Document

Prospectus Supplement No. 5
(to Prospectus dated October 2, 2023)
Prospectus Supplement No. 5
(to Prospectus, dated October 2, 2023)
Prospectus Supplement No. 5
(to Prospectus, dated October 2, 2023)
Prospectus Supplement No. 5
(to Prospectus, dated October 2, 2023)
Prospectus Supplement No. 2
(to Prospectus, dated December 26, 2023)
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-273328
Registration No. 333-273326
Registration No. 333-268741
Registration No. 333-273322
Registration No. 333-275174
BENEFICIENT
468,562 Shares of Class A Common Stock
91,240,875 Shares of Class A Common Stock
23,625,000 Shares of Class A Common Stock and 23,625,000 Shares of Series A Convertible Preferred Stock of Beneficient Underlying the Private and Public Warrants
3,881,250 Shares of Class A Common Stock Underlying 15,525,000 Shares of Series A Convertible Preferred Stock of Beneficient
225,455,974 Shares of Class A Common Stock
(Inclusive of 132,500 Shares of Class A Common Stock Underlying the Warrants and 33,125 Shares of Class A Common Stock Underlying the Series A Convertible Preferred Stock)
132,500 Warrants to Purchase Shares of Class A Common Stock and Shares of Series A Convertible Preferred Stock
132,500 Shares of Series A Convertible Preferred Stock Underlying the Warrants
17,901,459 Shares of Class A Common Stock
(Inclusive of 942,249 Shares of Class A Common Stock Underlying the Warrants and 235,562 Shares of Class A Common Stock Underlying the Series A Convertible Preferred Stock)
942,249 Warrants to Purchase Shares of Class A Common Stock and Shares of Series A Convertible Preferred Stock
942,249 Shares of Series A Convertible Preferred Stock Underlying the Warrants

This prospectus supplement updates and supplements the prospectus of Beneficient, a Nevada corporation (the “Company,” “we,” “us” or “our”), dated October 2, 2023, which forms a part of our Registration Statement on Form S-1, as amended (Registration No. 333-273328) (the “Maxim Prospectus”), the prospectus dated October 2, 2023, which forms a part of our Registration Statement on Form S-1, as amended (Registration No. 333-273326) (the “SEPA Prospectus”), the prospectus dated October 2, 2023, which forms a part of our Registration Statement on Form S-1, as amended (Registration No. 333-273322) (the “Omnibus Prospectus”), the prospectus dated October 2, 2023, which forms a part of our Post-Effective Amendment on Form S-1 to our Registration Statement on Form S-4, as amended (Registration No. 333-268741) and the prospectus dated December 26, 2023, which forms a part of our Registration Statement on Form S-1, as amended (Registration No. 333-275174) (the “GRID Prospectus” and, collectively with the Post-Effective Amendment Prospectus, the Maxim Prospectus, SEPA Prospectus and Omnibus Prospectus, the “Prospectuses”). This prospectus supplement is being filed to update and supplement the information in the Prospectuses with the information contained in our Current Report on Form 10-Q, filed with the Securities and Exchange Commission (the “SEC”) on February 14, 2024. Accordingly, we have attached the Form 10-Q to this prospectus supplement.
This prospectus supplement should be read in conjunction with the Prospectuses. This prospectus supplement updates and supplements the information in the Prospectuses. If there is any inconsistency between the information in the Prospectuses and this prospectus supplement, you should rely on the information in this prospectus supplement.
Our Class A common stock, par value $0.001 per share (the “Class A common stock”), is listed on The Nasdaq Global Market under the symbol “BENF,” and the warrants, with each warrant exercisable for one share of Class A common stock and one share of Series A preferred stock, par value $0.001 per share, at an exercise price of $11.50 (the “Warrants”), are listed on The Nasdaq Capital Market under the symbol “BENFW”. On February 13, 2024, the last reported sales price of the Class A common stock was $0.285 per share, and the last reported sales price of our Warrants was $0.0099 per Warrant. We are an “emerging growth company” and a “smaller reporting company” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for this and future filings. Certain holders of our Class B common stock, par value $0.001 per share (the “Class B common stock”), have entered into a stockholders agreement concerning the election of directors of the Company, and holders of Class B common stock have the right to elect a majority of the Company’s directors. As a result, the Company is a “controlled company” within the meaning of the Nasdaq Listing Rules and may elect not to comply with certain corporate governance standards.



