優先株式転換日以前に、その金額の大きい場合は、当該清算事象の直前に当該シリーズ A 優先株式をクラス A 普通株式に転換した場合に受け取った金額を受け取る権利があります。
変換、譲渡、交換が可能です。 定款により、シリーズ A 優先株式は上場予定ではないため、発行時にシリーズ A 優先株式の各株式は自動的にクラス A 普通株式の 4 分の 1 に転換されます。
優先。 受益者の清算、清算または解散に伴う配当権および / または配当権に関して、 Series b の優先株式のランクは、 （ i ） 普通株式に準ずるランク、 （ ii ） シリーズ A の優先株式と同等である。三当該優先株に関する条件に定める他の優先株の序列について上級、同級又は下級（ iv ） 受益者のすべての既存および将来の負債に対するジュニア。
清盤か解散かそれは.B系列優先株の初期清算優先権は#ドルである10.00 1 株当たり、宣言済だが未払いの配当 （ 「シリーズ b 清算優先」 ） を加算。当社の清算、解散または清算の場合、シリーズ b 優先株の保有者は、当該清算事象の直前に当該シリーズ b 優先株の株式がクラス A 普通株式に転換された場合に得られるシリーズ b 清算優先株額を、シリーズ b 優先株 1 株当たり受け取る権利があります。
変換、譲渡、交換が可能です。 A 級普通株式の株式を株式その他の有価証券その他の財産又は資産に転換又は交換する特定臨時取引が発生した場合（ 現金又はその組合せを含む ） 、当該事象の直前に発行されているシリーズ b 優先株の各株式は、シリーズ b 優先株の保有者の同意なしに、当該保有者が当該事象の直前にシリーズ b の優先株式をクラス A の普通株式に転換した場合には、当該保有者が受領する権利があった株式、その他の有価証券その他の財産又は資産の種類に転換可能となる。
オプションで変換できます転換価格は，一般にB系列優先株発行時のA類普通株の出来高重み付け価格によって決定される.B系列優先株のサブクラス別転換価格は#ドルから様々である5.38 to $436.80 (the「コンバージョン価格」。シリーズ b 優先株式の各株式は、その保有者の選択により、 $に等しいクラス A 普通株式の株式に転換できます。10.00 当該通知の日付で有効な換算価格 （ 「換算レート」 ） で割った金額。換算価格は、シリーズ b 優先株の発行日以降の一定の日 （ 一般的には毎月 ） にリセットされ、リセット換算価格は以下の値を下回って調整することはできません。 50初期変換価格の% または一般的に、初期変換価格よりも高い。2024 年 9 月 30 日現在発行されているシリーズ b 優先株の株式を基に、シリーズ b 優先株の転換時に発行可能なクラス A 普通株式の最大数は、 165,037 株式だ
強制転換それは.B系列優先株の1株当たり流通株は自動的にいくつかのA類普通株(“強制転換”)に変換され、変換速度は次の日の中で最も早く発生した日：(A)210 カレンダー日数 （ シリーズ b—1 優先株の場合 ） および 60 （ b ） （ a ） の条件が満たされていない場合、特定の条件を条件として、元の発行日から数ヶ月 （ その他のシリーズ b 優先株のサブクラスについては ） 。 210 カレンダー日数 （ シリーズ b—1 優先株の場合 ） および 60 （ その他のシリーズ b 優先株のサブクラスについては ） 当初の発行日から数ヶ月後、証券法第 144 条又は転売登録書に基づきシリーズ b—1 優先株の株式が転売され得る最初の日付、およびシリーズ b—1 優先株にのみ適用される場合、 （ c ） 1 年間 原創刊日の記念日。シリーズ b—1 の優先株式は、保有者が A 級普通株式を超えることを招く範囲において、 A 級普通株式に転換してはならない。 9.99転換の効力発生直後に発行されているクラス A 普通株式の株式数の% （ 「実質所有制限」 ） 、シリーズ b 優先株式のその他のサブクラスには 4.99所有権制限の割合を得ることができます
♪the the theBCH 優先 A.0 は、保有者の選択により、 （ i ） ドルの平均に等しい価格でクラス S ユニットに変換することができます。840.00A類普通株の出来高加重平均終値(20)が適用される交換日の数日前であるが、この両替価格は、“BCH LPA”の発効から2027年12月31日まで$を下回ってはならない840.00.
一般的に、四半期ごとに、保有者の選出により、 BCH クラス S 優先単位は、 BCH クラス S 通常単位と交換可能です。 1.2—for—1 ベース。BCH クラス S 普通株式は、上記のようにクラス A 普通株式に交換することができます。また、クラス A 普通株式への転換は、発行されたクラス A 普通株式 1 株につき、 Ben LLC に BCH クラス A ユニットを発行することになります。BCH クラス S 優先ユニットの保有者は、 BCH の売却または解散に関連して、 BCH クラス S 通常ユニットに転換することを選択することができます。
その会社は所有している三つ Ben Liquidity 、 Ben Custody 、 Customer ExAlt Trusts からなる報告セグメント。今後、 Ben Insurance Services や Ben Markets を含む報告可能なセグメントが追加される予定です。
Ben Liquidは、会社のコア運営センターとして、AltAccessを介してベンの受託した別の資産流動性と融資製品を提供することを担当している。BENホストは、顧客に全方位的なカスタマイズされたホストおよび信託管理サービスおよび専用のファイルマネージドサービスを提供することによって、代替資産を持つ管理および規制負担を解決する製品を提供する。本運営子会社のいくつかの製品およびサービスは、特定の顧客高級信託会社に関連または提供される。ある顧客高級信託基金は別の資産の権益を持っているため、収益の中でこのような資産の純資産値の変化を確認する。いくつかの他の顧客高級信託は、本流動資金に高額融資の利息を支払い、本流動資金及び本信託に流動資金取引に関する取引費用を支払い、顧客高級信託の受託者に全方位サービス信託管理サービスを提供するために、本信託に費用を支払う。本流動資金と当信託に支払われる金額は財務報告目的我々の連結財務諸表では、収益(損失)を自社とBCHの持分所有者に直接影響する
会社およびその他のカテゴリには、以下の項目およびその他の項目が含まれている
•株式ベースの報酬
•当社が保有するGWG Wind Down Trust(またはGWG Holdingsの普通株とL債券は、適用に準じて)権益の公正価値変動による収益(損失)；
2022年2月18日Paul Capital Advisors(“PCA”)はMHT、ベン、二つ トラストアドバイザー （ 「トラストアドバイザー」 ） 、 Murray Holland （ MHt の共同所有者であり、 2019 年半ばから 2022 年 11 月まで GWG Holdings の社長兼 CEO を務めた ） 、および James Turvey （ Ben の従業員 ） 。ベンが被告として指名された間、 PCA はベンに対する請求を主張したり救済を求めたりせず、代わりに信託顧問の解任と交換を求めました。この訴訟は、 MHt を唯一の受益者として信託構造を利用した一連の取引に関するものです。
2022年4月18日、PCAは最初の起訴状を修正した。修正された起訴状は6人 （ i ） Ben 、 MHt 、および Trust Advisors に対する契約違反の申し立て、 （ ii ） MHt 、 Ben および Ben の特定の役員に対する詐欺の申し立て、および MHt 、 Ben 、および Trust Advisors に対する約束の禁止等を含む、同じ一連の取引から生じる新たな訴訟の原因。修正された苦情はまた、 （ x ） 「裁判で証明される金額」の損害賠償金と （ y ） 取引契約の 1 つまたはそれを無効に宣言する保有の修正の解除を付与する命令の形で追加の救済を求めました。
2024年4月19日、訴訟受託者は、テキサス州南区の米国破産裁判所において、自社、自社、BCH、Benficient Capital Company II、L.L.C.，f/k/a Beneficient Capital Company，L.L.C.(本稿で定義した新BCCとともに)、Beneficient Capital Company，L.L.C.(“New BCC”)，Beneficient Capital Company，L.L.C.(“New BCC”)，Beneficient Capital Company，L.L.C.(“New BCC”)，Beneficient Capital CapL.“(BCapient，Compicfent Company，Beneficient CapeC.)(”Capient Company，L.New L.C.“)当社の各現職又は前任高級社員及び取締役、当社のいくつかの共同経営会社の前任高級社員及び取締役、当社の前親会社の前任高級社員及び取締役、当社の最高経営者及び創業者又はその家族が直接又は間接的にその利益のために運営するいくつかの信託の受託者、当該等の信託から直接又は間接的に保有又は当該等の信託と共同で制御する実体、及び当社の最高経営責任者及びその家族は経済受益者種別に属し、当社の最高経営者が当該等の信託から経済割当を得る権利があるか否かにかかわらず、その他である。訴訟理由は、(I)GWGと当社またはその共同会社との間のある取引の実際または推定詐欺的譲渡、(Ii)受託責任、協力および教唆違反受託責任および民事共謀違反、(Iii)不当な利益、(Iv)任意の主張された被告の釈放を回避すること、および(V)GWG破産事件で提出された特定の被告(当社を含む)の申立を却下することを含む。
以下の議論と分析は，“前向き陳述に関する警告説明”および添付されたBeneficient(f/k/a The Beneficient Company Group，L.P.)合併財務諸表とその説明とともに読むべきである。当社は、2024年3月31日に米国証券取引委員会(以下“米国証券取引委員会”と略す)の10−K表年次報告(以下、“年次報告”と略す)に提出された監査された総合財務諸表及びその付記が本四半期報告の第I部分第I項に掲載されている。この議論と分析は、私たちの経営陣の信念と、私たちの経営陣がしている仮説と現在利用可能な情報に基づいています。文脈に別の要求がある以外に，“会社”，“本”，“我々”，“我々の運営子会社”といえば，ネバダ州のBeneficient社とその合併子会社を指す(ただし，以下で定義するCustomer Exal Trustsは含まれていない).変換発効時間の前に、“BCG”、“Ben”、“we”、“us”、“our”および類似用語は、デラウェア州有限共同企業の登録者を意味し、変換発効時間後、このような引用は、登録者の現在の会社形態がネバダ州の“Beneficient”という会社を意味する。すべて言及された“Beneficient”はネバダ州のBeneficient社のみを指し，“BCG”はBeneficient Company Group，L.P.のみを指し，すべて言及されている“Beneficient Company Holdings，L.P.”はBCGの子会社Beneficient Company Holdings，L.P.のみを指す.
Ben Liquidity と Ben Custody が得たこのような収益は、連結財務諸表の提示では除外されますが、 ExAlt ローンの返済および Ben Custody 手数料の支払によって受け取ったキャッシュフローは、お客様 ExAlt 信託の受益者ではなく、当社および BCH の株式保有者に配分されます。
当社の営業子会社の製品およびサービスの一部は、財務報告目的のみで Ben の連結子会社である特定の顧客 ExAlt トラストを含むか、または提供されています。したがって、当社の営業子会社と顧客 ExAlt トラストとの間の取引は、当社の連結財務諸表の提示において除外されています。
そのため、当社が総合財務状況表に反映している主要な有形資産は投資であり、主に顧客高級信託が保有する別の資産から構成されているが、我々の総合全面収益表に反映されている主要な収入源は投資収入(損失)、純額(顧客高級信託が保有する当該等の投資を代表する資産純資産変動)及び金融商品収益(損失)純額であり、主に顧客高級信託が保有する権益証券、債務証券、派生負債及び承認オプションの公正価値変動を代表する。当該等の顧客高級信託が保有する金融商品の投資収益(損失)、純額及び収益(損失)は、GWG Wind Down Trust(前にGWG Holdingsが発行した債務及び持分証券)の権益に含まれ、非持株権益に割り当てられた純収益(損失)−総合全面収益(損失)レポートに含まれる顧客高級信託に計上される。これらの内訳で確認された顧客高級信託活動の収入や支出は，Ben‘sやBCHの株式所有者の純収入(損失)に直接影響を与えない.
2023年6月27日、当社はYA II PN，Ltd.(“ヨークビル”)と予備持分購入協定(“SEPA”)を締結した。国家環境保護法によると，会社は権利はあるが義務はなく，2023年6月27日(“施行日”)から施行日36か月間の約束期間内のいつでも，25000ドル以下のA類一般株万をヨークビルに売却する。国家環境保護総局の規定によると、会社がヨークビルに発行·販売する株式(“前払い”)の最高限度額は、(I)前5取引日(国家環境保護総局の定義による)を事前に通知した会社ナスダックA類普通株(“ナスダック”)の総出来高の100%に相当する金額、または(Ii)10，000，000ドルであり、双方の同意を得て増加することができる。当社は“国家環境保護総局”によるいかなる販売にも影響を与えるべきではなく、ヨークビルは“国家環境保護総局”に規定されているA類普通株の購入義務はなく、当該等の売買が発効した後、“国家環境保護総局”が発行したA類普通株式と、他のいずれかの同一系列取引の一部とみなされる可能性のある取引に関連して発行されたA類普通株株式を含むことが条件であり、当該等の売却平均価格が219.20ドル未満となり、“国家環境保護総局”(“取引所上限”)の発行日に発行された株式数が発行議決権付き普通株の19.9%を超える場合、ヨークビルは当該株式等の購入義務はない。2024年6月20日、会社はナスダック上場規則第5635(D)条に基づいて株主の承認を得て、取引所の上限を超えるA類普通株をヨークビルに発行することができる。
As of the date of this Quarterly Report on Form 10-Q, the Company had offered and sold 503,827 shares on Class A common stock to Yorkville pursuant to the SEPA, including the shares issued for the Commitment Fee.
Recent Debt Financings
On October 19, 2023, Beneficient Financing, L.L.C. (the “Borrower”), a wholly owned subsidiary the Company, and BCH, as guarantor (the “Guarantor” and together with the Borrower, the “Loan Parties”), entered into a Credit and Guaranty Agreement (as amended, the “HH-BDH Credit Agreement”) with HH-BDH LLC (the “HH-BDH”), as administrative agent. All capitalized terms used but not defined herein shall have the meanings ascribed to them in the HH-BDH Credit Agreement.
HH-BDH’s sole member is Hicks Holdings. The managing member of Hicks Holdings is Mr. Thomas O. Hicks, a member of the Company’s Board of Directors (the “Board”). HH-BDH will receive customary fees and expenses in its capacity as a lender and as the administrative agent under the HH-BDH Credit Agreement, as further described below. Hicks Holdings and Mr. Hicks may be deemed to have a direct or indirect material financial interest with respect to the transactions contemplated by the HH-BDH Credit Agreement, as described below. HH-BDH funded the amounts under the HH-BDH Credit Agreement with the proceeds of a third-party financing (the “Financing”).
The HH-BDH Credit Agreement provides for a three-year term loan in the aggregate principal amount of $25.0 million (the “Term Loan”), which was fully drawn on closing.
Borrowings under the HH-BDH Credit Agreement bear interest, at the Company’s option, calculated according to a base rate, adjusted term secured overnight financing rate (“SOFR”), or adjusted daily simple SOFR, plus an applicable margin, subject to a Maximum Rate determined by applicable law in the State of New York. The Company elected the adjusted daily simple SOFR with a margin of 6.5% for the first two years and 5.5% for the third year. Accrued and unpaid interest is payable monthly, upon prepayment, and at maturity. The Term Loan will mature on October 19, 2026, and all outstanding principal amounts and accrued and unpaid interest thereon shall be due and payable on such date.
On August 16, 2024, the Borrower, the Guarantor and HH-BDH entered into that certain Amendment No. 1 and Waiver No. 1 to the Credit and Guaranty Agreement and Each Other Loan Document (the “Amendment,” and the Credit Agreement, as amended by the Amendment, the “Amended Credit Agreement”), to, among other things, (i) add a subsequent term loan of up to $1,675,000, which was fully drawn upon closing of the Amendment (together with the Term Loan, the “Loans”), and (ii) waive certain events of default resulting from the occurrence of the Acknowledged Defaults (as defined in the Amendment), provided that in the case of the expense reimbursement default, the Borrower must cure the expense reimbursement default upon the earlier of (x) November 1, 2024 and (y) two business days following the effectiveness of Company’s registration statement for resale of the shares of Class A common stock, underlying the convertible debentures and warrants issuable pursuant to that certain Securities Purchase Agreement, dated August 6, 2024, by and between the Company and Yorkville (the “Purchase Agreement”).
The Amended Credit Agreement also requires the Borrower to prepay the outstanding principal balance of the Loans in the amount of $200 thousand, $200 thousand, $200 thousand, $200 thousand and $875 thousand on each of September 7, 2024, October 7, 2024, November 7, 2024, December 7, 2024 and December 31, 2024, respectively. Furthermore, on each Required Payment Date (as defined in the Amended Credit Agreement), the Borrower shall prepay the outstanding principal balance of the Loans by an amount equal to the lesser of (a) the Total Portfolio Net Receipts (as defined in the Amended Credit Agreement) for the most recently ended period beginning on the 16th day of each month and ending on the 15th day of the immediately following month, and (b) as of each Required Payment Date, an amount equal to the excess, if any, of (x)(i) the number of Required Payment Dates occurring on or prior to such Required Payment Date, multiplied by (ii) $500,000, minus (y) the amount of all Excess Payments (as defined in the Amended Credit Agreement) made prior to such Required Payment Date. Additionally, the Amended Credit Agreement requires the Borrower to make certain minimum monthly payments to prepay the balance of the Loans.
The Amended Credit Agreement also includes, among other things, (i) updates to conditions precedent for the Lender to make the subsequent term loan to the Borrower, (ii) updates to certain representations and warranties, (iii) additional certain affirmative and negative covenants including a minimum liquidity financial covenant of $4.0 million and (iv) additional events that the occurrence of which would constitute an Event of Default (as defined in the Amended Credit Agreement). Except as modified by the Amendment, the terms of the HH-BDH Credit Agreement remain the same.
Recent Financings
On February 6, 2024, Ben Liquidity entered into agreements to finance liquidity transactions with respect to alternative assets with a NAV of $2.0 million. Pursuant to such transaction, the Customer ExAlt Trusts acquired the alternative assets, and in exchange for such interest, the customer received 200,000 shares of the Company’s Series B-2 Resettable Convertible Preferred Stock, par value $0.001 per share (the “Series B-2 preferred stock”), with such Series B-2 preferred stock being convertible into shares of the Company’s Class A common stock. Each share of the Series B-2 preferred stock is convertible at the election of the holder into shares of the Class A common stock initially at a conversion price of $3.20 per share (the “B-2 Conversion Price”). The B-2 Conversion Price is subject to reset from time to time and a floor price of $1.60 per share. A maximum of 125,000 shares of Class A common stock may be issued upon conversion of the Series B-2 preferred stock.
Recent Equity Issuances
On April 9, 2024 and June 21, 2024, respectively, the Company issued 11,354 shares and 3,431 shares of Class A common stock of the Company to a consultant of the Company. The issuance of the Class A common stock pursuant to these transactions was not registered under the Securities Act and each was issued in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.
On May 9, 2024, the Company issued 114,343 shares of Class A common stock of the Company to a vendor of the Company. The issuance of the Class A common stock pursuant to this transaction was not registered under the Securities Act and was issued in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.
On each of October 2, 2023; October 4, 2023; February 26, 2024; March 11,2024; May 3, 2024; May 6, 2024; May 7, 2024; May 13, 2024 and June 12, 2024; Yorkville purchased 250; 6,250; 8,938; 33,379; 200,000; 74,260; 14,053; 60,994 and 100,000 shares of Class A common stock for prices of $191.41; $101.24; $15.52; $14.90; $7.18; $5.82; $5.82; $4.85 and $3.09 per share, respectively, pursuant to the terms of the SEPA. Sales proceeds for these equity sales under the terms of the SEPA were approximately $3.9 million. Such issuances were in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder.
On August 20, 2024, the Company entered into a subscription agreement with Cangany Capital Management, LLC (“Cangany Capital Management”), a limited liability company controlled by Peter T. Cangany, Jr., a member of the Company’s board of directors, pursuant to which Cangany Capital Management purchased 47,500 shares of Class A common
stock at a price per share of $2.33. The shares of Class A common stock issued pursuant to such subscription agreement are exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
On August 27, 2024, the Company entered into an additional subscription agreement with Cangany Capital Management, pursuant to which Cangany Capital Management purchased 65,000 shares of Class A common stock at a price per share of $1.97. The shares of Class A common stock issued pursuant to such subscription agreement are exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
Also on August 27, 2024, the Company entered into a subscription agreement with Thomas O. Hicks, a member of the Company’s board of directors, and a subscription agreement with CFH Ventures, Ltd., a limited partnership controlled by Mr. Hicks, pursuant to which each of Mr. Hicks and CFH Ventures, Ltd. purchased 50,000 shares of Class A common stock at a price per share of $1.97. The shares of Class A common stock issued pursuant to such subscription agreements are exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
On September 6, 2024 and October 9, 2024, the Company issued 9,623 shares and 4,175 shares of Class A common stock of the Company to a consultant of the Company. The issuances of the Class A common stock pursuant to these transactions were not registered under the Securities Act and each was issued in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.
On September 11, 2024, the Company entered into a subscription agreement with Cangany Capital Management, pursuant to which Cangany Capital Management purchased 150,000 shares of the Company’s Class A common stock at a price per share of $1.58. The shares of Class A common stock issued pursuant to such subscription agreement are exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
On September 17, 2024, the Company entered into a subscription agreement with Mendota Financial Company, LLC (“Mendota”), pursuant to which the Company issued 201,482 shares in satisfaction of its outstanding obligations to the Vendor pursuant to that certain Consulting Agreement by and between Mendota and The Beneficient Company Group (USA), L.L.C. effective as of September 9, 2021, as amended from time to time thereafter, pursuant to which Mendota provided financial consulting services to the Company. The shares of Class A common stock issued pursuant to such subscription agreement are exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
Equity Awards Arbitration
On December 16, 2022, a former member of the Board of Directors of Beneficient Management, LLC (the “Claimant”) initiated a private arbitration in the International Court of Arbitration of the International Chamber of Commerce, challenging the termination of certain equity awards under two incentive plans by the administrator of the incentive plans. The Claimant sought total damages of $36.3 million plus attorney’s fees and punitive damages. On April 23, 2024, the sole arbitrator held that in terminating the Claimant’s equity awards, the Company had breached its contractual obligations, and as a result, awarded the Claimant $55.3 million in compensatory damages, including pre-judgment interest, plus post-judgment interest (the “Arbitration Award”). Neither attorneys’ fees nor punitive damages were awarded to the Claimant. The Company was also asked to pay arbitration-related costs in the amount of approximately $128,850. The Company recorded a loss related to the Arbitration Award in the year ended March 31, 2024 statement of comprehensive income (loss) in the amount of $55.0 million.