Investing in our securities involves risk. See the sections entitled “Risk Factors” beginning on page 17 of the Maxim Prospectus, page 12 of the SEPA Prospectus, page 13 of the Omnibus Prospectus, page 13 of the Post-Effective Amendment Prospectus Supplement and page 15 of the GRID Prospectus, and under similar headings in any further amendments or supplements to the Prospectuses, to read about factors you should consider before buying our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if any Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is February 14, 2024.



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-41715
Beneficient
(Exact name of registrant as specified in its charter)

Nevada72-1573705
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
325 North St. Paul Street, Suite 4850
Dallas, TX 75201
(Address of principal executive offices, including zip code)
(214) 445-4700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)
Name of each exchange
on which registered
Class A common stock, par value $0.001 per shareBENF
Nasdaq Stock Market LLC
Warrants, each whole warrant exercisable for one share of Class A common stock, par value $0.001 per share, and one share of Series A convertible preferred stock, par value $0.001 per share
BENFW
Nasdaq Stock Market LLC
Securities registered pursuant to section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of February 9, 2024, Beneficient had 257,209,584 shares of Class A common stock outstanding and 19,140,451 shares of Class B common stock outstanding.



EXPLANATORY NOTE
The number of outstanding units, weighted average number of outstanding units, loss per common unit, equity-based compensation and other financial amounts previously expressed on the basis of common units have been retroactively restated on the basis of Common Stock (as defined below) to reflect the conversion of the BCG (as defined below) common units to Common Stock. This “Explanatory Note” details the series of transactions necessitating the retroactive restatement. For further information, see Note 4, De-SPAC Merger Transaction, to the consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for a discussion of the conversion of certain BCG equity instruments to Common Stock.
On June 6, 2023, the registrant converted from a Delaware limited partnership called The Beneficient Company Group, L.P. (“BCG”) to a Nevada corporation called “Beneficient” (the “Conversion”) in connection with the closing of its merger with Avalon Acquisition Inc. (such transaction, the “Business Combination”), a special purpose acquisition vehicle and a Delaware corporation. References to “BCG,” “Ben,” “we,” “us,” “our,” the “Company” and similar terms, prior to the effective time of the Conversion, refer to the registrant when it was a Delaware limited partnership and such references following the effective time of the Conversion, refer to the registrant in its current corporate form as a Nevada corporation called “Beneficient.”
On June 6, 2023, immediately prior to the Conversion, BCG was recapitalized (the “BCG Recapitalization”) as follows: (i) the limited partnership agreement of BCG was amended to create one new subclass of BCG common units, the Class B Common Units (the “BCG Class B Common Units”), and the existing common units were renamed the Class A Common Units (the “BCG Class A Common Units”); and (ii) certain holders of the Preferred Series A Subclass 1 Unit Accounts of Beneficient Company Holdings, L.P. (“BCH” and such units, the “BCH Preferred A.1”) entered into conversion and exchange agreements (the “BCG Conversion and Exchange Agreements”) with BCG and BCH, pursuant to which they converted certain BCH Preferred A.1 to Class S Ordinary Units of BCH (“BCH Class S Ordinary Units”), which were then contributed to BCG in exchange for BCG Class A Common Units.
Prior to the Conversion, the Company’s equity interests consisted of common units, one series of preferred units, and noncontrolling interests. Pursuant to the Conversion, each BCG Class A Common Unit converted into 1.25 shares of Class A common stock, par value $0.001 per share (“Class A common stock”), each BCG Class B Common Unit converted into 1.25 shares of Class B common stock, par value $0.001 per share (“Class B common stock” and together with the Class A common stock, the “Common Stock”), and the capital account balance of the Preferred Series B Subclass 2 Unit Accounts of BCG (“BCG Preferred B.2 Unit Accounts”) converted into shares of Class A common stock at a rate based on a 20% discount to the $10.00 valuation of the Class A common stock (or $8.00). As a result, in the Conversion, we issued 86,116,884 shares of Class A common stock with respect to the BCG Class A Common Units, 19,140,451 shares of Class B common stock with respect to the BCG Class B Common Units and 94,050,534 shares of Class A common stock with respect to the BCG Preferred B.2 Unit Accounts.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements as defined under U.S. federal securities laws. Forward-looking statements include all statements that are not historical statements of fact and statements regarding, but not limited to, our expectations, hopes, beliefs, intentions, or strategies regarding the future. In addition, any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “will,” “would,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to significant risks and uncertainties. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and we assume no obligation and do not intend to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise.
i