On July 29, 2024, the Texas District Court entered an order vacating the Arbitration Award in its entirety. The Texas District Court directed the parties to file motions requesting any further relief that may be available within twenty days of the order. On August 2, 2024, the Claimant filed an appeal to challenge the order vacating the Arbitration Award in the Texas Fifty Court of Appeals. The Company intends to vigorously defend itself in connection with the appeal.
As a result of the order, during the three-months ended June 30, 2024, the Company released the liability associated with the Arbitration Award, which resulted in a release of the previously recognized loss contingency accrual in the amount of$55.0 million being reflected in the six months ended September 30, 2024 statement of comprehensive income (loss).
ffVC Transaction
On March 6, 2024, the Company and BFF entered into three Alternative Asset Purchase Agreements (each an “ffVC Agreement” and collectively, the “ffVC Agreements”) on substantially similar terms, with each of ff Silver Venture Capital Fund, L.P., ff Blue Private Equity Fund, L.P. and ff Rose Venture Capital Fund, L.P. (each an “ffVC Seller” and collectively, the “ffVC Sellers”) to engage in certain liquidity financing transactions with respect to certain designated alternative assets held by each entity (the “ffVC Transactions”). In connection with the execution of the ffVC Agreements, the parties also entered into exchange agreements in the forms generally executed by the Company in the ordinary course of business, subject to certain amendments as set forth in the ffVC Agreements. Pursuant to the ffVC Transactions, the Company’s customized trust vehicles will acquire alternative assets held by each ffVC Seller, and in exchange for such alternative assets, the respective ffVC Seller will receive shares of the Company’s Series B Preferred Stock, with such Series B Preferred Stock
being convertible into shares of the Company’s Class A common stock. The number of shares of Series B Preferred Stock to be delivered at the closing of each of the respective ffVC Agreements shall be equal to (i) the applicable discount percentage of the closing NAV under each ffVC Agreement multiplied by the Participation Percentage (as defined in the ffVC Agreement) of each respective ffVC Seller, divided by (ii) $10.00. The discount percentages for each transaction are as follows: ff Silver Venture Capital Fund, L.P. – 60%; ff Blue Private Equity Fund, L.P. – 80%; and ff Rose Venture Capital Fund, L.P – 46%. Pursuant to the ffVC Transactions, the Company expects to issue up to a maximum of $62 million in stated value of Series B Preferred Stock in the aggregate, subject to participation levels by limited partners of the ffVC Sellers. Closing of the ffVC Transactions is subject to approval by the Company’s stockholders. There can be no assurance that the ffVC Transactions will be completed or that the Company will issue securities pursuant to the ffVC Transactions.
Securities Purchase Agreement
On August 6, 2024, the Company, entered into a securities purchase agreement (the “Purchase Agreement”) with Yorkville, in connection with the issuance and sale by the Company of convertible debentures (the “Convertible Debentures”) issuable in an aggregate principal amount of up to $4 million, which will be convertible into shares of the Company’s Class A common stock (as converted, the “Conversion Shares”). Yorkville purchased and the Company issued $2 million in aggregate principal amount of Convertible Debentures upon the signing the Purchase Agreement (the “First Closing”). Additionally, on November 13, 2024, the Company issued an additional $2 million in aggregate principal amount of Convertible Debentures for proceeds of approximately $1.8 million (the “Second Closing”). Contemporaneously with the execution and delivery of the Purchase Agreement, certain of the Company’s subsidiaries entered into a global guaranty agreement in favor of Yorkville with respect to the Company’s obligations under the Purchase Agreement, the Convertible Debentures and the Yorkville Warrants (as defined below).
The Convertible Debentures do not bear interest, subject to a potential increase to 18.0% per annum (or the maximum amount permitted by applicable law) upon the occurrence of certain events of default. The Convertible Debentures will mature on February 6, 2025 and will result in gross proceeds to the Company of approximately $3.6 million. The Convertible Debentures will be issued at an original issue discount of 10%. The Company will be required to make monthly cash payments of principal in the amount of $1.3 million (or such lesser amount as may then be outstanding) plus all accrued and unpaid interest as of such payment. Such payments will commence 30 days following the Second Closing and will continue on a monthly basis thereafter until the Convertible Debentures are repaid in full, subject to certain conditions as described in the Convertible Debentures.
The Convertible Debentures are convertible at the option of the holder into Class A common stock equal to the applicable Conversion Amount (as in the Convertible Debenture) divided by $3.018 (the “Conversion Price”). The maximum amount of shares issuable upon conversion of the Convertible Debentures is 1,325,382.
The Convertible Debentures provide the Company, subject to certain conditions, with an optional redemption right pursuant to which the Company, upon 10 trading days’ prior written notice to Yorkville (the “Redemption Notice”), may redeem in cash, in whole or in part, all amounts outstanding under the Convertible Debentures prior to the maturity date; provided that the volume weighted average price on the date such Redemption Notice is delivered is less than the Conversion Price at the time of the Redemption Notice. The redemption amount shall be equal to the outstanding principal balance being redeemed by the Company, plus the redemption premium of 10% of the principal amount being redeemed, plus all accrued and unpaid interest in respect of such redeemed principal amount.
Additionally, pursuant to the terms of the Purchase Agreement, the Company agreed to issue to Yorkville warrants (each, a “Yorkville Warrant” and together, the “Yorkville Warrants”) to purchase up to 1,325,382 shares of Class A common stock at an exercise price of $2.63, which shall be exercisable into Class A common stock for cash (collectively, the “Warrant Shares”). At the First Closing, the Company issued a Yorkville Warrant to Yorkville to purchase up to 662,691 shares of Class A common stock, and at the Second Closing, the Company issued an additional Yorkville Warrant to Yorkville to purchase up to 662,691 shares of Class A common stock.
In connection with the Purchase Agreement, the Company entered into a registration rights agreement with Yorkville, pursuant to which the Company is required to, within 30 calendar days of the August 6, 2024, file with the SEC one or more registration statements covering the resale by Yorkville of all Conversion Shares and the Warrant Shares. Pursuant to the Company’s contractual obligations under the Purchase Agreement, the Company filed a registration statement to register the Warrant Shares and the Conversion Shares, among other shares of Class A common stock, which was declared effective by the SEC on November 12, 2024.
Nasdaq Continued Listing Standards
On July 16, 2024, the Company received a notice from the Nasdaq Staff indicating that it is no longer in compliance with the minimum stockholders’ equity requirement (the “Minimum Stockholders’ Equity Requirement”) for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’ Equity Notice”). Nasdaq Listing Rule
5550(b)(1) requires listed companies to maintain stockholders’ equity of at least $2,500,000 or meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations, which the Company does not currently meet.
Pursuant to the Stockholders’ Equity Notice and the Listing Rules of Nasdaq, Nasdaq provided the Company with 45 calendar days, or until August 30, 2024, to submit a plan to regain compliance with the Minimum Stockholders’ Equity Requirement. On August 30, 2024, the Company timely submitted a plan to the Staff to regain compliance with the Minimum Stockholders’ Equity Requirement. If the Company’s plan to regain compliance is accepted, the Staff can grant an extension of up to 180 calendar days from the date of the notice to evidence compliance. If the Company’s plan to regain compliance is not accepted, or if it is accepted and the Company does not regain compliance in the timeframe required by Nasdaq, the Nasdaq Staff could provide notice that the Company’s shares of Class A common stock are subject to delisting. In such an event, the Company would have the right to request a hearing before the Panel. The hearing request would automatically stay any suspension or delisting action pending the completion of the hearings process. The Stockholders’ Equity Notice had no immediate impact on the listing of the Class A common stock, which will continue to be listed and traded on Nasdaq under the symbol “BENF,” subject to the Company’s compliance with the other listing requirements of Nasdaq. While we have not yet heard if the Staff will accept the plan submitted on August 30, 2024, the Company is currentlyprogressing under the plan submitted to the Staff to regain compliance with the Minimum Stockholders’ Equity Requirement. Although the Company intends to use all reasonable efforts to achieve compliance with the Minimum Stockholders’ Equity Requirement, there can be no assurance that the Company will be able to regain compliance with the Minimum Stockholders’ Equity Requirement or that the Company will otherwise be in compliance with other applicable Nasdaq listing criteria.
Additionally, on July 23, 2024, the Company notified Nasdaq that, following the resignations of Emily B. Hill and Dennis P. Lockhart from the Company’s Board and Audit Committee of the Board (the “Audit Committee”), the Company currently has a vacancy on the Audit Committee and intends to rely on the cure period set forth in the Nasdaq Listing Rules while it recruits a new Audit Committee member.
On July 25, 2024, the Company received a notice from Nasdaq (the “Audit Committee Notice”) confirming that the Company was no longer in compliance with Nasdaq’s audit committee composition requirements as set forth in Nasdaq Listing Rule 5605, which requires that the audit committee of a listed company be comprised of at least three “independent directors” (as defined in Nasdaq Listing Rule 5605(a)(2)). Pursuant to Nasdaq Listing Rule 5605(c)(4), the Company intends to rely on the cure period to reestablish compliance with Nasdaq Listing Rule 5605. The cure period is generally defined as until the earlier of the Company’s next annual meeting of stockholders or July 21, 2025. If the Company’s next annual meeting of stockholders is held before January 15, 2025, then the Company must evidence compliance no later than January 15, 2025.
On September 30, 2024, Patrick J. Donegan was appointed to the Board as an independent director and a member of the Audit, Products and Related Party Transactions, Credit and Enterprise Risk committees of the Board. The Board is in the process of identifying and selecting an additional member of the Board who qualifies as “independent” and meets the audit committee criteria set forth in Nasdaq Listing Rule 5605. The Board intends to comply fully with Nasdaq audit committee requirements by or before the end of the cure period described above, but there can be no assurance that the Company will be able to regain compliance with Nasdaq Listing Rule 5605 or that the Company will otherwise be in compliance with other applicable Nasdaq listing criteria. The Audit Committee Notice had no immediate impact on the listing of the Class A common stock, which will continue to be listed and traded on Nasdaq under the symbol “BENF,” subject to the Company’s compliance with the other listing requirements of Nasdaq.
Key Factors Affecting Our Business
Our business is affected by a variety of factors, including conditions in the financial markets and economic and political conditions in the markets in which we operate, as well as changes in global economic conditions and regulatory or other governmental policies or actions, which can materially affect the values of the investments held by the Customer ExAlt Trusts, the cash flows of which collateralize Ben Liquidity’s ExAlt Loans.
In addition to these macroeconomic trends and market factors, we believe our future performance will be influenced by the following factors:
–Ability to execute on existing and new strategies and products and services to attract Customers. We currently offer or plan to offer a suite of complementary fiduciary and other financial products and services designed to address many of the challenges alternative asset market participants face in connection with their ownership, management, and transfer of alternative assets. These products and services are generally not readily available in the marketplace today. We believe that these new products and services will meet the complex needs of potential Customers on a large scale across our target market.
–The extent to which future investment allocations of potential Customers favor private markets investments. Estimates of future performance of our future liquidity solutions business rely in part on the attractiveness of new capital being deployed by potential Customers to private markets relative to traditional asset classes. We believe that allocation to alternative assets by MHNW individual investors and STMI investors, along with the turnover rate demanded by MHNW individual investors and STMI investors will continue to increase, with annual alternative asset liquidity demands increasing due to the overall growth in the alternative asset market.
–Successful deployment of financing capital into collateral comprised of attractive investments. The successful identification of attractive investments as collateral to the financing transactions executed in our liquidity solutions business will impact future performance. We believe we identify specific investments that provide sufficient collateral to our fiduciary financings and that we have established a repeatable process in order to capitalize on these fiduciary financing opportunities through our underwriting and risk processes culminating in a qualification determination and proposed fiduciary financing terms for our Customers.
–Volatility in the price of our Class A common stock. The price of our Class A common stock may impact our ability to enter into liquidity transactions with our Customers. If our stock price declines, our potential Customers may be less likely to engage with us and accept our Class A common stock in exchange for their alternative assets. Furthermore, a significant sustained decrease in our stock price has in the past been an indicator, and in the future may indicate, that impairment is present and may require a quantitative impairment assessment of our assets including goodwill and intangible assets. Any such future impairment charges for goodwill may reduce our overall assets and may result in a change in the perceived value of the Company and ultimately may be reflected as a reduction in the market price of our securities. Additionally, we have begun to enter into financings in which the Customer ExAlt Trusts use our Class A common stock or convertible preferred stock as consideration to meet capital calls or make other capital contributions in alternative asset funds, which in turn hold such securities as an investment. Volatility, either positively or negatively, in the price of our Class A common stock may have a compounding effect on our consolidated investment income and cause further decreases in our stock price in the event our securities comprise a significant portion of such alternative asset funds’ aggregate assets.
–Our ability to maintain our data and regulatory advantage relative to competitors. Our proprietary data and technology platforms, analytical tools and deep industry knowledge allow us to provide our Customers with customized solutions, including trust custody and administration services, data and analytics products and services, and broker-dealer services in connection with our core liquidity products and services. Our ability to maintain our data advantage is dependent on a number of factors, including our continued access to a broad set of private market information and our ability to grow our relationships with potential Customers and their advisors throughout our distribution network. Additionally, we are or will become subject to extensive regulation under federal, state and international law. These complex regulatory and tax environments could restrict our operations and subject us to increased compliance costs and administrative burdens, as well as restrictions on our business activities.
–Our ability to maintain our competitive position. We believe we have several competitive and structural advantages that position us as a preferred provider of liquidity and other attendant services to the MHNW individual investor and STMI investor segments. We expect these advantages will enable us to provide unique products and services to potential Customers that have traditionally been difficult to access by the MHNW individual investor and STMI investor segments. Our ability to attract and successfully deploy capital in the future is dependent on maintaining our leading competitive positioning in our target markets.
–Unpredictable global macroeconomic conditions. Global economic conditions, including political environments, financial market performance, interest rates, credit spreads or other conditions beyond our control, all of which affect the performance of the assets held by the Customer ExAlt Trusts, are unpredictable and could negatively affect the performance of our portfolio or the ability to raise funds in the future. In addition, the cash flows from these investments, which collateralize the ExAlt Loans, are exposed to the credit risks of the financial institutions at which they are held. Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties, or the financial services industry generally, could lead to market-wide liquidity problems and jeopardize our ability to access existing cash, cash equivalents and investments.
–Our ability to access capital at attractive rates. Our ability to complete, and the costs associated with, future debt transactions depends primarily upon credit market conditions and our then perceived creditworthiness. We have no control over market conditions. Our ability to obtain credit depends upon evaluations of our business practices and plans, including our performance, ability to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. We intend to conduct our business activities in a manner which will afford us
reasonable access to capital for investment and financing activities. However, as discussed elsewhere in this Quarterly Report on Form 10-Q, the economic conditions, as well as the impacts of the current, and possibly future, inflationary conditions, increasing interest rates and a possible recession are uncertain and may have various negative consequences on us and our operations including a decline in financing availability and increased costs for financing. Further, such conditions could also disrupt the capital markets generally and limit our access to financing from public sources or on favorable terms, particularly if the global financial markets experience significant disruptions.
Current Events
In October 2023, following a series of attacks by Hamas on Israeli civilian and military targets, Israel declared war on Hamas in Gaza. In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine and as a result, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. The ongoing Russia-Ukraine conflict and Israel-Hamas conflict could have a negative impact on the economy and business activity globally (including in the countries in which the Customer ExAlt Trusts currently holds investments or may hold investments in the future), and therefore, could adversely affect the performance of the Customer ExAlt Trusts’ investments.
The extent and impact of any sanctions imposed in connection with the Russia-Ukraine conflict has caused and may continue to cause financial market volatility and impact the global economy. Volatility and disruption in the equity and credit markets can adversely affect the portfolio companies underlying the investments held by the Customer ExAlt Trusts and adversely affect the investment performance. Our ability to manage exposure to market conditions is limited. Market deterioration could cause the Company to experience reduced liquidity, earnings and cash flow, recognize impairment charges, or face challenges in raising capital and making investments on attractive terms. Adverse market conditions can also affect the ability of investment funds held by the Customer ExAlt Trusts to liquidate positions in a timely and efficient manner. As a result, this presents material uncertainty and risk with respect to the performance of the investments held by the Customer ExAlt Trusts, even though the Customer ExAlt Trusts do not hold any investments with material operations in Russia, Ukraine, or Israel. The cash flows from the investments held by the Customer ExAlt Trusts serve as the collateral to the ExAlt Loans and the fees that are paid by the Customer ExAlt Trusts to Ben for administering these trusts, both of which are key determinants in the income allocated to Ben’s and BCH’s equity holders.
Further, uncertainty in the capital markets, generally due to increasing interest rates and inflation and their impact on the economy, may make it challenging to raise additional capital, and such capital may not be available to us on acceptable terms on a timely basis, or at all. If adequate funds are not available, or if the terms of potential funding sources are unfavorable, our business would be harmed.
Further, these events may result in reduced opportunities for future liquidity solution transactions with our customers and make it more difficult for the Customer ExAlt Trusts to exit and realize value from its existing investments, potentially resulting in a decline in the value of the investments held by the Customer ExAlt Trusts. Such a decline could cause our revenue and net income to decline, including the revenues and net income allocated to Ben’s and BCH’s equity holders.
We continue to evaluate the impact of the ongoing Russia-Ukraine conflict, Israel-Hamas conflict and other items, such as inflation and rising interest rates, and assess the impact on financial markets and our business. Our future results may be adversely affected by slowdowns in fundraising activity and the pace of new liquidity transactions with our customers.
Factors Affecting the Comparability of Our Financial Condition and Results of Operations
In addition to the items mentioned above in the “Recent Developments” section, our historical financial condition and results of operations for the periods presented may not be comparable, either from period to period or going forward, primarily for the following reasons:
–Utilization of Derivative Instruments to Manage Risk. From time to time, Ben manages its exposure to market risks by utilizing various forms of derivative instruments to limit exposure to changes in the relative values of investments that may result from market developments. In September 2023, all put options that were held by Ben were sold, including the portion of the put options that were attributable to the third party involved in the loan participation transaction. No additional derivative instruments have been purchased since September 2023. For the three months ended September 30, 2023, Ben recognized losses of $0.7 million on the put options, of which approximately $0.3 million is attributable to Ben or Ben’s loan portfolio, with the remainder attributable principally to the loan involved in the participation loan transaction. For the six months ended September 30, 2023, Ben has recognized losses of $3.0 million on the put options, of which approximately $2.0 million is attributable to Ben or Ben’s loan portfolio, with the remainder attributable principally to the loan involved in the participation loan transaction.. As the
Company did not have any put options or other similar instruments during the quarter ended September 30, 2024, there are no comparable gains or losses in the current period.
–Bankruptcy of GWG Holdings. On August 1, 2023 (the “Effective Date”), the plan of reorganization of GWG Holdings was declared effective. On the Effective Date, all securities previously issued by GWG Holdings were cancelled and converted to interests in the GWG Wind Down Trust. As of September 30, 2024, Ben held 0.8 million interests of Series A1 and 2.5 million interests of Series E of the GWG Wind Down Trust, and the Customer ExAlt Trusts held 82.0 million, 14.5 million, and 9.8 million interests of Series A1, Series A2, and Series E, respectively, of the GWG Wind Down Trust. These interests are accounted for at fair value, with unrealized gains (losses) recognized in earnings in the gain (loss) on financial instruments, net line item of the consolidated statements of comprehensive income (loss). Fair value is calculated using quoted prices for similar instruments observed in the equity capital market and is classified as a Level 2 investment in the fair value hierarchy. Since the GWG Wind Down Trust’s primary asset is its investment in the Class A common stock of Ben, the Company’s Class A common stock quoted market price is the underlying asset. Prior to the Effective Date, Ben held 2.5 million shares of GWG Holdings common stock and the Customer ExAlt Trusts held 9.8 million shares of GWG Holdings common stock and L Bonds due 2023 of GWG Life, LLC, a Delaware limited liability company and wholly-owned subsidiary of GWG Holdings (“GWG Life”) with an aggregate principal amount of $94.8 million (“L Bonds”). The investment in GWG Holdings’ common stock was accounted for at fair value with changes in fair value recognized in earnings. The investment in L Bonds was accounted for as an available-for-sale debt security, with unrealized gains (losses) recognized in accumulated other comprehensive income (loss). During the six months ended September 30, 2024 and 2023, the Company has recognized net losses of nominal and $1.2 million, respectively, related to its interests in the GWG Wind Down Trust (or GWG Holdings, as applicable), and the Customer ExAlt Trusts recognized net losses of $0.5 million and $44.4 million, respectively, related to its interest in the GWG Wind Down Trust (or GWG Holdings, as applicable), all of which is reflected in the consolidated statements of comprehensive income (loss). As of September 30, 2024, the fair value of Ben’s interest in the GWG Wind Down Trust was nominal and the fair value of the Customer ExAlt Trusts’ interest in the GWG Wind Down Trust was nominal. On the Effective Date, the shared services agreement by and between Ben and GWG Holdings (the “Shared Services Agreement”) was terminated and all receivables and related allowances owed to Ben under the Shared Services Agreement were written off.
–Vesting of performance based awards. Certain of our restricted equity units were granted with a performance-based condition. The performance condition was met upon public listing in June 2023 and expense for vested units was recognized during the three months ended June 30, 2023. The recognition of the remaining compensation cost will be recognized over the remaining vesting period. Total recognized compensation cost related to these awards was $0.3 million and $0.8 million for the three and six months ended September 30, 2024, respectively, and $3.4 million and $11.4 million for the same periods of 2023, respectively. Total unrecognized compensation cost related to these awards was approximately $1.2 million as of September 30, 2024. During the three and six months ended September 30, 2024, approximately $2.4 million of compensation cost, which is the full grant date fair value of the RSUs, was recognized for awards to three employees. The awards do not require continuing employment by the individuals.
–Goodwill Impairment. Goodwill is tested for impairment at least annually and, more frequently between annual tests, whenever events or circumstances make it more likely than not that the fair value of a reporting unit has fallen below its carrying value. Subsequent to the public listing on June 8, 2023, and through September 30, 2024, the Company has experienced a significant sustained decline in the price of its Class A common stock and its related market capitalization. We believe that these factors indicated that the fair value of our reporting units had more likely than not fallen below their carrying values during the relevant periods in fiscal 2024 and in the first two quarters of fiscal 2025. As a result, during fiscal 2024, we wrote the carrying value of the Ben Liquidity, Ben Custody, Ben Insurance, and Ben Markets reporting units, as applicable, down to their estimated fair values and recognized cumulatively during fiscal 2024 a non-cash goodwill impairment charge of $2.4 billion, including $1.1 billion and $306.7 million of non-cash goodwill impairment at the Ben Liquidity and Ben Custody reporting units during the quarters ended June 30, 2023 and September 30, 2023, respectively. Further, management performed interim impairment tests of goodwill as of June 30, 2024 and September 30, 2024, and determined on each date that additional non-cash goodwill impairment occurred resulting in $3.4 million and $0.3 million, respectively, at the Ben Custody and Ben Markets reporting units. Total goodwill remaining as of September 30, 2024 is $9.9 million.
–Termination of Customer ExAlt Trust Loan Payable. On October 18, 2023, all obligations owed under the Customer ExAlt Trust loan payable were repaid by transferring $56.7 million of alternative assets. The payoff of the Customer ExAlt Trust Loan Payable was accounted for as a debt extinguishment in accordance with ASC 470, Debt, during the quarter ended December 31, 2023. The financial statements included in this Quarterly Report on Form 10-Q for
the three and six months ended September 30, 2023 reflect changes in the fair value of the alternative assets ultimately transferred to settled the ExAlt Trust loan payable as well as interest expense associated with the ExAlt Trust loan payable whereas current fiscal year financial statements would not have any such activity associated with the transferred alternative assets or the ExAlt Trust loan payable.
–Resolution of certain liabilities. During the three and six months ended September 30, 2024, the Company released approximately $23.5 million of liabilities based on the execution of letter agreements with the counterparties releasing the Company of such liabilities. The release of the $23.5 million in liabilities resulted in the recognition of a gain that is reflected in the (gain) loss on liability resolution line item of the consolidated statements of comprehensive income (loss) for the three and six months ended September 30, 2024. There were no such similar amounts included in the same periods in the prior year. Approximately $19.2 million of the liabilities released related to a portion of the interest commitments described in Note 9 to the consolidated financial statements included in our 2024 Form 10-K that the Company has been accruing each period since 2018. On a go-forward basis, since we will no longer be accruing interest expense on a portion of the interest commitments for which we have been released of such obligation, interest expense should reduce by approximately $1 million per quarter related to these interest commitments.
Key Performance Indicators
We use certain non-GAAP financial measures to supplement our consolidated financial statements, which are presented in accordance with U.S. GAAP. These non-GAAP financial measures include adjusted revenue and adjusted operating income (loss). A non-GAAP financial measure is a numerical measure that departs from U.S. GAAP because it includes or excludes amounts that are required under U.S. GAAP. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S. GAAP, and non-GAAP financial measures as used by Ben may not be comparable to similarly titled measures used by other companies. The presentation of non-GAAP financial measures provides additional information to investors regarding our results of operations that management believes is useful for trending, analyzing and benchmarking the performance of our business. See “—Supplemental Unaudited Presentation of Non-GAAP Financial Information,” below, for a reconciliation of adjusted revenue to revenue and adjusted operating income (loss) to operating income (loss), the most comparable U.S. GAAP measures, respectively.
In addition to our U.S. GAAP and non-GAAP financial information, we utilize several key indicators of financial condition and operating performance to assess the various aspects of our business. We monitor the following operating metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. We believe the following key metrics are useful in evaluating our business:
(1) Adjusted revenue and adjusted operating income (loss) are non-GAAP financial measures. For a definition and reconciliation to comparable U.S. GAAP metrics, please see the section titled “—Supplemental Unaudited Presentation of Non-GAAP Financial Information.”
Adjusted revenue. We define adjusted revenue as revenue adjusted to exclude the effect of mark-to-market adjustments on related party equity securities that were acquired both prior to and in the Collateral Swap (the “Collateral Swap”), which on August 1, 2023, became interests in the GWG Wind Down Trust.
Operating income (loss) represents total revenues less operating expenses prior to the provision for income taxes.
Adjusted operating income (loss). We define adjusted operating income (loss) as operating income (loss), adjusted to exclude the effect of the adjustments to revenue described above, credit losses on related party available-for-sale debt securities acquired in the Collateral Swap, which on August 1, 2023, became interests in the GWG Wind Down Trust, and receivables from a related party that filed for bankruptcy and certain notes receivables originated during our formative transactions, non-cash asset impairment, share-based compensation expense, and legal, professional services, and public relations costs related to the GWG Holdings bankruptcy, lawsuits, and a defunct product offering and certain employee matters, including fees and loss contingency accruals (releases) incurred in arbitration with a former director.
Loan payments received represents cash received during the respective period from the Customer ExAlt Trusts as payments on the ExAlt Loans.
Fee payments received represents cash received during the respective period from the Customer ExAlt Trusts as payments on the fees receivable from the Customer ExAlt Trusts.
Loans to Customer ExAlt Trusts, net represents the total ExAlt Loan receivable outstanding, net of the allowance for credit losses. The ExAlt Loans are eliminated solely for financial reporting purposes upon consolidation of the Customer ExAlt Trusts.
Allowance to Total Loans. Allowance to total loans is calculated as total allowance for credit loss divided by total loans.
Nonperforming Loans to Total Loans. Nonperforming loans to total loans is calculated as total nonperforming loans divided by total loans.
Fees receivable, net represents the transaction fees charged to the Customer ExAlt Trusts in connection with liquidity transactions and fees charged for providing full-service trust administration services to the trustees of the Customer ExAlt Trusts. Such amounts are net of any allowance for credit losses associated with these balances. Such fees are eliminated solely for financial reporting purposes upon consolidation of the Customer ExAlt Trusts.
Deferred revenue represents fees charged at the origination of the liquidity transaction that are recognized ratably over the life of the LiquidTrust. Such amount is eliminated solely for financial reporting purposes upon consolidation of the Customer ExAlt Trusts.
Investments, at fair value. Investments held by the Customer ExAlt Trusts include investments in alternative assets, investments in the public equity and debt securities (principally of a related party), and investments in private equity securities. These cash flows from these investments serve as Collateral to the ExAlt Loans.
Distributions to Original Loan Balance, as it relates to the Collateral, is calculated as the total inception-to-date payments from the ExAlt Loans received divided by the initial loan balances of the ExAlt Loans.
Total Value to Original Loan Balance is calculated as the then-current fair value of the Collateral plus the total inception-to-date payments from the ExAlt Loans received, divided by the initial loan balances of the ExAlt Loans.
During the three and six months ended September 30, 2024 and 2023, we earned revenues on a consolidated basis from the following primary sources:
•Investment Income (Loss), net. Investment income (loss), net, includes the change in NAV of the alternative assets held by certain of the Customer ExAlt Trusts.
For the aforementioned periods, our main components of consolidated expense are summarized below:
•Interest Expense. Interest expense includes interest to our senior lender under our amended and restated First Lien Credit Agreement and Second Lien Credit Agreement (as described under “Liquidity and Capital Resources — Amended Credit Agreements”), interest on the HH-BDH Credit Agreement, interest accrued on the ExAlt Trust Loan Payable, and interest accrued on our other debt due to related parties. When we issue debt, we amortize the financing costs (commissions and other fees) associated with such indebtedness over the outstanding term of the financing and classify it as interest expense.
•Employee Compensation and Benefits. Employee compensation and benefits includes salaries, bonuses and other incentives and costs of employee benefits. Also included are significant non-cash expenses related to the share-based compensation.
•Professional Services. Professional services includes consulting fees, legal fees, audit fees, and other services.
Additional components of our consolidated net earnings include:
•Gain (Loss) on Financial Instruments, net. Gain (loss) on financial instruments, net includes the change in fair value of our derivative liability, warrant liability, investments in public equity securities, private equity securities, options, and convertible debt recorded at fair value. Included in our investment in private equity securities and interests is our interest in the GWG Wind Down Trust. Fair value is determined using quoted market prices, where available. Any realized gains and losses are recorded on a trade-date basis.
•Interest Income. Interest income includes interest earned on cash held in banks.
•Provision for Credit Losses. Provision for credit losses represents the amount charged to earnings each period for credit losses incurred on available-for-sale debt securities and for allowances taken on financial assets, primarily receivables under the Shared Services Agreement with GWG Holdings and note agreements with other parties originating during our formative transactions in 2018.
•Other Expenses. We recognize and record expenses in our business operations as incurred. Other expenses include software license and maintenance expenses, IT consulting fees, travel and entertainment expenses, other insurance and tax expense, supplies, costs associated with employee training and dues, transaction expenses, depreciation and amortization expense, and various other expenses.
•Loss on impairment of goodwill. Goodwill and indefinite-lived intangible assets are assessed for impairment on an annual basis and whenever events and circumstances indicate that these assets may be impaired, including as a result of significant sustained declines in the prevailing prices of our Common Stock. We compare the fair value of each of our reporting units to its respective carrying value, including goodwill. If the respective carrying value, including goodwill, exceeds the reporting unit’s fair value, we will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value, up to the amount of goodwill associated with the reporting unit.
Our operating subsidiaries, Ben Liquidity and Ben Custody, also earn revenue from interest and fees, which are eliminated in consolidation, on the ExAlt Loans between Ben Liquidity and the Customer ExAlt Trusts and for providing trust services and administration between Ben Custody and the Customer ExAlt Trusts. These sources of intersegment revenues, which ultimately impact the net income (loss) attributable to Ben and BCH equity holders, are summarized below.
•Interest Income. Interest income is generally comprised of contractual interest, which is a computed variable rate or a fixed rate that compounds monthly, interest recognized on certain of the ExAlt Loans through the effective yield method, and an amortized discount that is recognized ratably over the life of the ExAlt Loan. Loans deemed nonperforming no longer accrue interest income. The ExAlt Loans have a maturity of twelve years, and all principal and interest due thereon is payable at maturity. Since we began our operations in 2017, substantially all of our interest income since inception has been non-cash income that has been capitalized onto the outstanding principal of the ExAlt Loans.
Interest income earned by Ben from the Customer ExAlt Trusts is eliminated in the presentation of our consolidated financial statements. However, because the eliminated amounts are earned from, and funded by, noncontrolling
interests, on a consolidated basis, our attributable share of the net income from the Customer ExAlt Trusts is increased by the amounts eliminated. Accordingly, the elimination in consolidation of interest income and certain fee revenue (as described below) has no effect on net income (loss) attributable to Ben or BCH or to equity holders of Ben or BCH.
•Trust Services and Administration Revenues. Trust services and administration revenues include trust administration fees and upfront fees. Trust administration fees are earned for providing administrative services to trustees for existing liquidity solution customers. Fees are recognized monthly based upon the beginning of quarter (in advance) NAV plus any remaining unfunded capital commitments and the applicable fee rate of the account as outlined in the agreement. Non-refundable upfront fees are earned for setting up and providing the customer access to the ExAlt PlanTM. Upfront fees are billed at the origination of the liquidity transaction and are based on a percentage of NAV plus any unfunded capital commitments. Upfront fees are deferred upon receipt and are recognized ratably over the period of benefit, which is generally consistent with estimated expected life of LiquidTrusts (typically 7 to 10 years). All such fees and related deferred revenue are eliminated in the presentation of our consolidated financial statements. As described above, the elimination in consolidation of this fee revenue has no effect on net income (loss) attributable to Ben or BCH or to equity holders of Ben or BCH.
Results of Operations — Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023, and theSix Months Ended September 30, 2024 Compared to the Six Months Ended September 30, 2023 (Unaudited)
Revenues (in thousands)
Three Months Ended September 30,
Six Months Ended September 30,
2024
2023
2024
2023
Investment income (loss), net
$
8,541
$
(13)
$
19,569
$
487
Loss on financial instruments, net
(179)
(42,775)
(1,362)
(46,236)
Interest and dividend income
12
114
24
230
Trust services and administration revenues
187
(87)
376
15
Total revenues
$
8,561
$
(42,761)
$
18,607
$
(45,504)
Three Months Ended September 30, 2024 and 2023
Investment income (loss), net increased $8.6 million for the three months ended September 30, 2024, compared to the same period of 2023, driven by changes in the NAV of investments in alternative assets held by certain of the Customer ExAlt Trusts. Investment income was $8.5 million for the three months ended September 30, 2024, which was driven by $4.8 million of upward quoted market price adjustments, $2.3 million of upward adjustments to our relative share of the respective fund’s NAV based on updated financial information received from the funds’ investment manager or sponsor, and $1.5 million of upward adjustments related to foreign currency impacts on investments denominated in currencies other than the U.S. dollar. Investment loss was nominal for the three months ended September 30, 2023, which was driven by $3.1 million of upward adjustments to our relative share of the respective fund’s NAV based on updated financial information received from the funds’ investment manager or sponsor offset by $1.6 million of downward adjustments related to foreign currency impacts on investments denominated in currencies other than the U.S. dollar and $1.5 million of downward quoted market price adjustments.
Loss on financial instruments, net decreased $42.6 million for the three months ended September 30, 2024, compared to the same period of 2023, driven by the changes in fair value of the financial instruments held during the period. Loss on financial instruments, net for the three months ended September 30, 2024 was primarily driven by an $0.2 million decrease in the value of our interests in the GWG Wind Down Trust and a $0.8 million combined loss in the fair value on the convertible debt, warrants and derivative liability, offset by a $0.7 million increase in the fair value of public equity securities. Loss on financial instruments, net for the three months ended September 30, 2023 included a $41.8 million decrease in the value of our interests in the GWG Wind Down Trust. Such decrease is net of a $13.7 million gain recognized upon reclassification of unrealized net gains related to the Company's previously classified available-for-sale debt securities from accumulated other comprehensive income. Additional drivers included a $0.7 million net decrease in the fair value of public equity securities combined with a $0.7 million decrease to the fair value of put options held, partially offset by a $0.2 million decrease in the fair value of a derivative liability and a $0.2 million decrease in the fair value of warrant liability.
Six Months Ended September 30, 2024 and 2023
Investment income (loss), net increased $19.1 million for the six months ended September 30, 2024, compared to the same period of 2023, driven by changes in the NAV of investments in alternative assets held by certain of the Customer ExAlt Trusts. Investment income was $19.6 million for the six months ended September 30, 2024, which was driven by $18.0 million of upward adjustments to our relative share of the respective fund’s NAV based on updated financial information received from the funds’ investment manager or sponsor, $1.3 million of upward adjustments related to foreign currency impacts on investments denominated in currencies other than the U.S. dollar offset by $1.1 million of downward quoted market price adjustments. Investment income was $0.5 million for the six months ended September 30, 2023, which was driven by $6.2 million of upward adjustments to our relative share of the respective fund’s NAV based on updated financial information received from the funds’ investment manager or sponsor, $4.7 million of downward quoted market price adjustments, and $1.0 million of downward adjustments related to foreign currency impacts on investments denominated in currencies other than the U.S. dollar.
Loss on financial instruments, net decreased $44.9 million for the six months ended September 30, 2024, compared to the same period of 2023, driven by the changes in fair value of the financial instruments held during the period. Loss on financial instruments, net for the six months ended September 30, 2024 was primarily driven by a $0.5 million decrease in the value of our interests in the GWG Wind Down Trust and a $0.8 million decrease in the fair value of on the convertible debt, warrants
and derivative liability. Loss on financial instruments, net for the six months ended September 30, 2023 was primarily driven by a $41.8 million decrease in the value of our interests in the GWG Wind Down Trust. Such decrease is net of a $13.7 million gain recognized upon reclassification of unrealized net gains related to the Company’s previously classified available-for-sale debt securities from accumulated other comprehensive income. Additional drivers include a $4.4 million decrease in the fair value of public equity securities combined with a $3.0 million decrease to the fair value of put options held, partially offset by a $1.6 million decrease in the fair value of a derivative liability and a $1.7 million decrease in the fair value of a warrant liability.
Interest and Operating Expenses (in thousands)
Three Months Ended September 30,
Six Months Ended September 30,
2024
2023
2024
2023
Employee compensation and benefits
$
7,135
$
15,398
$
10,985
$
51,221
Interest expense (including amortization of deferred financing costs)
4,320
5,114
8,608
8,898
Professional services
7,257
6,657
12,801
17,030
Provision for credit losses
476
—
1,000
—
Loss on impairment of goodwill
298
306,684
3,692
1,402,989
Release of loss contingency related to arbitration award
—
—
(54,973)
—
Other expenses
2,790
5,150
5,871
12,092
Total expenses
$
22,276
$
339,003
$
(12,016)
$
1,492,230
Three Months Ended September 30, 2024 and 2023
Employee compensation and benefits decreased $8.3 million for the three months ended September 30, 2024, compared to the same period in 2023. The decrease is principally related to a $5.1 million decrease in equity-based compensation as the comparable period included $3.4 million recognized upon vesting of awards previously subject to a performance condition, which was satisfied by Ben’s public listing in June 2023, and the comparable period included new grants which were partially vested on the grant date. Additionally, there was a $3.1 million decrease in payroll and other benefit related costs due to a lower headcount in fiscal 2025 as compared to fiscal 2024 primarily due to the employees furloughed and terminated in the latter part of fiscal 2024. With the implementation of our operating cost reduction plan in November 2023, employee compensation and benefits began reflecting the lower expense of approximately $1.0 million per month beginning in November 2023 and such decrease has increased in recent months due to further attrition.
Interest expense decreased $0.8 million for the three months ended September 30, 2024, compared to the same period in 2023, primarily due a $1.8 million decrease in interest expense on the ExAlt Trust Loan Payable, which was extinguished in October 2023, a $0.2 million decrease in the amortization of deferred financing premium to interest expense offset by $0.8 million in interest expense and $0.1 million in deferred financing cost amortization recognized on the HH-BDH Credit Agreement, which did not exist in the comparable period.
Professional services expenses increased $0.6 million for the three months ended September 30, 2024, compared to the same period in 2023, primarily due to a $1.3 million increase in legal fees offset by a decrease in other professional fees. The increase in legal fees coincides with higher legal activity. The majority of this legal activity is expected to be eligible for reimbursement from our D&O insurance carriers and expense in the current period related to such matters reflects our estimate of incurred legal expenses expected to be denied by the insurance carriers. Also, as previously disclosed, with the implementation of our operating cost reduction plan, as updated during the three months ended December 31, 2023, professional services and other expenses combined could decrease up to approximately $35.0 million to $37.5 million on an annualized basis from their levels prior to the implementation of the cost reduction plan.
Provision for credit losses increased $0.5 million for the three months ended September 30, 2024, compared to the same period in 2023. Provision for credit losses during the three months ended September 30, 2024, is comprised of a credit related loss on an available-for-sale debt security held by the Customer ExAlt Trusts. No such losses were recognized in the same period of the prior year.
During the three months ended September 30, 2024, we completed an interim impairment test for goodwill and as a result, recorded a non-cash impairment charge of $0.3 million. See—Critical Accounting Estimates below and Note 6 to the Consolidated Financial Statements in “Part 1, Item 1.—Financial Statements” of this Quarterly Report on Form 10-Q for further information. Similar interim impairment test for goodwill was performed for the quarter ended September 30, 2023 which resulted in a non-cash impairment charge of $306.7 million.
Other expenses decreased $2.4 million for the three months ended September 30, 2024, compared to the same period in 2023, primarily driven by a decrease in travel and entertainment ($1.5 million) and depreciation ($0.6 million). The table below provides additional detail regarding our other expenses. As mentioned above, with the implementation of our operating cost reduction plan, as updated during the three months ended December 31, 2023, other expenses were expected to decrease and may decrease further as opportunities arise.
Other Expenses (in thousands)
Three Months Ended September 30,
2024
2023
Other expenses
$
1,102
$
779
Other insurance and taxes
673
811
Software license and maintenance
399
724
Depreciation and amortization
391
991
Occupancy and equipment
164
305
Travel and entertainment
61
1,540
Total other expenses
$
2,790
$
5,150
Six Months Ended September 30, 2024 and 2023
Employee compensation and benefits decreased $40.2 million for the six months ended September 30, 2024, compared to the same period in 2023. The decrease is principally related to a $31.1 million decrease in equity-based compensation and a $9.1 million decrease in payroll and other benefit related costs. The comparable period included equity-based compensation of $11.4 million recognized upon vesting of awards previously subject to a performance condition, which was satisfied by Ben’s public listing in June 2023, and $15.0 million in equity-based compensation recognized as a result of transactions completed as part of the BCG Recapitalization. Additionally, there were additional equity grants in fiscal 2024 that resulted in a higher expenses than the limited grants that occurred in fiscal 2025. Additionally, there was a $9.1 million decrease in payroll and other benefit related costs due to a lower headcount in fiscal 2025 as compared to fiscal 2024 primarily due to the employees furloughed and terminated in the latter part of fiscal 2024. The lower headcount also impacts the equity-based compensation amounts being recognized. With the implementation of our operating cost reduction plan in November 2023, employee compensation and benefits began reflecting the lower expense of approximately $1.0 million per month beginning in November 2023 and such decrease has increased in recent months due to further attribution. This also resulted in adjustment to our accrued annual incentive bonus pool related to the decreased headcount in the fiscal 2025 year-to-date amounts.
Interest expense decreased $0.3 million for the six months ended September 30, 2024, compared to the same period in 2023. The decrease was primarily driven by a $1.7 million decrease in the amortization of deferred financing costs accounted for as a premium combined with a $1.7 million increase interest expense on all other borrowings including the new HH-BDH Credit Agreement borrowing in October 2023, offset by a $3.7 million decrease in interest expense on the Customer ExAlt Trust Loan Payable, which was extinguished in October 2023.
Professional services expenses decreased $4.2 million for the six months ended September 30, 2024, compared to the same period in 2023, primarily due to a decrease in legal fees of $2.3 million due to a higher percentage of legal activity expected to be eligible for reimbursement from our D&O insurance carriers combined with in other professional fees reflecting our cost reduction efforts and the higher expenses in fiscal 2024 associated our public listing in June 2023.
Provision for credit losses increased $1.0 million for the six months ended September 30, 2024, compared to the same period in 2023. Provision for credit losses for the six months ended September 30, 2024, is comprised of a credit related loss on an available-for-sale debt security held by the Customer ExAlt Trusts. No such losses were recognized in the same period of the prior year.
During the six months ended September 30, 2024, we completed interim impairment tests for goodwill and as a result, recorded non-cash impairment charges totaling $3.7 million. See—Critical Accounting Estimates below and Note 6 to the Consolidated Financial Statements in “Part 1, Item 1.—Financial Statements” of this Quarterly Report on Form 10-Q for further information. Similar interim impairment tests for goodwill was performed for during the six months ended September 30, 2023 which resulted in a non-cash impairment charge totaling $1.4 billion.
Release of loss contingency related to arbitration award recognized in the current fiscal period relates to the release of a previously recorded loss contingency recorded in the fiscal year ended March 31, 2024 that had been awarded against the Company during arbitration for compensatory damages, including prejudgment interest in a matter pertaining to a former
director challenging the termination of certain equity awards under two incentive plans by the administrator of the incentive plans. The release of the loss contingency was based on a Texas District Court order vacating the previously recorded and disclosed arbitration award against Beneficient.
Other expenses decreased $6.2 million for the six months ended September 30, 2024, compared to the same period in 2023. The largest decrease relates to lower travel and entertainment, which reflects approximately $2.7 million of lower costs associated with an aircraft dry lease that expired on January 1, 2024. The table below provides additional detail regarding our other expenses.
Other Expenses (in thousands)
Six Months Ended September 30,
2024
2023
Other expenses
$
1,943
$
1,867
Other insurance and taxes
1,767
2,871
Software license and maintenance
883
1,437
Depreciation and amortization
805
1,922
Occupancy and equipment
321
627
Travel and entertainment
152
3,368
Total other expenses
$
5,871
$
12,092
BEN LIQUIDITY
Results of Operations — Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023, and theSix Months Ended September 30, 2024 Compared to the Six Months Ended September 30, 2023 (Unaudited)
(in thousands)
Three Months Ended September 30,
Six Months Ended September 30,
2024
2023
2024
2023
Revenues
Interest income
$
11,978
$
13,022
$
22,827
$
25,028
Expenses
Employee compensation and benefits
361
1,482
791
3,975
Interest expense (including amortization of deferred financing costs)
3,163
2,120
6,244
2,878
Professional services
395
264
869
897
Provision for credit losses
4,752
60,502
11,679
69,998
Loss on impairment of goodwill
—
220,212
—
1,121,212
Other expenses
402
533
853
1,187
Total expenses
9,073
285,113
20,436
1,200,147
Operating income (loss)
$
2,905
$
(272,091)
$
2,391
$
(1,175,119)
Three Months Ended September 30, 2024 and 2023
Interest income decreased $1.0 million during the three months ended September 30, 2024 compared to the same period in 2023. The decrease was primarily driven by an overall decreases in interest income due to lower carrying value of loan receivables, which is driven by higher allowance for credit losses, along with a higher percentage of loan being placed on nonaccrual status.
Employee compensation and benefits decreased $1.1 million during the three months ended September 30, 2024 compared to the same period in 2023. The decrease was driven by payroll and other benefit related costs due to a lower headcount in fiscal 2025 as compared to fiscal 2024 primarily due to the employees furloughed and terminated in fiscal 2024 as well as further attrition in our headcounts in the current fiscal year.
Interest expense increased $1.0 million during the three months ended September 30, 2024 compared to the same period in 2023, primarily driven by a $0.2 million decrease in the amortization of deferred financing premium to interest expense combined with $0.8 million in interest expense and $0.1 million in deferred financing cost amortization recognized on the HH-BDH Credit Agreement, which did not exist in the comparable period.
Provision for credit losses was $4.8 million for the three months ended September 30, 2024 as compared to $60.5 million as of the same period in 2023. The provision for the current period reduced over prior period primarily due to improved collateral values and resulting expected cash flows related to the loan portfolio outpacing the net growth in the amortized cost basis due interest capitalizing at a higher rate than loan payments. Approximately $47.1 million of the provision for credit losses in in quarter ended September 30, 2023 related to losses associated with the collateral comprised of interests in the GWG Wind Down Trust. No amount of the provision for credit losses in the quarter ended September 30, 2024 related to losses associated with the collateral comprised of interests in the GWG Wind Down Trust.
Prior to the start of fiscal year 2025, all goodwill associated with Ben Liquidity was written off as non-cash goodwill impairment charges including approximately $220.2 million during the quarter ended September 30, 2023. Accordingly, during the three months ended September 30, 2024, while we completed an interim impairment test for goodwill in the current period, there was no such non-cash goodwill impairment charge for Ben Liquidity. See—Critical Accounting Estimates below and Note 6 to the Consolidated Financial Statements in “Part 1, Item 1.—Financial Statements” of this Quarterly Report on Form 10-Q for further information.
Six Months Ended September 30, 2024 and 2023
Interest income decreased $2.2 million during the six months ended September 30, 2024 compared to the same period in 2023. The decrease was primarily driven by an overall decrease in interest income due to lower carrying value of loan receivables, which is driven by higher allowance for credit losses, along with a higher percentage of loan being placed on nonaccrual status.
Employee compensation and benefits decreased $3.2 million during the three months ended September 30, 2024 compared to the same period in 2023. The decrease was driven by payroll and other benefit related costs due to a lower headcount in fiscal 2025 as compared to fiscal 2024 primarily due to the employees furloughed and terminated in fiscal 2024. With the implementation of our operating cost reduction plan in November 2023, employee compensation and benefits began reflecting the lower expenses of approximately nearly $1.0 million per month beginning in November 2023.
Interest expense, including amortization of deferred financing costs, increased $3.4 million for the six months ended September 30, 2024, compared to the same period in 2023, primarily driven by a $1.7 million decrease in deferred financing costs accounted for as a premium and $1.5 million in interest expense and $0.2 million in deferred financing cost amortization recognized on the HH-BDH Credit Agreement, which did not exist in the comparable period.
Provision for credit losses was $11.7 million for the six months ended September 30, 2024, as compared to $70.0 million as of the same period in 2023, which included $39.6 million in credit losses driven by a decrease in collateral comprised of collateral comprised of interests in the GWG Wind Down Trust. The provision for the current period reduced over prior period primarily due to improved collateral values and resulting expected cash flows related to the loan portfolio outpacing the net growth in the amortized cost basis due interest capitalizing at a higher rate than loan payments.
Prior to the start of fiscal year 2025, all goodwill associated with Ben Liquidity was written off as non-cash goodwill impairment charges including approximately $1.1 billion during the six months ended September 30, 2023. Accordingly, during the six months ended September 30, 2024, while we completed interim impairment tests for goodwill in the current fiscal year, there was no such non-cash goodwill impairment charge for Ben Liquidity. See—Critical Accounting Estimates below and Note 6 to the Consolidated Financial Statements in “Part 1, Item 1.—Financial Statements” of this Quarterly Report on Form 10-Q for further information.
Results of Operations — Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023, and theSix Months Ended September 30, 2024 Compared to the Six Months Ended September 30, 2023 (Unaudited)
(in thousands)
Three Months Ended September 30,
Six Months Ended September 30,
2024
2023
2024
2023
Revenues
Trust services and administration revenues
$
5,386
$
6,490
$
10,768
$
13,065
Expenses
Employee compensation and benefits
542
545
898
1,105
Professional services
30
89
426
589
Loss on impairment of goodwill
298
86,472
3,427
281,777
Other expenses
187
231
401
438
Total expenses
1,057
87,337
5,152
283,909
Operating income (loss)
$
4,329
$
(80,847)
$
5,616
$
(270,844)
Three Months Ended September 30, 2024 and 2023
Trust services and administration revenues decreased $1.1 million for the three months ended September 30, 2024, compared to the same period in 2023 driven by a decrease in the NAV of the alternative assets held by the Customer ExAlt Trusts, which is an input into the calculation of the recurring trust services revenues.
During the three months ended September 30, 2024, we completed an interim impairment test for goodwill and as a result, recorded a non-cash impairment charge of $0.3 million for Ben Custody. See—Critical Accounting Estimates below and Note 6 to the Consolidated Financial Statements in “Part 1, Item 1.—Financial Statements” of this Quarterly Report on Form 10-Q for further information. Similar interim impairment test for goodwill was performed for the quarter ended September 30, 2023 which resulted in a non-cash impairment charge of $86.5 million for this reporting unit.
Six Months Ended September 30, 2024 and 2023
Trust services and administration revenues decreased $2.3 million for the six months ended September 30, 2024, compared to the same period in 2023, driven by a decrease in the NAV of the alternative assets held by the Customer ExAlt Trusts, which is an input into the calculation of the recurring trust services revenues.
During the six months ended September 30, 2024, we completed interim impairment tests for goodwill and as a result, recorded non-cash impairment charges totaling $3.4 million for Ben Custody. See—Critical Accounting Estimates below and Note 6 to the Consolidated Financial Statements in “Part 1, Item 1.—Financial Statements” of this Quarterly Report on Form 10-Q for further information. Similar interim impairment tests for goodwill were performed for during the six months ended September 30, 2023, which resulted in non-cash impairment charges totaling $281.8 million for this reporting unit.
Results of Operations — Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023, and theSix Months Ended September 30, 2024 Compared to the Six Months Ended September 30, 2023 (Unaudited)
(in thousands)
Three Months Ended September 30,
Six Months Ended September 30,
2024
2023
2024
2023
Revenues
Investment income (loss), net
$
8,541
$
(13)
$
19,569
$
487
Gain (loss) on financial instruments, net
571
(41,875)
(604)
(43,679)
Interest and dividend income
—
2
—
10
Total revenues
9,112
(41,886)
18,965
(43,182)
Expenses
Interest expense
36,049
31,629
70,848
63,283
Professional services
545
884
1,167
2,145
Provision for credit losses
476
—
998
—
Other expenses
3,591
3,876
7,130
8,077
Total expenses
40,661
36,389
80,143
73,505
Operating loss
$
(31,549)
$
(78,275)
$
(61,178)
$
(116,687)
Three Months Ended September 30, 2024 and 2023
Investment income (loss), net increased $8.6 million for the three months ended September 30, 2024, compared to the same period of 2023, driven by changes in the NAV of investments in alternative assets held by certain of the Customer ExAlt Trusts. Investment income was $8.5 million for the three months ended September 30, 2024, which was driven by $4.8 million of upward quoted market price adjustments, $2.3 million of upward adjustments to our relative share of the respective fund’s NAV based on updated financial information received from the funds’ investment manager or sponsor, and $1.5 million of upward adjustments related to foreign currency impacts on investments denominated in currencies other than the U.S. dollar. Investment loss was nominal for the three months ended September 30, 2023, which was driven by $3.1 million of upward adjustments to our relative share of the respective fund’s NAV based on updated financial information received from the funds’ investment manager or sponsor offset by $1.6 million of downward adjustments related to foreign currency impacts on investments denominated in currencies other than the U.S. dollar and $1.5 million of downward quoted market price adjustments.
Gain (loss) on financial instruments, net increased $42.4 million for the three months ended September 30, 2024, compared to the same period of 2023, driven by the changes in fair value of the financial instruments held during the period. Gain on financial instruments, net for three months ended September 30, 2024, was primarily driven by a $0.7 million increase in the fair value of public equity securities offset by a $0.2 million decrease in the value of our interests in the GWG Wind Down Trust. Loss on financial instruments, net for the three months ended September 30, 2023 was primarily driven by a $41.4 million decrease in the value of our interests in the GWG Wind Down Trust. Such decrease is net of a $13.7 million gain recognized upon reclassification of unrealized net gains related to the Company's previously classified available-for-sale debt securities from accumulated other comprehensive income. Additional drivers included a $0.7 million decrease to the fair value of public equity securities partially offset by a $0.2 million decrease in the fair value of a derivative liability.
Interest expense increased $4.4 million for the three months ended September 30, 2024, compared to the same period in 2023, which reflects an increase in contractual interest due on the ExAlt Loans, driven by the origination of new liquidity transactions and the compounding of paid-in-kind interest, partially offset by a $1.8 million decrease in interest expense recognized on the Customer ExAlt Trust loan payable, which was extinguished in October 2023.
Professional services decreased $0.3 million for the three months ended September 30, 2024, compared to the same period in 2023, driven by decreases in general professional expenses such as audit, consulting, and other professional fees.
Provision for credit losses increased $0.5 million for the three months ended September 30, 2024, compared to the same period in 2023, Provision for credit losses during the three months ended September 30, 2024, is comprised of a credit related
loss on an available-for-sale debt security held by the Customer ExAlt Trusts. No such losses were recognized in the same period of the prior year.
Other expenses decreased $0.3 million for the three months ended September 30, 2024, compared to the same period in 2023, due to a decrease in trust administration fees and other expenses principally driven by a decrease in the NAV of the alternative assets held by the Customer ExAlt Trusts.
Six Months Ended September 30, 2024 and 2023
Investment income (loss), net increased $19.1 million for the six months ended September 30, 2024, compared to the same period of 2023, driven by changes in the NAV of investments in alternative assets held by certain of the Customer ExAlt Trusts. Investment income was $19.6 million for the six months ended September 30, 2024, which was driven by $18.0 million of upward adjustments to our relative share of the respective fund’s NAV based on updated financial information received from the funds’ investment manager or sponsor, $1.3 million of upward adjustments related to foreign currency impacts on investments denominated in currencies other than the U.S. dollar offset by $1.1 million of downward quoted market price adjustments. Investment income was $0.5 million for the six months ended September 30, 2023, which was driven by $6.2 million of upward adjustments to our relative share of the respective fund’s NAV based on updated financial information received from the funds’ investment manager or sponsor, $4.7 million of downward quoted market price adjustments, and $1.0 million of downward adjustments related to foreign currency impacts on investments denominated in currencies other than the U.S. dollar.
Loss on financial instruments, net decreased $43.1 million for the six months ended September 30, 2024, compared to the same period of 2023, driven by the changes in fair value of the financial instruments held during the period. Loss on financial instruments, net for the six months ended September 30, 2024 was primarily driven by a $0.5 million decrease in the value of our interests in the GWG Wind Down Trust. Loss on financial instruments, net for the six months ended September 30, 2023 was primarily driven by a $41.4 million decrease in the value of our interests in the GWG Wind Down Trust. Such decrease is net of a $13.7 million gain recognized upon reclassification of unrealized net gains related to the Company’s previously classified available-for-sale debt securities from accumulated other comprehensive income. Additional drivers included a $4.4 million decrease in the fair value of public equity securities partially offset by a $1.6 million decrease in the fair value of a derivative liability.
Interest expense increased $7.6 million for the six months ended September 30, 2024, compared to the same period in 2023, which reflects an increase in contractual interest on the ExAlt Loans, driven by the origination of new liquidity transactions and the compounding of effects of paid-in-kind interest, slightly offset by a $3.7 million decrease in interest expense recognized on the Customer ExAlt Trust loan payable, which was extinguished in October 2023.
Professional services decreased $1.0 million for the six months ended September 30, 2024, which represented decreases in general professional expenses such as audit, consulting, and other professional fees.
Provision for credit losses increased $1.0 million for the six months ended September 30, 2024, compared to the same period in 2023. Provision for credit losses for the six months ended September 30, 2024, is comprised of a credit related loss on an available-for-sale debt security held by the Customer ExAlt Trusts. No such losses were recognized in the same period of the prior year.
Other expenses decreased $0.9 million for the six months ended September 30, 2024, compared to the same period in 2023, due to a decrease in trust administration fees and other expenses principally driven by a decrease in the NAV of the alternative assets held by the Customer ExAlt Trusts.
Results of Operations — Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023, and theSix Months Ended September 30, 2024 Compared to the Six Months Ended September 30, 2023 (Unaudited)
(in thousands)
Three Months Ended September 30,
Six Months Ended September 30,
2024
2023
2024
2023
Revenues
Loss on financial instruments, net
$
(750)
$
(900)
$
(758)
$
(2,557)
Interest income
12
112
24
220
Trust services and administration revenues
—
(95)
—
—
Total revenues
(738)
(883)
(734)
(2,337)
Expenses
Employee compensation and benefits
6,232
13,371
9,296
46,141
Interest expense (including amortization of deferred financing costs)
1,157
1,200
2,364
2,352
Professional services
6,287
5,420
10,339
13,399
Provision for credit losses
—
—
2
—
Loss on impairment of goodwill
—
—
265
—
Release of loss contingency related to arbitration award
—
—
(54,973)
—
Other expenses
2,012
4,360
4,308
10,084
Total expenses
15,688
24,351
(28,399)
71,976
Operating income (loss)
$
(16,426)
$
(25,234)
$
27,665
$
(74,313)
Three Months Ended September 30, 2024 and 2023
Loss on financial instruments, net decreased $0.2 million for the three months ended September 30, 2024, compared to the same period of 2023, driven by the changes in fair value of the financial instruments held during the period. Loss on financial instruments, net for the three months ended September 30, 2024, included a $0.8 million combined loss in the fair value on the convertible debt, warrants and derivative liability. Loss on financial instruments, net for the three months ended September 30, 2023, included a $0.7 million decrease in the fair value of put options held, $0.4 million decrease in the fair value of our interests in the GWG Wind Down Trust, partially offset by a $0.2 million decrease in the fair value of a warrant liability.
Employee compensation and benefits decreased $7.1 million for the three months ended September 30, 2024, compared to the same period in 2023. The decrease was principally related to a $5.1 million decrease in equity-based compensation as the comparable period included $3.4 million recognized upon vesting of awards previously subject to a performance condition, which was satisfied by Ben’s public listing in June 2023, and the comparable period included new grants which were partially vested on the grant date. Additionally, there was a $2.0 million decrease in payroll and other benefit-related costs due to a lower headcount in fiscal 2025 as compared to fiscal 2024 primarily due to the employees furloughed and terminated in latter part of fiscal 2024 as well as continued employee attrition during the current fiscal year.
Professional services increased $0.9 million during the three months ended September 30, 2024, compared to the same period in 2023, primarily due to a increase in legal fees offset partially by lower other professional fees. The increase in legal fees coincides with higher legal activity. The majority of this legal activity is expected to be eligible for reimbursement from our D&O insurance carriers and expense in the current period related to such matters reflects our estimate of incurred legal expenses expected to be denied by the insurance carriers. Lower professional fees principally related to ongoing efforts to reduce operating expenses.
Other expenses decreased $2.3 million during the three months ended September 30, 2024, compared to the same period in 2023, primarily driven by a decrease in various categories, including travel and entertainment, insurance and taxes, and depreciation. The largest decrease is driven by the expiration of an aircraft dry lease on January 1, 2024 which resulted in approximately $1.4 million lower expenses in the current period as compared to the same period in the prior year.
Loss on financial instruments, net decreased $1.8 million for the six months ended September 30, 2024, compared to the same period of 2023, driven by the changes in fair value of the financial instruments held during the period. Loss on financial instruments, net for the six months ended September 30, 2024, includes a $0.8 million decrease in the combined fair value of the convertible debt, warrants and derivative liability. Loss on investments in securities and options for the six months ended September 30, 2023, included a $3.0 million net decrease to the fair value of put options held, $0.8 million decrease in the fair value of public equity securities, which consisted of shares of GWG Holdings, partially offset by a $1.7 million decrease in the fair value of a warrant liability.
Employee compensation and benefits decreased $36.8 million for the six months ended September 30, 2024, compared to the same period in 2023. The decrease was driven by a $31.1 million decrease in equity-based compensation and $5.7 million decrease in payroll and other benefit-related costs. The comparable period included equity-based compensation of $11.4 million recognized upon vesting of awards previously subject to a performance condition, which was satisfied by Ben’s public listing in June 2023, and $15.0 million in equity-based compensation recognized as a result of transactions completed as part of the BCG Recapitalization. Additionally, there were additional equity grants in fiscal 2024 that resulted in a higher expenses than the limited grants that occurred in fiscal 2025. Additionally, there was a $5.7 million decrease in payroll and other benefit-related costs due to a lower headcount in fiscal 2025 as compared to fiscal 2024 primarily due to the employees furloughed and terminated in latter part of fiscal 2024 as well as adjustment to our accrued annual incentive bonus pool related to the decreased headcount.
Professional services decreased $3.1 million during the six months ended September 30, 2024, compared to the same period in 2023, primarily due to a decrease in legal fees and other professional fees. The decrease in legal fees is principally related to a higher percentage of current ongoing legal matters expected to be eligible for reimbursement from our D&O insurance carriers. Lower professional fees principally related to ongoing efforts to reduce operating expenses along with the comparable period having higher amounts due to transaction related activity.
During the six months ended September 30, 2024, we completed interim impairment tests for goodwill and as a result, recorded non-cash impairment charges totaling $0.3 million related to reporting unit(s) including in this reporting segment. See—Critical Accounting Estimates below and Note 6 to the Consolidated Financial Statements in “Part 1, Item 1.—Financial Statements” of this Quarterly Report on Form 10-Q for further information. Similar interim impairment tests for goodwill were performed during the six months ended September 30, 2023, however, no such non-cash goodwill impairment charge was determined to be necessary in that period related to reporting unit(s) included in this reporting segment.
Release of loss on arbitration recognized in the current fiscal period relates to the release of a previously recorded loss contingency recorded in the fiscal year ended March 31, 2024 that had been awarded against the Company during arbitration for compensatory damages, including prejudgment interest in a matter pertaining to a former director challenging the termination of certain equity awards under two incentive plans by the administrator of the incentive plans. The release of the loss contingency was based on a Texas District Court order vacating the previously recorded and disclosed arbitration award against Beneficient.
Other expenses decreased $5.8 million for the six months ended September 30, 2024, compared to the same period in 2023, primarily driven by a decrease in various categories, including travel and entertainment, insurance and taxes, and depreciation. The largest decrease relates to lower travel and entertainment, which reflects approximately $2.7 million of lower costs associated with an aircraft dry lease that expired on January 1, 2024.
Supplemental Unaudited Presentation of Non-GAAP Financial Information
Adjusted revenue and adjusted operating income (loss) are non-GAAP financial measures. We present these non-GAAP financial measures because we believe it helps investors understand underlying trends in our business and facilitates an understanding of our operating performance from period to period because it facilitates a comparison of our recurring core business operating results. These non-GAAP financial measures are intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, U.S. GAAP. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of these non-GAAP financial measures may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate such items in the same way.
We define adjusted revenue as revenue adjusted to exclude the effect of mark-to-market adjustments on related party equity securities that were acquired both prior to and during the Collateral Swap, which on August 1, 2023, became interests in the GWG Wind Down Trust.
We define adjusted operating income (loss) as operating income (loss), adjusted to exclude the effect of the adjustments to revenue as described above, credit losses on related party available-for-sale debt securities that were acquired in the Collateral Swap, which on August 1, 2023, became interests in the GWG Wind Down Trust, and receivables from a related party that filed for bankruptcy and certain notes receivables originated during our formative transactions, non-cash asset impairment, share-based compensation expense, and legal, professional services, and public relations costs related to the GWG Holdings bankruptcy, lawsuits, a defunct product offering, and certain employee matters, including fees and loss contingency accruals (releases) incurred in arbitration with a former director.
These non-GAAP financial measures are not a measure of performance or liquidity calculated in accordance with U.S. GAAP. They are unaudited and should not be considered an alternative to, or more meaningful than, revenue or operating income (loss) as an indicator of our operating performance. Uses of cash flows that are not reflected in adjusted operating income (loss) include capital expenditures, interest payments, debt principal repayments, and other expenses, which can be significant. As a result, adjusted operating income (loss) should not be considered as a measure of our liquidity.
Because of these limitations, adjusted revenue and adjusted operating income (loss) should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP. We compensate for these limitations by relying primarily on our U.S. GAAP results and using adjusted revenue and adjusted operating income (loss) on a supplemental basis. You should review the reconciliation of revenue to adjusted revenue and operating income (loss) to adjusted operating income (loss) set forth below and not rely on any single financial measure to evaluate our business.
The following tables set forth a reconciliation of adjusted revenue to revenue and adjusted operating income (loss) to operating income (loss), the most directly comparable U.S. GAAP measures, using data derived from our consolidated financial statements for the periods indicated:
(in thousands)
Three Months Ended September 30, 2024
Ben Liquidity
Ben Custody
Customer ExAlt Trusts
Corporate/Other
Consolidating Eliminations
Consolidated
Total revenues
$
11,978
$
5,386
$
9,112
$
(738)
$
(17,177)
$
8,561
Mark to market adjustment on interests in the GWG Wind Down Trust
—
—
173
—
—
173
Adjusted revenues
$
11,978
$
5,386
$
9,285
$
(738)
$
(17,177)
$
8,734
Operating income (loss)
$
2,905
$
4,329
$
(31,549)
$
(16,426)
$
27,026
$
(13,715)
Mark to market adjustment on interests in the GWG Wind Down Trust
—
—
173
—
—
173
Goodwill impairment
—
298
—
—
—
298
Share-based compensation expense
—
—
—
3,364
—
3,364
Legal and professional fees(1)
—
—
—
3,269
—
3,269
Adjusted operating income (loss)
$
2,905
$
4,627
$
(31,376)
$
(9,793)
$
27,026
$
(6,611)
(1) Includes legal and professional fees related to lawsuits.
Ben Liquidity’s Loan Portfolio and CustomerExAlt Trusts’ Investment in Alternative Assets
Our primary operations currently consist of offering our liquidity and trust administration services to our customers, primarily through certain of our operating subsidiaries, Ben Liquidity and Ben Custody, respectively. Ben Liquidity offers simple, rapid and cost-effective liquidity products to its customers using a proprietary financing and trusts structure, the Customer ExAlt Trusts, which facilitate the exchange of a customer’s alternative assets for consideration using a unique financing structure, the ExAlt PlanTM. In ExAlt PlanTM financings, a subsidiary of Ben Liquidity, BFF, makes ExAlt Loans to certain of the Customer ExAlt Trusts, which in turn employ a portion of the loan proceeds to acquire and deliver agreed upon consideration to the customer, in exchange for their alternative assets. Ben Liquidity generates interest and fee income earned in connection with such ExAlt Loans to certain of the Customer ExAlt Trusts, which are collateralized by the cash flows from the exchanged alternative assets, or the “Collateral.” The Collateral held by the Customer ExAlt Trusts supports the repayment of the loans plus any related interest and fees. In the event that an ExAlt Loan’s principal balance is reduced to zero dollars ($0), any remaining Collateral supporting such ExAlt Loan effectively cross-collateralizes other ExAlt Loans, as any such excess cash flows must be applied to pay off the outstanding balances of other ExAlt Loans pursuant to the terms of the trust agreements governing certain of the ExAlt Trusts.Ben Custody provides full-service trust and custody administration services to the trustees of certain of the Customer ExAlt Trusts, including BFF, which own the exchanged alternative asset following a liquidity transaction for fees payable quarterly.
As of September 30, 2024, Ben Liquidity’s loan portfolio consisted of ExAlt Loans to the Customer ExAlt Trusts with an aggregate principal amount outstanding of $575.9 million, including accrued interest that has been capitalized on the ExAlt Loans. Ben Liquidity’s ExAlt Loans are structured as loans with a maturity date of 12 years that bear contractual interest at a variable rate or fixed rate that compounds monthly. The ExAlt Loans made prior to December 31, 2020 have a variable interest rate established off of a base rate of 14%, and ExAlt Loans made on or after December 31, 2020 have a variable interest rate established off a base rate of 10% or a fixed rate of 5%. Ben Liquidity may make ExAlt Loans in the future with a variable interest rate established off of different base rates. Since the Customer ExAlt Trusts are consolidated, the ExAlt Loans and related interest and fee income earned by Ben Liquidity and Ben Custody from the Customer ExAlt Trusts are eliminated in the presentation of our consolidated financial statements; however, such amounts directly impact the income (loss) allocable to Ben’s or BCH’s equity holders.
The Customer ExAlt Trusts’ investments are the source of the Collateral supporting the ExAlt Loans plus any related interest and fees. These investments, either through direct ownership or through beneficial interests, consist primarily of limited partnership interests in various alternative assets, including private equity funds. These alternative investments are recorded at fair value using NAV as a practical expedient. Changes in the fair value (i.e., NAV) of these alternative investments are recorded in investment income (loss), net in our consolidated statements of operations. The Customer ExAlt Trusts’ investments in alternative assets and investments in equity and debt securities provide the economic value creating the Collateral to the ExAlt Loans made in connection with each liquidity transaction.
The underlying interests in alternative assets are primarily limited partnership interests. The transfer of the investments in private equity funds generally requires the consent of the corresponding private equity fund manager, and the transfer of certain fund investments is subject to rights of first refusal or other preemptive rights, potentially further limiting the ExAlt PlanTM from transferring an investment in a private equity fund. Distributions from funds are received as the underlying investments are liquidated. Timing of liquidation is currently unknown.
The Customer ExAlt Trusts held interests in alternative assets with a NAV of $301.4 million and $293.9 million as of September 30, 2024 and March 31, 2024, respectively. As of September 30, 2024, the Customer ExAlt Trusts’ portfolio had exposure to 237 professionally managed alternative investment funds, comprised of 797 underlying investments, 92 percent of which are investments in private companies. Additionally, the Customer ExAlt Trusts directly hold investments in debt and equity securities. The aggregate value of these investments was $33.6 million and $35.2 million as of September 30, 2024 and March 31, 2024, respectively.
The following sections provide more detailed information for Ben Liquidity’s loan portfolio and related allowance for credit losses and the Customer ExAlt Trusts’ investments in alternative assets and other equity and debt securities.
The following table provides the carrying value of the loan portfolio by collateral type and classification (in thousands):
September 30, 2024
March 31, 2024
Loans collateralized by interests in alternative assets
$
477,978
$
394,328
Loans collateralized by debt and equity securities
97,961
165,430
Total loans receivable
575,939
559,758
Allowance for credit losses
(315,253)
(303,574)
Total loans receivable, net
$
260,686
$
256,184
The following table provides certain information concerning our loan portfolio by collateral type and maturity as of September 30, 2024 (in thousands):
Original Principal
Interest Accrued
Aggregate Payments
Outstanding Balance(1)
Allowance
Carrying Value
Loans collateralized by interests in alternative assets
Within 5 Years
$
374,110
$
212,886
$
(341,283)
$
122,697
$
41,828
$
80,869
After 5 Years Within 10 Years
311,103
165,184
(82,489)
309,588
153,529
156,059
After 10 Years
46,429
2,576
(3,312)
45,693
43,790
1,903
Loans collateralized by debt and equity securities
Within 5 Years
12,564
6,419
(11,486)
3,028
1,865
1,163
After 5 Years Within 10 Years
86,173
65,273
(556)
90,374
73,478
16,896
After 10 Years
3,903
755
(98)
4,559
763
3,796
Total
$
834,282
$
453,093
$
(439,224)
$
575,939
$
315,253
$
260,686
(1) This balance includes $272.2 million in unamortized discounts as of September 30, 2024.
Loan to Value Ratio
The loan to value ratio is calculated as the carrying value of loans receivable after any allowance for credit losses over the Collateral Value of the loan portfolio. The value of the Collateral (the “Collateral Value”) is defined as the mutual beneficial interest of the respective Customer ExAlt Trust, which we refer to as the “Collective Trust” that is owned by the Customer ExAlt Trust, which we refer to as the “Funding Trust,” that borrows from Ben Liquidity’s subsidiary, BFF. The Collateral Value is derived from the expected cash flows from the various alternative assets held by other trusts included within the Customer ExAlt Trust structure. The Collateral is valued using industry standard valuation models, which includes assumptions related to (i) equity market risk premiums, (ii) alternative asset beta to public equities, (iii) NAVs, (iv) volatilities, (v) distribution rates, and (vi) market discount rates. The fair value of the mutual beneficial interests collateralizing the loan portfolio as of September 30, 2024 and March 31, 2024, was $266.0 million and $292.7 million, respectively.
The loan to value ratio for the entire loan portfolio was 0.98 and 0.88 as of September 30, 2024 and March 31, 2024, respectively. The increase in the loan to value ratio from March 31, 2024 to September 30, 2024 was driven by an increase in the allowance for credit losses, which is primarily due to lower loan repayments, when compared to accrued interest and fees, resulting in the loan carrying value increasing by approximately $4.5 million, while the fair value of the collateral declined period over period.
Allowance for Credit Losses
The ExAlt Loans’ allowance for credit losses is an input to the allocation of income (loss) to Ben’s or BCH’s equity holders.
On April 1, 2023, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments, Credit Losses (Topic 326) (“CECL”), which requires an estimate of the credit losses expected over the life of a loan (or pool of loans). It replaced the incurred loss approach’s threshold that required the recognition of a credit loss when it was probable that a loss event was incurred. The allowance for credit losses is a valuation account that is deducted from, or added to, the loans’ amortized cost basis to present the net, lifetime amount expected to be collected on the loans.
Management estimates the allowance using relevant available information from internal and external sources related to past events, current conditions, and reasonable and supportable economic forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Ben currently does not have adequate historical loss data to provide a basis for the long-term loss information associated with its loans. As such, Ben uses alternative, long-term historical average credit loss data from Preqin, Ltd. in establishing the loss history as a proxy.
Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in credit concentrations, collateral values and underwriting standards as well as changes in economic conditions or other relevant factors. Management judgment is required at each point in the measurement process.
Ben uses the discounted cash flow (“DCF”) method to estimate expected credit losses for the loan portfolio. Ben generates cash flow projections at the loan level wherein payment expectations are adjusted for changes in market risk premiums, risk free rate, NAV growth rate, and discount rate. The inputs are based on historical data from Preqin, Ltd. and adjusted, if necessary, based on the reasonable and supportable forecast of economic conditions. To adjust, management utilizes externally developed forward-looking macroeconomic factors as indicators of future expected cash flows: S&P 500 Index data and US 3-Month Treasury. The economic forecasts are applied over the cashflow projection period.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An allowance for credit loss is established for the difference between the instrument’s NPV and amortized cost basis.
The DCF model also considers the need to qualitatively adjust expected loss estimates for information not already captured in the quantitative loss estimation process. Qualitative considerations include limitations inherent in the quantitative model; trends experienced in nonperforming loans; changes in value of underlying collateral; changes in underwriting policies and procedures; nature and composition of loans; portfolio concentrations that may affect loss experience across one or more components or the portfolio; and the effect of external factors such as competition, legal and regulatory requirements. These qualitative factor adjustments may increase or decrease Ben’s estimate of expected credit losses so that the allowance for credit loss is reflective of the estimate of lifetime losses that exist in the loan portfolio at the balance sheet date.
The following table provides the allowance for credit losses recognized by Ben Liquidity and Ben Custody by collateral type and by classification (in thousands):
September 30, 2024
March 31, 2024
Loans collateralized by interests in alternative assets
$
239,147
$
168,089
Loans collateralized by interest in debt and equity securities
76,106
135,485
Total allowance for credit losses
$
315,253
$
303,574
The following table provides a rollforward of the allowance for credit losses recognized by Ben Liquidity and Ben Custody by collateral type (in thousands):
The following table presents certain credit quality metrics (in thousands):
September 30, 2024
March 31, 2024
Loans collateralized by alternative assets
Period-end loans
$
477,978
$
394,328
Nonperforming loans
$
172,337
$
126,607
Allowance for credit losses
$
239,147
$
168,089
Allowance/loans
50.03
%
42.63
%
Nonperforming loans/loans
36.06
%
32.11
%
Allowance to nonperforming loans
1.39x
1.33x
Loans collateralized by debt and equity securities
Period-end loans
$
97,961
$
165,430
Nonperforming loans(1)
$
73,678
$
120,845
Allowance for credit losses
$
76,106
$
135,485
Allowance/loans
77.69
%
81.90
%
Nonperforming loans/loans
75.21
%
73.05
%
Allowance to nonperforming loans(1)
1.03x
1.12x
Consolidated
Period-end loans
$
575,939
$
559,758
Nonperforming loans(1)
$
246,015
$
247,452
Allowance for credit losses
$
315,253
$
303,574
Allowance/loans
54.74
%
54.23
%
Nonperforming loans/loans
42.72
%
44.21
%
Allowance to nonperforming loans(2)
1.28x
1.23x
(1) The nonperforming loans collateralized by interests in GWG or the GWG Wind Down Trust was $145.9 million as of September 30, 2024 and March 31, 2024.
Customer ExAlt Trusts — Alternative Asset Portfolio
The portfolio of alternative assets held by the Customer ExAlt Trusts covers the following industry sectors and geographic regions for the periods shown below (dollar amounts in thousands):
September 30, 2024
March 31, 2024
Industry Sector
Value
Percent of Total
Value
Percent of Total
Food and Staples Retailing
$
66,517
22.1
%
$
41,721
14.2
%
Software and Services
44,683
14.8
42,908
14.6
Diversified Financials
30,222
10.0
30,297
10.3
Utilities
29,693
9.9
28,768
9.8
Energy
17,151
5.7
19,930
6.8
Capital Goods
15,733
5.2
23,146
7.9
Semiconductors and Semiconductor Equipment
14,797
4.9
16,144
5.5
Health Care Equipment and Services
14,441
4.8
16,520
5.6
Other(1)
68,151
22.6
74,482
25.3
Total
$
301,388
100.0
%
$
293,916
100.0
%
(1)
Industries in this category each comprise less than 5 percent. Semiconductors and Semiconductor Equipment and Health Care Equipment and Services is shown separately as it comprised greater than 5 percent in the prior period.
Assets in the portfolio consist primarily of interests in alternative investment vehicles (also referred to as “funds”) that are managed by a group of U.S. and non-U.S. based alternative asset management firms that invest in a variety of financial markets and utilize a variety of investment strategies. The vintages of the funds in the portfolio as of September 30, 2024 ranged from 1993 to 2024.
As Ben Liquidity originates additional ExAlt Loans, it monitors the diversity of the portfolio of alternative assets held by the Customer ExAlt Trusts through the use of concentration guidelines. These guidelines were established, and are periodically updated, through a data driven approach based on asset type, fund manager, vintage of fund, industry segment and geography to manage portfolio risk. Ben Liquidity refers to these guidelines when making decisions about new financing opportunities; however, these guidelines do not restrict Ben Liquidity from entering into financing opportunities that would result in Ben Liquidity having exposure outside of its concentration guidelines. In addition, changes to the portfolio of alternative assets held by the Customer ExAlt Trusts may lag changes to the concentration guidelines. As such, the portfolio of alternative assets held by the Customer ExAlt Trusts may, at any given time, have exposures that are outside of Ben Liquidity’s concentration guidelines to reflect, among other things, attractive financing opportunities, limited availability of assets, or other business reasons. Given our operating history of relatively few transactions at significant NAV, the portfolio as of September 30, 2024 had exposure to certain alternative investment vehicles and investments in private companies that were outside of those guidelines.
Classifications by industry sector, exposure type and geography reflect classification of investments held in funds or companies held directly in the portfolio. Investments reflect the assets listed by the general partner of a fund as held by the fund and have a positive or negative NAV. Typical assets include portfolio companies, limited partnership interests in other funds, and net other assets, which are a fund’s cash and other current assets minus liabilities. The underlying interests in alternative assets are primarily limited partnership interests, and the limited partnership agreements governing those interests generally include restrictions on disclosure of fund-level information, including fund names and company names in the funds.
Industry sector is based on Global Industry Classification Standard (GICS®) Level 2 classification (also known as “Industry Group”) of companies held in the portfolio by funds or directly, subject to certain adjustments by us. “Other” classification is not a GICS® classification. “Other” classification reflects companies in the GICS® classification categories of N/A, Commercial & Professional Services, Consumer Durables & Apparel, Consumer Services, Food, Beverage & Tobacco, Household & Personal Products, Insurance, Materials, Media & Entertainment, Pharmaceuticals, Biotechnology & Life Sciences, Real Estate, Retailing, Technology Hardware & Equipment, Telecommunication Services, and Transportation. “N/A” includes investments assets that we have determined do not have an applicable GICS® Level 2 classification, such as Net Other Assets and investments that are not operating companies.
Geography reflects classifications determined by us based on each underlying investment.
The following table presents a summary of cash flows from operating, investing and financing activities for periods presented below (in thousands):
Six Months Ended September 30,
2024
2023
Net cash used in operating activities
$
(19,259)
$
(27,356)
Net cash provided by investing activities
11,164
25,740
Net cash provided by (used in) financing activities
4,914
(5,515)
Net decrease in cash and cash equivalents, and restricted cash
$
(3,181)
$
(7,131)
Six Months Ended September 30, 2024 and 2023
Net cash used in operating activities was $19.3 million for the six months ended September 30, 2024, largely driven by working capital requirements, including employee compensation and benefits and professional services. Net cash provided by investing activities was $11.2 million for the six months ended September 30, 2024, primarily driven by $12.5 million of distributions received as return of investments in alternative assets offset by $0.9 million in purchases of premises and equipment. Net cash provided by financing activities was $4.9 million for the six months ended September 30, 2024 resulting from proceeds received from issuance of Class A common shares under equity purchase agreement of approximately $2.6 million, a total of $3.5 million in proceeds from debt issuances, and $0.7 million from other common stock sales offset by approximately $1.6 million in payment of deferred issuance costs.
Net cash used in operating activities was $27.4 million for the six months ended September 30, 2023, largely driven by working capital requirements, including employee compensation and benefits and professional services. Net cash provided by investing activities was $25.7 million for the six months ended September 30, 2023, primarily driven by $26.3 million of distributions received as return of investments in alternative assets and $1.0 million in proceeds received from the sale of put options, slightly offset by $1.0 million in purchases of premises and equipment. Net cash used in financing activities was $5.5 million for the six months ended September 30, 2023, largely driven by debt payments, redemptions of preferred equity securities, payments of deferred equity costs, and the net impact of the de-SPAC merger transaction.
Liquidity and Capital Resources
As of September 30, 2024 and March 31, 2024, we had $4.5 million and $7.9 million, respectively, in combined available unrestricted cash and cash equivalents.
Our business is capital intensive, and while we generated net income of $54.1 million for the six months ended September 30, 2024, we have historically generated net losses and, in aggregate, these net losses have resulted in an accumulated deficit of $2.0 billion as of September 30, 2024.
We currently finance our business through a combination of cash distributions from the Customer ExAlt Trusts’ alternative asset portfolio, receipt of fees for performing trust services, dividends and interest on investments, debt offerings, and equity offerings, including under the SEPA, and sales of loans extended to the Customer ExAlt Trusts. We have traditionally used proceeds from these sources for cash obligations arising from our initial capitalization and formative transactions, funding liquidity transactions and potential unfunded capital commitments, working capital, debt service payments, and costs associated with potential future products. BFF is also required to maintain sufficient regulatory capital due to its Kansas charter, though such amount is not significant.
The ability of Ben, BCH, and our operating subsidiaries to access the cash distributions from the Customer ExAlt Trusts’ alternative asset portfolio is limited by the terms of the ExAlt Loans from Ben Liquidity to the Customer ExAlt Trusts. Historically, Ben Liquidity has elected to capitalize interest that accrues on the ExAlt Loans and only receives payments on the ExAlt Loans, at the discretion of the applicable trustee, following the Customer ExAlt Trusts’ receipt of cash distributions on their alternative asset portfolio. The trustee of the Customer ExAlt Trusts intends to make principal payments on the ExAlt Loans out of the proceeds of the distributions from the alternative assets. To the extent the Customer ExAlt Trusts do not receive distributions, such as if the managers of the professionally managed funds comprising the alternative assets determine to delay distributions or transactions that would result in the distributions to its limited partners, the Customer ExAlt Trusts’ ability to repay the ExAlt Loans, and therefore, Ben Liquidity’s ability to receive principal and interest payments in cash may be adversely impacted. During the six months ended September 30, 2024, largely as a result of macro-economic conditions, the Customer ExAlt Trusts continued to receive fewer distributions from their alternative assets than was originally
anticipated, which adversely impacted the Customer ExAlt Trusts’ ability to repay the ExAlt Loans and our liquidity. Such conditions are expected to continue throughout the remainder of fiscal year 2025.
We expect that the Company will require additional capital to satisfy our obligations and fund our operations for the next twelve months, which will likely be achieved through the issuance of additional debt or equity, including through the SEPA. We continue to explore raising additional capital through a combination of debt financing and/or equity financing to supplement the Company’s capitalization and liquidity. If and as we raise additional funds by incurring loans or by issuing debt securities or preferred stock, these forms of financing have rights, preferences, and privileges senior to those of holders of our Common Stock. The availability and the terms under which we are able to raise additional capital could be disadvantageous, and the terms of debt financing and/or equity financing could place significant restrictions on our operations. Macroeconomic conditions and credit markets are also impacting the availability and cost of potential future debt financing. As we raise capital through the issuance of additional equity, such sales and issuance has and will continue to dilute the ownership interests of the existing holders of Common Stock. There can be no assurances that any additional debt and/or equity financing would be available to us on favorable terms or at all. We expect to continue to incur net losses, comprehensive losses and negative cash flows from operating activities until we meet a certain scale of operations.
As of the date of this Quarterly Report on Form 10-Q, we believe that our anticipated operating cash flows, proceeds on ExAlt Loan payments and fee income derived from distributions on investments held by the Customer ExAlt Trusts or other investments held by Ben, and additional sources of liquidity, are not sufficient to meet our contractual obligations over the next 12 months. While we may refinance some or all of the existing borrowings due prior to their maturity, with either our current lenders or other lenders, continue to seek opportunities to reduce corporate overhead, and intend to raise capital through equity or debt investments in us by third parties, including through the SEPA, we cannot conclude these are probable of being implemented or, if probable of being implemented, being in sufficient enough amounts to satisfy our contractual amounts as they presently exist that are coming due over the next 12 months as of the date of filing this Quarterly Report on Form 10-Q.
As further discussed in other sections of this Quarterly Report on Form 10-Q, on June 27, 2023, we entered into the SEPA with Yorkville, whereby we have the right, but not the obligation, to sell to Yorkville up to $250.0 million of shares of the Company’s Class A common stock. As of the date of this Quarterly Report on Form 10-Q, the Company had offered and sold 503,827 shares of Class A common stock to the Yorkville Investor pursuant to the SEPA for net proceeds of approximately $3.9 million. On June 20, 2024, the Company obtained stockholder approval pursuant to Nasdaq Listing Rule 5635(d) for the issuance of shares of Class A common stock to the Yorkville in excess of the Exchange Cap. As a result, the Company may issue up to an aggregate of approximately $246.1 million worth of shares of Class A common stock following registration with the SEC, with such registration statement declared effective by the SEC on November 12, 2024. The issuance of additional shares of Class A common stock under the SEPA will dilute the percentage ownership interest of all stockholders, could dilute the book value per share of the Class A common stock and will increase the number of the Company’s outstanding shares, which could cause the market price of our Class A common stock to decrease. Additionally, the decision regarding future sale of shares, including those under the SEPA, is subject to market conditions, such as trading volume, price of our Class A Common Stock and other factors beyond our control.
As further discussed in other sections of this Quarterly Report on Form 10-Q, on October 19, 2023, we entered into a three-year $25.0 million term loan with HH-BDH, which was fully drawn upon closing and, the proceeds of which were used to repay certain outstanding obligations, fund development of our products, and provide additional working capital. On August 16, 2024, an amendment to the term loan with HH-BDH was executed to add a subsequent term loan of $1.7 million, which was fully drawn upon the closing, and, the proceeds of which used to provide additional working capital. The HH-BDH Credit Agreement contains certain financial maintenance covenants, including a debt service coverage ratio and, beginning on December 31, 2024, a minimum liquidity requirement of $4.0 million, measured on the last day of each month. Additionally, on August 6, 2024, we entered into the Purchase Agreement with Yorkville, pursuant to which we agreed to issue and sell to Yorkville in connection with the issuance and sale by the Company of Convertible Debentures issuable in an aggregate principal amount of up to $4.0 million, which will be convertible into shares of the Company’s Class A common stock. Yorkville purchased and the Company issued $2,000,000 in aggregate principal amount of Convertible Debentures at the First Closing. Furthermore, the Company agreed to issue to the Yorkville Warrants to purchase up to 1,325,382 shares of Class A common stock at an exercise price of $2.63. At the First Closing, the Company issued a Yorkville Warrant to Yorkville to purchase up to 662,691 shares of Class A common stock. Additionally, on November 13, 2024, the Second Closing under the Purchase Agreement occurred whereby the Company issued an additional $2.0 million in aggregate principal amount of Convertible Debentures for proceeds of approximately $1.8 million and issued an additional Yorkville Warrant to purchase up to 662,691 shares of Class A common stock. The Convertible Debentures do not bear interest, subject to a potential increase to 18.0% per annum (or the maximum amount permitted by applicable law) upon the occurrence of certain events of default. The Convertible Debentures will mature on February 6, 2025 and will result in gross proceeds to the Company of approximately $3.6 million. The Convertible Debentures will be issued at an original issue discount of 10%. The
Company will be required to make monthly cash payments of principal in the amount of $1.3 million (or such lesser amount as may then be outstanding) plus all accrued and unpaid interest as of such payment. Such payments will commence 30 days following the Second Closing and will continue on a monthly basis thereafter until the Convertible Debentures are repaid in full, subject to certain conditions as described in the Convertible Debentures. If any of these limitations of the HH-BDH Credit Agreement or the Purchase Agreement were to materially impede the flow of cash to us, our ability to service and repay our debt would be materially and adversely affected. Notwithstanding the receipt of the proceeds of the borrowings made under the HH-BDH Credit Agreement, as amended, and the Yorkville securities purchase agreement, to the extent the Company continues to receive cash distributions that are less than previously projected amounts from its alternative assets, the Company will require additional capital to fund and grow its operations.
We may not be able to refinance our indebtedness or obtain additional financing on terms favorable to the Company, or at all. To the extent that Ben or its subsidiaries raise additional capital through the future sale of equity or debt, the ownership interest of our existing equity holders may be diluted. The terms of these future equity or debt securities may include liquidation or other preferences that adversely affect the rights of our existing equity unitholders or involve negative covenants that restrict Ben’s ability to take specific actions, such as incurring additional debt or making additional investments in growing the operations of the Company. If Ben defaults on these borrowings, then the Company will be required to either (i) sell participation or other interests in our loans or other of our assets or (ii) to raise additional capital through the sale of equity and the ownership interest of our equity holders may be diluted. Further, given the number of shares of Class A common stock eligible for resale as a result of various registration statements we have filed with the SEC, our stock price may be further depressed as a result of significant sales of our securities, which could adversely affect our ability to raise equity capital on favorable terms or at all. In addition, because the $920.00 exercise price per share of the outstanding Warrants substantially exceeds the current trading price per share of our Class A common stock ($1.23 per share as of September 30, 2024), there is no assurance that the Warrants will be in the money prior to their expiration and it is unlikely that the Warrant holders will be able to exercise such Warrants in the near future, if at all. Accordingly, we are unlikely to receive any proceeds from the exercise of the Warrants in the near future, if at all, and the Warrants may not provide any additional capital. Similarly, the Yorkville Warrants have an exercise price ($2.63 per share) that exceeds the current trading price per share of our Class A common stock. In considering our capital requirements and sources of liquidity, we have not assumed or relied on the receipt of proceeds from the exercise of Warrants or Yorkville Warrants. As a result of the foregoing, we may require additional capital resources to execute strategic initiatives to grow our business.
We will utilize our cash flows toward our contractual obligations, to invest in our business, including new product initiatives and growth strategies, including any potential acquisitions, and, if determined by our Board, pay dividends to our equity holders, including guaranteed payments on certain of BCH’s preferred equity securities, and fund tax distributions for certain noncontrolling interest holders. Our ability to fund these capital needs will depend on our ongoing ability to generate cash from operations and via the capital markets. We are continuing to evaluate the impact of the ongoing Russia-Ukraine conflict, the Israel-Hamas conflict and other items, such as inflation and rising interest rates, and assess the impact on financial markets and our business. The Company’s future results may be adversely affected by slowdowns in fundraising activity and the pace of new liquidity transactions with our customers due to such events.
While we have concluded that there is substantial doubt about our ability to continue as a going concern, our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty related to the Company’s ability to continue as a going concern.
Capital expenditures have historically not been material and we do not anticipate making material capital expenditures through the remainder of fiscal year 2025.
Recent Equity Issuances
On August 20, 2024, the Company entered into a subscription agreement with Cangany Capital Management, a limited liability company controlled by Peter T. Cangany, Jr., a member of the Company’s board of directors, pursuant to which Cangany Capital Management purchased 47,500 shares of Class A common stock at a price per share of $2.33.
On August 27, 2024, the Company entered into additional subscriptions agreement with Cangany Capital Management, pursuant to which Cangany Capital Management purchased 65,000 shares of Class A common stock at a price per share of $1.97.
Also on August 27, 2024, the Company entered into a subscription agreement with Thomas O. Hicks, a member of the Company’s board of directors, and a subscription agreement with CFH Ventures, Ltd., a limited partnership controlled by Mr.
Hicks, pursuant to which each of Mr. Hicks and CFH Ventures, Ltd. purchased 50,000 shares of Class A common stock at a price per share of $1.97.
On September 6, 2024 and October 9, 2024, the Company issued 9,623 shares and 4,175 shares of Class A common stock of the Company to a consultant of the Company.
On September 11, 2024, the Company entered into a subscription agreement with Cangany Capital Management pursuant to which Cangany Capital Management purchased 150,000 shares of the Company’s Class A common stock at a price per share of $1.58.
On September 17, 2024, the Company entered into a subscription agreement with Mendota, pursuant to which the Company issued 201,482 shares in satisfaction of its outstanding obligations to the Vendor pursuant to that certain Consulting Agreement by and between Mendota and The Beneficient Company Group (USA), L.L.C. effective as of September 9, 2021, as amended from time to time thereafter, pursuant to which Mendota provided financial consulting services to the Company.
Amended Credit Agreements
On August 13, 2020, Ben, through its subsidiary Beneficient Capital Company II, L.L.C. (formerly known as Beneficient Capital Company, L.L.C.) (“BCC”), executed the Second Amended and Restated First Lien Credit Agreement (“First Lien Credit Agreement”) and the Second Amended and Restated Second Lien Credit Agreement (“Second Lien Credit Agreement”) collectively, (the “Second A&R Agreements” or the “HCLP Loan Agreement”) with its lender, HCLP Nominees, L.L.C (“HCLP”), to amend its First Lien Credit Agreement and Second Lien Credit Agreement dated September 1, 2017 and December 28, 2018, respectively. The Second A&R Agreements have been further amended from time to time to extend the maturity date and defer principal and interest payments, among other things. In connection with the amendments to the Second A&R Agreements, Ben agreed to pay extension fees on a percentage of the amount outstanding under the credit agreements as of the date of the respective amendment. The interest rate on each loan under the Second A&R Agreements is 1-month LIBOR plus 8.0%, with a maximum interest rate of 9.5%.
On February 15, 2023, Ben executed those certain Amendment No. 5 to Second Amended and Restated Credit Agreement and Consent and Amendment No. 5 to Second Amended and Restated Second Lien Credit Agreement with HCLP, pursuant to which, as required by the prior amendment, certain Ben subsidiaries became subsidiary guarantors and entered into those certain Amended and Restated Security and Pledge Agreement (First Lien) and Amended and Restated Security and Pledge Agreement (Second Lien), that certain first lien Guaranty and that certain second lien Guaranty.
On June 5, 2023, BCH, entered into those certain Consent and Amendment No. 6 to Second Amended and Restated Credit Agreement, which amended the First Lien Credit Agreement, and Consent and Amendment No. 6 to Second Amended and Restated Second Lien Credit Agreement (collectively, the “Sixth Amendments”), which amended the Second Lien Credit Agreement, each among BCH, HCLP and the other parties thereto. Among other things, the Sixth Amendments (i) allowed for the consummation of the Transactions pursuant to the Business Combination Agreement, and effective as June 7, 2023, (ii) amended the definition of “Change of Control” (as defined therein), and (iii) provided that Beneficient will be the “Parent” thereunder.
On July 12, 2023, BCH, entered into (a) that certain Amendment No. 7 to the First Lien Amendment, which amended the First Lien Credit Agreement, and (b) that certain Amendment No. 7 to Second Lien Amendment (together with the First Lien Amendment, the “Seventh Amendments”), which amended the Second Lien Credit Agreement, each among BCH, HCLP and the other parties thereto. Among other things, the Seventh Amendments (i) modified the interest rate to a fixed rate of 9.5% (ii) extended the maturity dates of the First Lien Amendment and the Second Lien Amendment to September 15, 2024 and September 15, 2027, respectively, and (iii) agreed to installment payments on the First Lien Amendment of $5.0 million on each of March 29th, June 28th, September 29th, and December 29th of each year for so long as the obligations remain outstanding, and so long as such payments do not cause a going concern. No payments will be made on the Second Lien Amendment until the obligations on the First Lien Amendment have been fully satisfied. Effective on July 31, 2024, the maturity date of the First Lien Credit Agreement was extended from September 15, 2024 to February 1, 2025, and certain mandatory prepayment obligations thereunder were waived by HCLP until February 1, 2025.
As part of the Seventh Amendments, Ben agreed to pay fees totaling approximately $0.1 million. During the three and six months ended September 30, 2024 and 2023, no deferred financing costs were paid to HCLP. No payments of principal or interest have been made on the First Lien or Second Lien Credit Agreements since the interest payment made in March 2023. Accrued interest on the First Lien or Second Lien Credit Agreements of $14.1 million as of September 30, 2024 and $9.5 million as of March 31, 2024 is included in other liabilities in the consolidated statement of financial condition. Through September 30, 2024, all required principal and interest payments due under the Second A&R Agreements have been paid.
In connection with the Second A&R Agreements, Beneficient Holdings, Inc. (“BHI”), which is owned by The Highland Business Holdings Trust, of which Mr. Heppner is the trustee, and Mr. Heppner and his family are the beneficiaries, owns a majority of the BCH Class S Ordinary Units, Class S Preferred Units of BCH (“BCH Class S Preferred Units”), BCH Preferred A.0, Preferred Series A Subclass 1 Unit Accounts of BCH (“BCH Preferred A.1”), and Subclass 1 FLP Unit Accounts of BCH (“BCH FLP-1 Unit Accounts”), and Subclass 3 FLP Unit Accounts of BCH (“BCH FLP-3 Unit Accounts”), will grant certain tax-related concessions to HCLP as may be mutually agreed upon between the parties. In exchange for the tax-related concessions, 5% of BCH Preferred A.1 held by BHI, which will be held by HCLP, may convert to BCH Preferred A.0. In addition, recipients of a grant of BCH Preferred A.1 from BHI will have the right to put an amount of BCH Preferred A.1 to Ben equal to any associated tax liability stemming from any such grant; provided that the aggregated associated tax liability shall not relate to more than $30.0 million of grants of BCH Preferred A.1 from BHI. No such liability existed as of September 30, 2024 or March 31, 2024.
The Second A&R Agreements and ancillary documents contain covenants that (i) prevent Ben from issuing any securities senior to the BCH Preferred A.0 or BCH Preferred A.1; (ii) prevent Ben from incurring additional debt or borrowings greater than $10.0 million, other than trade payable, while the loans are outstanding; and (iii) prevent, without the written consent of HCLP, GWG from selling, transferring, or otherwise disposing of any BCH Preferred A.1 held as of May 15, 2020, other than to its subsidiary GWG DLP Funding V, LLC. GWG no longer holds any BCH Preferred A.1 Unit Accounts. Ben obtained consents for the Second A&R Agreements from HCLP in connection with the HH-BDH Credit Agreement (discussed below).
Ben may be required to pay an additional extension fee to extend the maturity dates of the Second A&R Agreements beyond February 1, 2025 and September 15, 2027.
Recent Debt Financing
As discussed above, the Loan Parties are parties to the HH-BDH Credit Agreement. HH-BDH’s sole member is Hicks Holdings. The managing member of Hicks Holdings is Mr. Thomas O. Hicks, a member of the Company’s Board. HH-BDH will receive customary fees and expenses in its capacity as a lender and as the administrative agent under the HH-BDH Credit Agreement, as further described below. Hicks Holdings and Mr. Hicks may be deemed to have a direct or indirect material financial interest with respect to the transactions contemplated by the HH-BDH Credit Agreement, as described below. HH-BDH funded the amounts under the HH-BDH Credit Agreement from the Financing.
The HH-BDH Credit Agreement provides for a three-year Term Loan in the aggregate principal amount of $25.0 million, which was fully drawn on closing.
Borrowings under the HH-BDH Credit Agreement bear interest, at the Company’s option, calculated according to a base rate, adjusted term SOFR rate, or adjusted daily simple SOFR rate, plus an applicable margin, subject to a Maximum Rate determined by applicable law in the State of New York. The Company elected the adjusted daily simple SOFR rate with a margin of 6.5% for the first two years and 5.5% for the third year. Accrued and unpaid interest is payable monthly, upon prepayment, and at maturity. The Term Loan will mature on October 19, 2026, and all outstanding principal amounts and accrued and unpaid interest thereon shall be due and payable on such date.
On August 16, 2024, the Borrower, the Guarantor and HH-BDH entered into the Amendment, to, among other things, (i) add a subsequent term loan of up to $1,675,000, which was fully drawn upon closing of the Amendment, and (ii) waive certain events of default resulting from the occurrence of the Acknowledged Defaults, provided that in the case of the expense reimbursement default, the Borrower must cure the expense reimbursement default upon the earlier of (x) November 1, 2024 and (y) two business days following the effectiveness of Company’s registration statement for resale of the shares of Class A common stock, underlying the convertible debentures and warrants issuable pursuant to the Purchase Agreement.
The Amended Credit Agreement also requires the Borrower to prepay the outstanding principal balance of the Loans in the amount of $200 thousand, $200 thousand, $200 thousand, $200 thousand and $875 thousand on each of September 7, 2024, October 7, 2024, November 7, 2024, December 7, 2024 and December 31, 2024, respectively. Furthermore, on each Required Payment Date, the Borrower shall prepay the outstanding principal balance of the Loans by an amount equal to the lesser of (a) the Total Portfolio Net Receipts for the most recently ended period beginning on the 16th day of each month and ending on the 15th day of the immediately following month, and (b) as of each Required Payment Date, an amount equal to the excess, if any, of (x)(i) the number of Required Payment Dates occurring on or prior to such Required Payment Date, multiplied by (ii) $500,000, minus (y) the amount of all Excess Payments made prior to such Required Payment Date. Additionally, the Amended Credit Agreement requires the Borrower to make certain minimum monthly payments to prepay the balance of the Loans.
The Amended Credit Agreement also includes, among other things, (i) updates to conditions precedent for the Lender to make the subsequent term loan to the Borrower, (ii) updates to certain representations and warranties, (iii) additional certain
affirmative and negative covenants including a minimum liquidity financial covenant of $4.0 million and (iv) additional events that the occurrence of which would constitute an Event of Default (as defined in the Amended Credit Agreement). Except as modified by the Amendment, the terms of the HH-BDH Credit Agreement remain the same.
Inflation
Changes in inflation do not necessarily correlate with changes in interest rates. We presently do not foresee any material impact of inflation on our results of operations in the periods presented in our consolidated financial statements.
Unfunded Capital Commitments
The Customer ExAlt Trusts had $47.2 million and $47.8 million of potential gross capital commitments as of September 30, 2024, and March 31, 2024, respectively, representing potential limited partner capital funding commitments on the interests in alternative asset funds. The trust holding the interest in the limited partnership for the alternative asset fund is required to fund these limited partner capital commitments per the terms of the limited partnership agreement. Capital funding commitment reserves are maintained by certain of the associated trusts within the ExAlt PlanTM or affiliated entities. To the extent that the associated Customer ExAlt Trust or their affiliated entities cannot pay the capital funding commitment, Ben is obligated to lend sufficient funds to meet the commitment. Any amounts advanced by Ben to the Customer ExAlt Trusts for these limited partner capital funding commitments above the associated capital funding commitment reserves, if any, held by the associated Customer ExAlt Trusts or their affiliated entities are added to the ExAlt Loan balance between Ben and the Customer ExAlt Trusts and are expected to be recouped through the cash distributions from the alternative asset fund that collateralizes such ExAlt Loan.
Capital commitments generally originate from limited partner agreements having fixed or expiring expiration dates. The total limited partner capital funding commitment amounts may not necessarily represent future cash requirements. The majority, or 90%, of our portfolio with an unfunded commitment has a vintage of 2012 and prior. As the vintages continue to age, a cash requirement becomes less likely. We consider the creditworthiness of the investment on a case-by-case basis. As of September 30, 2024 and March 31, 2024, there were no reserves for losses on unused commitments to fund potential limited partner capital funding commitments.
Dependence on Related Party Transactions
In the ordinary course of business, we depend on certain transactions with related parties. For example, as discussed above, Ben, through its subsidiaries, is a party to the Second A&R Agreements with HCLP. HCLP is an indirect subsidiary of Highland Consolidated, L.P. Ben’s CEO is a beneficiary and trust investment advisor of the trusts that control, and are the partners of, Highland Consolidated, L.P. As of September 30, 2024, we had approximately $94.6 million (including an unamortized premium thereon) of debt outstanding derived from BCH’s secured loans with HCLP. In addition, unpaid interest of $14.1 million was accrued and owed as of September 30, 2024.
Additionally, effective October 19, 2023, Ben, through its subsidiaries, is a party to the $25.0 million HH-BDH Credit Agreement with HH-BDH. HH-BDH’s sole member is Hicks Holdings whose managing member is a member of our Board. On August 16, 2024, Amendment to the HH-BDH Credit Agreement was executed to add a subsequent term loan of $1.7 million. As of September 30, 2024, we had approximately $25.2 million (including an unamortized discount thereon) of debt outstanding derived from the term loan with HH-BDH.
Furthermore, Ben and BCH are parties to a Services Agreement with Bradley Capital Company, L.L.C. (“Bradley Capital”) and Beneficient Management Counselors, L.L.C. effective June 1, 2017. Effective as of January 1, 2022, the parties entered into the First Amended and Restated Services Agreement and effective June 7, 2023, the parties entered into the Second Amended and Restated Services Agreement (the “Services Agreement”). Bradley Capital is an entity associated with Ben’s CEO. During the three months ended September 30, 2024 and 2023, Ben recognized expenses totaling $0.7 million and $0.7 million, respectively, related to this services agreement. During the six months ended September 30, 2024 and 2023, Ben recognized expenses totaling $1.4 million and $1.4 million, respectively, related to this services agreement. As of September 30, 2024 and March 31, 2024, $3.1 million and $2.7 million, respectively, was owed to Bradley Capital related to the Services Agreement.
As reported on a Schedule 13G/A filed by the GWG Wind Down Trust on October 8, 2024, the GWG Wind Down Trust held approximately 7.6% of the Class A common stock, down from approximately 45% of the Class A common stock at the time our June 30, 2024 Form 10-Q was filed on August 14, 2024.
Critical Accounting Estimates
We have identified certain accounting estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Actual amounts and values as
of the balance sheet dates may be materially different than the amounts and values reported due to the inherent uncertainty in the estimation process. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date. The critical accounting estimates that we believe to be the most critical in preparing our consolidated financial statements relate to the fair value determination of investments in alternative assets held by the Customer ExAlt Trusts, the determination of the allowance for credit losses, principally relevant as an input to the allocation of income (loss) to Ben’s and BCH’s equity holders, the allocation of income (loss) to Ben’s and BCH’s equity holders, evaluation of potential loss contingencies principally related to ongoing legal matters and evaluation of potential impairment of goodwill and other intangibles. Since March 31, 2024, there have been no changes in critical accounting estimates, other than those described below, as further described under “Critical Accounting Estimates” in our Annual Report.
Goodwill and Identifiable Intangible Assets
Goodwill is tested for impairment between annual tests whenever events or circumstances make it more likely than not that the fair value of a reporting unit has fallen below its carrying value. Subsequent to the public listing on June 8, 2023, and through the date of this report, the Company has experienced a significant sustained decline in the price of its Class A common stock and its related market capitalization. We believe that these factors indicated that the fair value of our reporting units had more likely than not fallen below their carrying values as of each quarter end starting with the quarter ending as of June 30, 2023. As such, management performed an interim impairment test of goodwill as of each quarter end starting with June 30, 2023 through the most recent quarter end of September 30, 2024. For the quarter ended September 30, 2023, this resulted in $306.7 million of non-cash goodwill impairment at the Ben Liquidity and Ben Custody reporting units. For the quarter ended September 30, 2024, this resulted in $0.3 million of non-cash goodwill impairment at the Ben Custody reporting unit. For year-to-date September 30, 2023, non-cash goodwill impairment of $1.4 billion was recorded at the Ben Liquidity and Ben Custody reporting units. For year-to-date September 30, 2024, non-cash goodwill impairment of $3.7 million was recorded at the Ben Custody and Ben Markets reporting units.
For each goodwill impairment test, the Company computed the fair value of each reporting unit by computing the overall enterprise value of the Company by valuing its various equity instruments, primarily based on the Class A common stock price per share. The overall enterprise value was allocated to each reporting unit using the discounted cash flow method to estimate the relative value of each reporting unit based on their future cash flows using a multi-year forecast, and a terminal value calculated using a long-term growth rate that was informed based on our industry, analyst reports of a public company peer set, current and expected future economic conditions and management expectations. The discount rate used to discount these future cash flows was determined using a capital asset pricing model based on the market value of equity of a public company peer set, adjusted for risk characteristics and expectations specific to the reporting unit, combined with an assessment of the cost of debt.
The discount rates used for each reporting unit in the June 30, 2023 impairment analysis ranged from 24.8% to 25.6% and in the September 30, 2023 impairment analysis ranged from 25.3% to 26.2%. The Company applied a terminal year long-term growth rate of 3.0% for each reporting unit in both the June 30, 2023 and September 30, 2023 impairment analyses.
The discount rates used for the relevant reporting units in the June 30, 2024 impairment analysis ranged from 28.0% to 29.3% and in the September 30, 2024 impairment analysis from 28.0% to 29.3%. The Company applied a terminal year long-term growth rate of 3.0% for each relevant reporting unit in both the June 30, 2024 and September 30, 2024 impairment analyses. Remaining goodwill of $9.9 million at September 30, 2024 relates to the Ben Custody and Ben Markets reporting units. Subsequent to the September 30, 2024 impairment, there was no excess of reporting unit fair value over carrying value for Ben Custody and approximately $0.4 million of reporting unit fair value over carrying value for Ben Markets.
Management continues to closely monitor the results of the reporting units and comparisons to the key assumptions used in our fair value estimate, in addition to operational initiatives and macroeconomic conditions, which may impact the results of the reporting units. The performance of the reporting units and the potential for future developments in the global economic environment, introduces a heightened risk for additional impairment. If management determines that the reporting units, specifically Ben Custody and Ben Markets, cannot achieve the growth assumptions noted above, or if there is continued deterioration in the market due to macroeconomic conditions, some or all of the remaining recorded goodwill could be subject to further impairment. While management cannot predict if or when additional future goodwill impairments may occur, additional goodwill impairments could have material adverse effects on the Company’s financial condition, operating income, net assets, and/or the Company’s cost of, or access to, capital.
There could be further significant sustained declines in the Company’s Common Stock, which may result in a recognition of further goodwill impairment that could be material to the consolidated financial statements.
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4 — CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) that are designed to provide reasonable assurance 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 the SEC’s rules and forms and to ensure that information required to be disclosed is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024, the end of the period covered by this Quarterly Report. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, during the six months ended September 30, 2024, that materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
There have been no material changes in the legal proceedings previously disclosed in response to Part I, Item 3. “Legal Proceedings” set forth in our Annual Report on Form 10-K for the year ended March 31, 2024 filed with the SEC on July 9, 2024, except as set forth below.
On July 29, 2024, the Texas District Court entered an order vacating the previously disclosed arbitration award against the Company in the aggregate amount of approximately $55.3 million in compensatory damages, including pre-judgment and post-judgement interest. As previously disclosed, on December 16, 2022, a former member (the “Claimant”) of the board of directors of Beneficient Management, L.L.C. initiated a private arbitration in the International Court of Arbitration of the International Chamber of Commerce, challenging the termination of certain equity awards under two incentive plans by the administrator of the incentive plans. On April 23, 2024, the sole arbitrator held that in terminating the Claimant’s equity awards, the Company had breached its contractual obligations, and as a result, awarded the Claimant $55.3 million in compensatory damages, including pre-judgment and post-judgement interest (the “Arbitration Award”). The order vacated the Arbitration Award in its entirety. The Company was also asked to pay arbitration-related costs in the amount of approximately $0.1 million.
The Texas District Court directed the parties to file motions requesting any further relief that may be available within twenty days of the order. On August 2, 2024, the Claimant filed an appeal to challenge the order vacating the Arbitration Award in the Texas Fifth Court of Appeals. The Company intends to vigorously defend itself in connection with the appeal.
ITEM 1A — RISK FACTORS
There have been no material changes in the risk factors previously disclosed in response to Part I, Item 1A. “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024 filed with the SEC on July 9, 2024, except as set forth below.
We have been notified by Nasdaq of our failure to comply with certain continued listing requirements and, if we are unable to regain compliance with all applicable continued listing requirements and standards of Nasdaq, our Class A common stock could be delisted from Nasdaq.
Our Class A common stock is listed on the Nasdaq Capital Market. To maintain our listing, we are required to satisfy continued listing requirements. There can be no assurance we will continue satisfying such continued listing requirements, which include that the closing bid price of our common stock be at least $1.00 per share, that we have at least 300 round lot holders and at least 500,000 publicly held shares, that the market value of our publicly held securities be at least $1 million, and that we meet one of these standards: stockholders’ equity of at least $2.5 million; market value of listed securities of at least $35 million; or net income from continuing operations of $500,000 in the latest fiscal year or in two of the last fiscal years.
On November 28, 2023, we received a letter from the Staff of Nasdaq (the “Nasdaq Staff”) notifying the Company that, for the previous 30 consecutive business days, the closing bid price for the Company’s Class A common stock had been below the minimum $1.00 per share required for continued listing on the Nasdaq Global Market under Nasdaq Listing Rule 5450(a)(1) (the “Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided an initial period of 180 calendar days, or until May 28, 2024, to regain compliance with the Bid Price Requirement.
Effective February 26, 2024, the Company transferred from the Nasdaq Global Market to the Nasdaq Capital Market. On March 22, 2024, the Company received a letter from Nasdaq advising that the Nasdaq Staff had determined that, as of March 21, 2024, the Company’s Class A common stock had a closing bid price of $0.10 or less for at least ten consecutive trading days. Accordingly, the Company was subject to the provisions contemplated under Nasdaq Listing Rule 5810(c)(3)(A)(iii). As a result, the Nasdaq Staff determined to delist the Company’s securities from The Nasdaq Capital Market, unless the Company timely requests a hearing before the Nasdaq Hearings Panel (the “Panel”) pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. The Company requested a hearing, and such hearing was scheduled for May 21, 2024.
In order to regain compliance with the Bid Price Requirement, on April 18, 2024, the Company effected a reverse stock split of its Class A common stock and Class B common stock at a ratio of eighty (80) to one (1) and a simultaneous proportionate reduction in the authorized shares of each class of its Class A common stock and Class B common stock as required by NRS Section 78.207. On May 2, 2024, the Company received noticed from the Nasdaq Staff that the Company had regained compliance with the Bid Price Requirement, and that therefore, the Company was therefore in compliance with the listing requirements of the Nasdaq Capital Market. As a result, the Company’s hearing before the Panel was cancelled.
On July 16, 2024, the Company received a notice from the Nasdaq staff indicating that it is no longer in compliance with the minimum stockholders’ equity requirement (the “Minimum Stockholders’ Equity Requirement”) for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’ Equity Notice”). Nasdaq Listing Rule 5550(b)(1) requires listed companies to maintain stockholders’ equity of at least $2,500,000 or meet the alternative compliance standards relating to the market value of listed securities or net income from continuing operations, which the Company does not currently meet.
Pursuant to the Stockholders’ Equity Notice and the Listing Rules of Nasdaq, Nasdaq provided the Company with 45 calendar days, or until August 30, 2024, to submit a plan to regain compliance with the Minimum Stockholders’ Equity Requirement. If the Company’s plan to regain compliance is accepted, the Staff can grant an extension of up to 180 calendar days from the date of the Stockholders’ Equity Notice to evidence compliance. If the Company’s plan to regain compliance is not accepted, or if it is accepted and the Company does not regain compliance in the timeframe required by Nasdaq, the Nasdaq Staff could provide notice that the Company’s shares of Class A common stock are subject to delisting. In such an event, the Company would have the right to request a hearing before the Panel. The hearing request would automatically stay any suspension or delisting action pending the completion of the hearings process. The Stockholders’ Equity Notice had no immediate impact on the listing of the Class A common stock, which will continue to be listed and traded on Nasdaq under the symbol “BENF,” subject to the Company’s compliance with the other listing requirements of Nasdaq.
The Company timely submitted a plan to regain compliance with the Minimum Stockholders’ Equity Requirement. Although the Company intends to use all reasonable efforts to achieve compliance with the Minimum Stockholders’ Equity Requirement, there can be no assurance that the Company will be able to regain compliance with the Minimum Stockholders’ Equity
Additionally, on July 23, 2024, the Company notified Nasdaq that, following the resignations of Emily B. Hill and Dennis P. Lockhart from the Company’s Board and Audit Committee of the Board (the “Audit Committee”). On September 30, 2024, Patrick J. Donegan was appointed to the Board as an independent director and a member of the Audit, Products and Related Party Transactions, Credit and Enterprise Risk committees of the Board. The Company currently has a vacancy on the Audit Committee and intends to rely on the cure period set forth in the Nasdaq Listing Rule 5605 while it recruits a new Audit Committee member.
On July 25, 2024, the Company received a notice from Nasdaq (the “Audit Committee Notice”) confirming that the Company was no longer in compliance with Nasdaq’s audit committee composition requirements as set forth in Nasdaq Listing Rule 5605, which requires that the audit committee of a listed company be comprised of at least three “independent directors” (as defined in Nasdaq Listing Rule 5605(a)(2)). Pursuant to Nasdaq Listing Rule 5605(c)(4), the Company intends to rely on the cure period to reestablish compliance with Nasdaq Listing Rule 5605. The cure period is generally defined as until the earlier of the Company’s next annual meeting of stockholders or July 21, 2025. If the Company’s next annual meeting of stockholders is held before January 15, 2025, then the Company must evidence compliance no later than January 15, 2025. The Board is in the process of identifying and selecting a new member of the Board who qualifies as “independent” and meets the audit committee criteria set forth in Nasdaq Listing Rule 5605. The Board intends to comply fully with Nasdaq audit committee requirements by or before the end of the cure period described above, but there can be no assurance that the Company will be able to regain compliance with Nasdaq Listing Rule 5605 or that the Company will otherwise be in compliance with other applicable Nasdaq listing criteria. The Audit Committee Notice had no immediate impact on the listing of the Class A common stock, which will continue to be listed and traded on Nasdaq under the symbol “BENF,” subject to the Company’s compliance with the other listing requirements of Nasdaq..
If we are delisted from Nasdaq, our securities may be eligible for trading on an over-the-counter market. If we are not able to obtain a listing on another stock exchange or quotation service for our securities, it may be extremely difficult or impossible for stockholders to sell their shares. If we are delisted from Nasdaq, but obtain a substitute listing for our securities, it will likely be on a market with less liquidity, and therefore experience potentially more price volatility than experienced on Nasdaq. Stockholders may not be able to sell their securities on any such substitute market in the quantities, at the times, or at the prices that could potentially be available on a more liquid trading market. As a result of these factors, if our securities are delisted from Nasdaq, the value and liquidity of our securities would likely be significantly adversely affected. A delisting of our securities from Nasdaq could also adversely affect our ability to obtain financing for our operations and/or result in a loss of confidence by investors, employees and/or business partners.
In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our securities to become listed again, stabilize the market price or improve the liquidity of our securities, prevent our securities from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with the listing requirements of Nasdaq. There can be no assurance that we will maintain the compliance of our securities with the Nasdaq listing requirements.
Decisions made by an individual trustee could materially affect our custody business and the assets held in certain of our trusts.
Historically, we have been dependent upon the services of John Stahl, an individual who, prior to our receipt of the operating TEFFI charter in Kansas, served as trustee of most of our Customer ExAlt Trusts, excluding the custody trusts that are Delaware statutory trusts, which are trusts with the Delaware Trust Company serving as trustee. Mr. Stahl continued to serve as trustee of the Customer ExAlt Trusts established in our formative transactions until July 7, 2024, at which point BFF began the process of accepting such trusts as successor trustee. BFF completed the trust acceptance process on September 19, 2024 and November 1, 2024 and, as such, currently serves as successor trustee of all of the Customer ExAlt Trusts, excluding the custody trusts that are Delaware statutory trusts, for which the Delaware Trust Company continues to serve as trustee. Previously, we replaced Mr. Stahl as trustee on certain other trusts, and BFF was appointed as trustee of the Customer ExAlt Trusts following the receipt of BFF’s TEFFI charter. Accordingly, BFF will be, subject to fiduciary duties and other restrictions included in our trust agreements and as a matter of law, as a trustee, BFF will have broad discretion and authority to take actions permitted by the trust agreements and applicable law.
Accordingly, decisions made by BFF could materially affect our business and the assets held in such trusts. It is impossible to determine how these decisions may affect the value of the Company and therefore our securities.
The Company is currently involved in legal proceedings and may be a party to additional claims and litigation in the future.
On February 18, 2022, Paul Capital Advisors (“PCA”) filed a lawsuit against MHT Financial, L.L.C. (“MHT”), BCG, and two trust advisors (the “Trust Advisors”), Murray Holland (part-owner of MHT and former Chairman, President and CEO of GWG) and James Turvey (an employee of BCG) in the Delaware Court of Chancery (the “Court” or the “Court of Chancery”). While BCG was named as a defendant, PCA did not assert claims against or seek relief from BCG but instead asserted one cause of action that only sought the removal and replacement of the Trust Advisors. The lawsuit concerns a set of transactions that utilized a trust structure with MHT as the sole beneficiary. Through this trust structure, PCA sold illiquid investments with a net asset value of approximately $500 million to MHT in exchange for a contractual right from MHT to receive proceeds derived from an auction of BCG securities held in certain trusts (the “Trusts”). Pursuant to a separate contingent value right (“CVR”) contract (the “CVR Contract”) between BCG, affiliates of BCG (collectively, the “BEN CVR Parties”), and MHT, BCG agreed to undertake certain obligations if consideration from the auction of the BCG securities held in the Trusts resulted in an amount less than the net asset value of the illiquid investments MHT purchased from PCA (a “Shortfall ET Amount”), and other precedent conditions occurred. These obligations included, among other things, making quarterly distributions of “Available Cash” to the Trusts until the distributions equaled the Shortfall ET Amount.
Ultimately, GWG won the auction of the Company securities with a winning bid comprised of cash, GWG common stock, and L Bonds. While the cash consideration has been paid to PCA, the GWG stock and L Bonds remain in the Trusts until they are liquidated. The original complaint asserted one cause of action: that the Trust Advisors had breached their purported fiduciary duties to PCA. The sole relief PCA sought was the removal and replacement of the Trust Advisors. On March 14, 2022, the defendants moved to dismiss the original complaint, disputing in their briefs filed on March 28, 2022 that PCA is a beneficiary of any kind to the Trusts, and therefore not owed fiduciary duties by the Trust Advisors, and that PCA has no right to remove and replace the Trust Advisors. Further, the Company sought to dismiss the original complaint on the grounds that no claims were asserted against the Company and no relief was sought from it.
On April 18, 2022, PCA amended its original complaint. The amended complaint asserted six new causes of action arising out of the same set of transactions, including: (1) purported breaches of contract against BCG, MHT, and the Trust Advisors, including a purported breach of the CVR Contract; (2) purported fraud by the Company and MHT pertaining to the execution of the Second Amendment to the CVR Contract; and (3) promissory estoppel against MHT, the Company, and Murray Holland in his capacity as a Trust Advisor. The amended complaint also sought additional relief in the form of (1) damages “in an amount to be proven at trial” and (2) an order granting rescission of an amendment to the CVR Contract or a holding declaring it invalid. On April 18, 2022, Mr. Holland and Mr. Turvey resigned as Trust Advisors to the Trusts that were the subject matter of the complaint. On April 19, 2022, MHT, as the sole beneficiary of the Trusts, appointed Dr. John Stahl as the new Trust Advisor. On April 28, 2022, the Court found that PCA’s original cause of action to remove Mr. Holland and Mr. Turvey as Trust Advisors was moot. On May 6, 2022, PCA amended its complaint again to request that Dr. Stahl be removed as Trust Advisor.
Additionally, while the second amended complaint maintains the prior causes of action, it retracts PCA’s prior, false statements claiming that the Company had not supplied PCA’s representative the relevant documents before he signed an amendment to the CVR Contract. PCA still, however, requests that the Court rescind this amendment which memorialized the parties’ prior agreements regarding certain definitions negotiated and approved by PCA and its counsel. On August 17, 2022, the Court issued a memorandum opinion that dismissed count I of PCA’s complaint, which requested Dr. Stahl’s removal, after finding that PCA is not a beneficiary of the Trusts and, therefore, lacks standing to request the removal of any
Trust Advisor. Additionally, because the Court held that PCA is not a beneficiary of the Trusts, the parties agreed that count II, which alleged breach of fiduciary duty against the Trust Advisors, should also be dismissed. On October 3, 2022, the Court entered an order dismissing count I of PCA’s complaint in accordance with its memorandum opinion and count II in light of the parties’ agreement that it should also be dismissed.
On November 1, 2022, defendants filed their opening briefs in support of their motions to dismiss the remaining counts. On December 20, 2022, PCA filed its answering brief in opposition to defendants’ motions to dismiss the remaining counts. On January 24, 2023, defendants filed their reply briefs. Oral argument on the motions to dismiss was held on May 8, 2023. On August 29, 2023, the Court issued a letter opinion that denied defendants’ motions to dismiss with respect to most of the remaining counts, explaining that the Court was unwilling to determine the parties’ rights under the various agreements at the pleadings stage and that discovery may make these issues ripe for summary judgment. The Court did, however, grant defendants’ motions to dismiss as to one of PCA’s promissory estoppel claims and its claim for equitable fraud. On October 25, 2023, defendants filed their respective answers to PCA’s second amended complaint.
On November 9, 2023, defendants filed a motion to bifurcate, requesting that the Court of Chancery first resolve the threshold issue of PCA’s standing under the CVR Contract and Exchange Trust Agreements before proceeding on the merits. On November 29, 2023, PCA filed its opposition to defendants’ motion to bifurcate, and on December 8, 2023, defendants filed their reply brief. On June 24, 2024, the Court of Chancery heard oral argument and issued its ruling granting defendants’ motion to bifurcate. In its ruling, the Court of Chancery ordered the parties to promptly conduct limited standing-related discovery to allow final resolution of the standing issue on summary judgment by January 2025.
This litigation can subject us to substantial costs and divert resources and the attention of management from our business. If these claims are successful, our business could be seriously harmed. Even if the claims do not result in protracted litigation or are resolved in our favor, the time and resources needed to resolve such claims could divert our management’s resources and adversely affect our business.
The CVR Contract is an agreement between the BEN CVR Parties, and MHT, which was dated as of September 1, 2017. PCA is not a party to the CVR Contract nor an intended third-party beneficiary of the CVR Contract. In the CVR Contract, among other things, the Company agreed to undertake certain obligations if: (1) the consideration from the auction of the Company securities held in the Trusts resulted in an amount less than the net asset value of the illiquid investments MHT purchased from PCA (a Shortfall ET Amount) and (2) certain other conditions were not satisfied, resulting in what the CVR Contract referred to as a “Distribution Trigger Event.” Under the CVR Contract, a Distribution Trigger Event could potentially occur if the BEN CVR Parties failed to undertake an Initial Public Listing (as defined in the CVR Contract) within 24 months of the auction closing date of the Company securities, which was defined to include a transaction or event resulting in the listing of the Company’s common units (or any securities into which the common units may be exchanged in a business combination or similar transaction) on a national stock exchange or quotation in an automated quotation system. In the event of the occurrence of a Distribution Trigger Event, the BEN CVR Parties potentially would have had to comply with specified obligations arising in certain circumstances, including making quarterly distributions of “Available Cash” to the Trusts until the distributions equaled the Shortfall ET Amount, if any (a “Mandatory Distribution Period”).
During such a Mandatory Distribution Period, the CVR Contract may have also required the BEN CVR Parties to cease certain business activities, including the financing or acquisition of future private equity or other alternative asset loans unless financed through the issuance of equity or debt that is subordinate to the obligations under the CVR Contract. Except where the description of the CVR Contract expressly refers to PCA, the description of the CVR Contract’s terms is as asserted by the Company, and they are currently in dispute and being litigated in the Delaware Court of Chancery.As a threshold matter, the parties disagree about whether PCA is an intended third-party beneficiary of the CVR Contract. PCA asserts it is an intended third-party beneficiary with standing to enforce the CVR Contract. The BEN CVR Parties disagree with PCA because Section 4.9 of the CVR Contract expressly disclaims that there are any third-party beneficiaries of CVR Contract other than the Trusts. In addition to the threshold issue of standing, the parties disagree about (1) whether there is a Shortfall ET Amount under the CVR Contract’s definition of Net Auction Consideration, (2) whether there was an Initial Public Listing as defined in the CVR Contract, and (3) whether the CVR Contract terminated under these disputed definitions.
First, PCA asserts that a Shortfall ET Amount exists because it alleges that the Trusts have not received Net Auction Consideration, which PCA argues is defined to only include cash, in an amount equal to the net asset value of the illiquid investments MHT purchased from PCA (NAV of ~$500 million). As a result, PCA claims damages in the amount of $350 million. In contrast, the BEN CVR Parties believe there is no Shortfall ET Amount because the Trusts have received Net Auction Consideration that PCA’s valuation expert determined had a value exceeding the NAV of the investments purchased from PCA (valued at ~$550 million), which was comprised of $150 million in cash and approximately $400 million in GWG L-Bonds and GWG common stock. The BEN CVR Parties disagree that Net Auction Consideration only includes cash received by the Trusts in light of (1) an acknowledgement in which PCA agreed that “for all purposes Net Auction Consideration included all Auction Consideration” and that “the fair market value of all Auction Consideration shall be the
fair market value as reflected [by PCA’s valuation expert]” and (2) an amendment to the CVR Contract that amended the definition of Net Auction Consideration to include non-cash consideration received by the Trusts and that was signed by a PCA general partner serving as a Ben director for purposes of approving such an amendment.
Second, PCA asserts the BEN CVR Parties failed to undertake an Initial Public Listing, alleging the BEN CVR Parties never filed a registration statement. The BEN CVR Parties disagree because they did exchange common units for GWG common stock, satisfying the CVR Contract’s definition of an Initial Public Listing. Third, as a result of the disputed terms above, the parties disagree about whether the CVR Contract terminated. Under the BEN CVR Parties’ view of the disputed terms, the CVR Contract terminated under its terms. But because PCA asserts that a Shortfall ET Amount exists, PCA disagrees that the CVR Contract has terminated and claims that the amendment to the CVR Contract was fraudulently induced.
To date, PCA has not sought any equitable relief with respect to the CVR Contract and instead has only requested monetary damages. If PCA is successful in its claim that it has standing to enforce the CVR Contract, that the CVR Contract has not terminated on its terms, and that the Company and its related parties have breached certain obligations under the CVR Contract, PCA may be able to recover substantial damages from the Company. Such damages could include an award to PCA of monetary damages in an amount of up to $350 million, the alleged Shortfall ET Amount, plus costs and expenses. Any such recovery against the Company (or Beneficient) could materially affect the ability of the Company (or Beneficient) to continue its operations.
Additionally, on December 16, 2022, the Claimant initiated a private arbitration in the International Court of Arbitration of the International Chamber of Commerce, challenging the termination of certain equity awards under two incentive plans by the administrator of the incentive plans. The Claimant sought total damages of $36.3 million plus attorney’s fees and punitive damages. On April 23, 2024, the sole arbitrator held that in terminating the Claimant’s equity awards, the Company had breached its contractual obligations, and as a result, awarded the Claimant $55.3 million in compensatory damages, including pre-judgment interest. Post-judgment interest was also awarded to claimant. Neither attorneys’ fees nor punitive damages were awarded to the claimant. The Company was also asked to pay arbitration-related costs in the amount of approximately $0.1 million. On July 29, 2024, the Texas District Court entered an order vacating the previously Arbitration Award against the Company in the aggregate amount of approximately $55.3 million in compensatory damages, including pre-judgment and post-judgement interest. The Texas District Court directed the parties to file motions requesting any further relief that may be available within twenty days of the order. On August 2, 2024, the Claimant filed an appeal to challenge the order vacating the Arbitration Award in the Texas Fifth Court of Appeals. The Company intends to vigorously defend itself in connection with the appeal.
On February 18, 2022, Shirin Bayati and Mojan Kamalvand, on behalf of themselves and of all others similarly situated, filed a class action lawsuit in the United States District Court for Northern District of Texas against GWG, its former President and Chief Executive Officer, Murray Holland, its former Chief Financial Officer, Timothy Evans, and certain past and present members of the board of directors of GWG and BCG (Roy Bailey, Peter T. Cangany, Jr., David Chavenson, Brad K. Heppner, Thomas O. Hicks, Dennis P. Lockhart, Bruce W. Schnitzer, and David H. de Weese). The suit alleges that the defendants violated Sections 11, 12, and 15 of the Securities Act by issuing materially misleading statements in a June 3, 2020 registration statement. On April 20, 2022, GWG filed for bankruptcy protection in the Southern District of Texas. On April 21, 2022, the district court ordered all parties to submit statements by May 5, 2022 on whether the automatic stay in bankruptcy extends to the non-debtor defendants. On April 25, 2022, the Lead Plaintiffs filed a Motion for Appointment as Lead Plaintiff and Approval of Their Selection of Lead Counsel. On May 2, 2022, a notice of dismissal was filed, dismissing defendants Peter T. Cangany, Jr., Brad K. Heppner, Thomas O. Hicks, Dennis P. Lockhart, and Bruce W. Schnitzer. On May 12, 2022, the district court extended the bankruptcy stay to all non-debtor defendants, although it permitted a limitedmodification of lifting of the stay to allow the court to consider the pending lead plaintiff motion. On August 5, 2022, the district court entered an order appointing Thomas Horton and Frank Moore as lead plaintiffs for the putative class. On May 26, 2023, Thomas Horton and Frank Moore, on behalf of themselves and other similarly situated, filed a second class action lawsuit against the Company, Brad K. Heppner, Peter T. Cangany, Jr., Thomas O. Hicks, Dennis P. Lockhart, Bruce W. Schnitzer and Whitley Penn LLP, alleging Securities Act violations arising out of the Offering.
On March 30, 2023, David Scura and Clifford Day, on behalf of themselves and all others similarly situated, filed a class action lawsuit in the United States District Court for Northern District of Texas against Ben, certain members of the Board (Brad K. Heppner, Peter T. Cangany, Jr., Richard W. Fisher, Thomas O. Hicks, Dennis P. Lockhart, and Bruce W. Schnitzer), certain past members of the board of directors of GWG (Jon R. Sabes and Steven F. Sabes), FOXO and Emerson Equity LLC (“Emerson”) (the “Scura Action”). The suit alleges that the defendants defrauded GWG investors in connection with the sale of GWG’s L Bonds and preferred stock, and it asserts claims on behalf of a putative class consisting of all persons and entities who purchased or otherwise acquired GWG’s L Bonds or preferred stock of GWG between December 23, 2017 and April 20, 2022. The suit alleges that (i) the Company, the individual defendants, and FOXO violated Sections 10(b) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder, (ii) that the individual defendants violated Section 20(a) of the Exchange Act and (iii) that Emerson violated Section 15(c)(1)(A) of the Exchange Act. On May 3, 2023, Thomas Horton and
Frank Moore, in their capacities as the lead plaintiffs in the Bayati Action, filed a motion to lift the automatic stay in the Chapter 11 Cases in order to file a motion in the Northern District of Texas seeking to consolidate the Bayati and Scura Actions under the Private Securities Litigation Reform Act. On June 8, 2023, the plaintiffs in the Scura Action filed a voluntary notice of dismissal without prejudice.
On August 16, 2023, Thomas Horton and Frank Moore, in their capacities as the Lead Plaintiffs in the Bayati Action, filed a notice regarding the confirmation of the Debtors’ Chapter 11 plan in the GWG bankruptcy, a motion seeking to lift the bankruptcy stay and a motion to consolidate the Bayati and Horton Actions. On September 12, 2023, the court entered an order consolidating the Bayati and Horton Actions. The court ordered that the consolidated action shall bear the caption In re GWG Holdings, Inc. Securities Litigation. The court lifted the bankruptcy stay and ordered the Lead Plaintiffs to file a new consolidated complaint within 20 days. On October 2, 2023, the Lead Plaintiffs filed a Consolidated Class Action Complaint against the Company, Brad K. Heppner, Peter T. Cangany, Jr., Thomas O. Hicks, Dennis P. Lockhart, Bruce W. Schnitzer (the “Ben Individual Defendants”), Murray T. Holland, Timothy L. Evans, David H. de Weese, Roy W. Bailey, David F. Chavenson, and Whitley Penn LLP, alleging Securities Act violations arising out of the Offering. The complaint alleges that the individual defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act, and further alleges that the Company violated Section 15 of the Securities Act. The Company and the Ben Individual Defendants filed a motion to dismiss the complaint on November 7, 2023. On January 4, 2024, defendants Murray Holland, Roy Bailey, Tim Evans, Whitley Penn, David Chavenson and David H. de Weese filed motions to dismiss. The Lead Plaintiffs’ responded to the various motions to dismiss on February 20, 2024, and the defendants (other than Whitley Penn) filed replies in support of the motions to dismiss on March 21, 2024. The Company and the Ben Individual Defendants intend to vigorously defend themselves in the litigation.
On October 27, 2023, David Scura filed a petition in Dallas County District Court against Brad K. Heppner, Jon R. Sabes, Steven F. Sabes, Peter T. Cangany, Jr., Thomas O. Hicks, Dennis P. Lockhart, Bruce W. Schnitzer, the Company and FOXO, alleging violation of the Texas Securities Act, common law fraud, unjust enrichment, and civil conspiracy to defraud. Also on October 27, 2023, Clifford Day and Carla Monahan filed a petition in Dallas County District Court against the same defendants, alleging the same claims. The parties agreed to move the defendants’ deadline to respond to the petition to February 19, 2024. On April 10, 2024, the plaintiffs and Ben parties entered into a twelve-month tolling agreement, and the plaintiffs filed motions to nonsuit their claims that the courts granted on April 12, 2024 and April 16, 2024, respectively. The Company and the Ben Individual Defendants intend to vigorously defend themselves in the litigation.
The Company may be materially adversely affected by negative publicity.
The Company has received in the past, and may continue to receive in the future, negative publicity, which could adversely affect our reputation, operations, and financial condition. For example, we and certain of our officers and directors have been the subject of negative media coverage in the Wall Street Journal and other outlets regarding alleged self-dealing and the misuse of company funds. On July 28, 2023, we and certain of our executive officers filed a claim for defamation against Alexander Gladstone, the author of the Wall Street Journal’s previous media coverage concerning the Company. On May 22, 2024, the court in this case denied Mr. Gladstone’s motion to dismiss, allowing our claims to proceed. Mr. Gladstone filed an answer on June 19, 2024, and a trial has been set for March 2026. On July 26, 2024, defamation claims relating to the article authored by Gladstone were filed against Dow Jones & Co. Inc., the Wall Street Journal’s publisher (“Dow Jones”). On November 6, 2024, Dow Jones filed a motion to dismiss. The Company is currently preparing a response to such motion.
We may continue to experience negative attention in the media. Defamation claims by their nature are difficult to win, and we cannot predict the outcome of this litigation or its impact on us or our business. Such proceedings are time consuming and expensive and, regardless of the factual basis for the assertions being made or the strength of the claims, can have a negative impact on the Company’s reputation, on the morale and performance of the Company’s employees and on the Company’s relationships with regulators. Such impacts could be exacerbated if we do not prevail in the litigation. Regardless of the ultimate outcome of our defamation claim, such litigation may divert the time and effort of senior management from the management of the Company and may also have an adverse impact on the Company’s ability to take timely advantage of various business and market opportunities. Additionally, such negative publicity has in the past, and may continue, to impact the willingness of our customers and other parties to transact business with us. These direct and indirect effects of negative publicity, and the demands of responding to and addressing it, may have a material adverse effect on the Company’s businesses, financial condition and results of operations. Negative publicity also could have the effect of heightening the other risks described in our Annual Report on Form 10-K.
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Except as set forth below, there were no sales of unregistered securities during the quarter ended September 30 2024 that were not previously reported on a Current Report on Form 8-K.
On September 6, 2024 and October 9, 2024, the Company issued 9,623 shares and 4,175 shares of Class A common stock of the Company to a consultant of the Company. The issuance of the Class A common stock pursuant to these transactions was not registered under the Securities Act and each was issued in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.
On September 17, 2024, the Company issued 201,482 shares of Class A common stock of the Company to a vendor of the Company. The issuance of the Class A common stock pursuant to this transaction was not registered under the Securities Act and was issued in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 — MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 — OTHER INFORMATION
Securities Purchase Agreement, Convertible Debentures and Warrants
As previously disclosed, on August 6, 2024, the Company entered into a Purchase Agreement with Yorkville. Upon signing of the Purchase Agreement, the Company issued $2.0 in aggregate principal amount of Convertible Debentures to Yorkville for proceeds of approximately $1.8 million and a Yorkville Warrant to purchase up to 662,691 shares of Class A common stock. Pursuant to the Registration Rights Agreement entered into in connection with the Purchase Agreement, the Company filed a registration statement to register, among other things, the Conversion Shares and the Yorkville Shares. The registration statement was declared effective by the SEC on November 12, 2024. On November 13, 2024, the Company issued an additional $2.0 million in aggregate principal amount of Convertible Debentures for proceeds of approximately $1.8 million and issued an additional Yorkville Warrant to purchase up to 662,691 shares of Class A common stock.
The Convertible Debentures do not bear interest, subject to a potential increase to 18.0% per annum (or the maximum amount permitted by applicable law) upon the occurrence of certain events of default. The Convertible Debentures will mature on February 6, 2025 and resulted in gross proceeds to the Company of approximately $3.6 million. The Convertible Debentures were issued at an original issue discount of 10%. The Company will be required to make monthly cash payments of principal in the amount of $1.3 million (or such lesser amount as may then be outstanding) plus all accrued and unpaid interest as of such payment. Such payments will commence 30 days following the Second Closing and will continue on a monthly basis thereafter until the Convertible Debentures are repaid in full, provided that the Company’s obligation to make a monthly payment will cease if (i) the daily volume weighted average price of the Class A common stock is greater than 130% of the Conversion Price at any time immediately preceding the monthly payment date, and (ii) the Equity Conditions (as defined in the Convertible Debentures) are satisfied, in each case, for each trading day during a period of 10 consecutive trading days. Any such cessation will only be effective with respect to one monthly payment, and any subsequent cessation shall require the forgoing conditions to be satisfied for 10 consecutive trading days during the 30 days prior to any subsequent monthly payment date.
The Convertible Debentures are convertible at the option of the holder into Class A common stock equal to the applicable Conversion Amount divided by $3.018. The maximum amount of shares issuable upon conversion of the Convertible Debentures is 1,325,382. The Convertible Debentures may be converted in whole or in part, at any time and from time to time, subject to the Purchase Agreement Exchange Cap (as defined below). The Conversion Amount with respect to any requested conversion will equal the principal amount requested to be converted plus all accrued and unpaid interest on the Convertible Debentures as of such conversion (the “Conversion Amount”). In addition, no conversion will be permitted to the extent that, after giving effect to such conversion, the holder together with the certain related parties would beneficially own in excess of 4.99% of the Class A common stock outstanding immediately after giving effect to such conversion, subject to certain adjustments.
The Company shall not issue any shares of Class A common stock upon conversion of the Convertible Debentures held by Yorkville if the issuance of such shares underlying the Convertible Debentures would exceed the aggregate number of shares of Class A common stock that the Company may issue upon conversion of the Convertible Debentures in compliance with the Company’s obligations under the rules or regulations of Nasdaq Stock Market (the “Purchase Agreement Exchange Cap”). The Exchange Cap will not apply under certain circumstances, including if the Company obtains the approval of its stockholders as required by the applicable rules of the Nasdaq Stock Market for issuances of Class A common stock in excess
of such amount, or if the Company obtains a written opinion from outside counsel to the Company that such stockholder approval is not required.
The Convertible Debenture provides the Company, subject to certain conditions, with an optional redemption right pursuant to which the Company, upon 10 trading days’ prior written notice to Yorkville (the “Redemption Notice”), may redeem in cash, in whole or in part, all amounts outstanding under the Convertible Debentures prior to the Maturity Date; provided that the volume weighted average price on the date such Redemption Notice is delivered is less than the Conversion Price at the time of the Redemption Notice. The redemption amount shall be equal to the outstanding principal balance being redeemed by the Company, plus the redemption premium of 10% of the principal amount being redeemed, plus all accrued and unpaid interest in respect of such redeemed principal amount.
Upon the occurrence of certain trigger events, the Company will be required to make monthly cash payments of principal in the amount of $1.3 million (or such lesser amount as may then be outstanding) plus all accrued and unpaid interest as of such payment. Such payments will commence 30 days following the Second Closing and will continue on a monthly basis thereafter until the Convertible Debentures are repaid in full, provided that the Company’s obligation to make a monthly payment will cease if (i) the daily volume weighted average price of the Class A common stock is greater than 130% of the Conversion Price at any time immediately preceding the monthly payment date, and (ii) the Equity Conditions (as defined in the Convertible Debentures) are satisfied, in each case, for each trading day during a period of 10 consecutive trading days. Any such cessation will only be effective with respect to one monthly payment, and any subsequent cessation shall require the forgoing conditions to be satisfied for 10 consecutive trading days during the 30 days prior to any subsequent monthly payment date.
In lieu of making the cash payment otherwise contemplated to be made to Company upon exercise of a Yorkville Warrant, Yorkville may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Class A common stock determined according to a formula set forth in the Yorkville Warrants, provided that such cashless exercise shall only be permitted if, at the time of such exercise, there is no effective registration statement registering the resale of the Warrant Shares or if an Event of Default (as defined in the Purchase Agreement) has occurred. The Yorkville Warrants are immediately exercisable. The Yorkville Warrants issued at the First Closing will expire on August 6, 2027, and the Yorkville Warrants issued at the Second Closing will expire on November 13, 2027. The Yorkville Warrants include customary adjustment provisions for stock splits, combinations and similar events. Prior to obtaining approval of stockholders, the Company may not issue any Class A common stock that exceed the number of shares that it may issue pursuant to Nasdaq Stock Market rules under the Yorkville Warrants.
The issuance of Convertible Debentures, Yorkville Warrants, the Conversion Shares and the Warrant Shares is exempt from registration pursuant to Section 4(a)(2) of the Securities Act. Yorkville represented to the Company that it is an “accredited investor” as defined in Rule 501 of the Securities Act and that each of the Convertible Debentures, Warrants, the Conversion Shares and the Warrant Shares were acquired for investment purposes and not with a view to, or for sale in connection with, any distribution thereof.
Rule 10b5-1 Trading Arrangements
During the three months ended September 30, 2024, none of the Company’s directors or executive officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
** The certifications as Exhibit 32.1 and Exhibit 32.2 are not deemed “filed” with the Securities and Exchange Commission and are not to be incorporated by the reference into any filing of Beneficient under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
# Certain schedules and exhibits have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request.
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BENEFICIENT
Date: November 14, 2024
By:
/s/ Brad K. Heppner
Chief Executive Officer
(Principal Executive Officer and duly authorized officer)
Date: November 14, 2024
By:
/s/ Gregory W. Ezell
Chief Financial Officer
(Principal Financial Officer and duly authorized officer)