Summary of Risk Factors
The following is a summary of the principal risks that could adversely affect our business, financial condition, and results of operations:
we do not have a significant operating history or an established customer base;
our fair value estimates of illiquid assets may not accurately estimate prices obtained at the time we enter into any liquidity transaction, and we cannot provide assurance that the values of the alternative assets underlying the liquidity transactions that we report from time to time will be realized;
the inability to maintain the listing of the Class A common stock on the Nasdaq Stock Market, LLC (“Nasdaq”);
the transfer of GWG Holdings Inc.’s (“GWG Holdings” or “GWG”), assets to the GWG Wind Down Trust and the Litigation Trust (each as defined herein) pursuant to the Second Amended Plan (as defined herein) could create significant uncertainties and risks for our continued operations and materially and adversely impact our financial operating results;
future resales of Class A common stock may cause the market price of Class A common stock to drop significantly;
the market price for Class A common stock may be subject to substantial fluctuations, which may make it difficult for stockholders to sell shares at the volumes, prices, and times desired;
the GWG Wind Down Trust currently owns a substantial percentage of the Company and continues to have voting power with respect to those matters on which our stockholders have the right to vote;
we may be adversely affected by negative publicity;
a determination that we are an unregistered investment company would have serious adverse consequences;
the Company is currently involved in legal proceedings and government investigations and may be a party to additional claims and litigation in the future;
our liquidity, profitability and business may be adversely affected by concentrations of assets, which are collateralized by a portion of the cash flows from the exchanged alternative assets (the “Collateral”);
we engage in related party transactions, which may result in conflicts of interest involving our senior management;
Brad K. Heppner, our founder and CEO, may have financial interests that conflict with the interests of Beneficient and its stockholders;
usage of our Class A common stock or securities convertible into Class A common stock as consideration for the Customer ExAlt Trusts’ (as defined herein) investments in alternative assets may create significant volatility in our investment income and the price of our Class A common stock;
substantial future sales of shares of Class A common stock could cause the market price of our shares of Class A common stock to decline;
our Forward Purchase Agreement (as defined herein) could result in an artificial ceiling price for the shares of our Class A common stock given the economic interests of our counterparty;
our liquidity, profitability and business may be adversely affected by an inability to access, or ability to access only on unfavorable terms, the capital markets, and we may never obtain the maximum anticipated proceeds contemplated under the current capital raising agreements such as the SEPA (as defined herein);
the due diligence process that we undertake in connection with any liquidity transaction may or may not reveal all facts that may be relevant in connection with such liquidity transaction;
poor performance of our Collateral would cause a decline in our revenue, income and cash flow and could adversely affect our ability to raise capital for future liquidity transactions;
we have a substantial amount of goodwill and intangible assets, which we have been, and may in the future be, required to write down the value of our intangible assets and goodwill due to impairment;
we are subject to repayment risk in connection with our liquidity transactions;
transfer restrictions applicable to alternative assets may prevent us from being able to attract a sufficient number of Customers (as defined herein) to achieve our business goals;
ii


our operations, products and services may be negatively impacted by changes in economic and market conditions;
shares of Class A common stock and Series A convertible preferred stock, par value $0.001 (the “Series A preferred stock”) are structurally subordinated to interests in BCH, a subsidiary of Beneficient;
allocations of write downs in the value of our intangible assets and goodwill due to impairment will result in a decrease in the capital account balance of the BCH Class A Units (as defined herein) indirectly held by the Company;
we are or will become subject to comprehensive governmental regulation and supervision;
we may incur fines, penalties and other negative consequences from regulatory violations;
we may be impacted adversely by claims or litigation, including claims or litigation relating to our fiduciary responsibilities;
if we are unable to protect our intellectual property rights, our business could be negatively affected;
Beneficient’s board of directors (the “Board”) and management have significant control over Beneficient’s business;
we may issue additional shares of authorized Common Stock or preferred stock without stockholder approval subject to the applicable rules of Nasdaq and Nevada law, which would dilute existing stockholder interests;
the holders of Class B common stock have the right to elect a majority of the Board and the ability to vote with Class A common stock in director elections for the remaining directors, with each share of Class B common stock having 10 votes per share;
the Company may engage in transactions that represent a conflict of interest, with the review of such transactions subject to the Nevada statutory business judgment rule; and
other risks, uncertainties and factors set forth in the “Risk Factors” section in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on July 13, 2023 (“Annual Report”) and in the “Management’s Discussion and Analysis” and “Risk Factors” sections of this Quarterly Report on Form 10-Q, as well as those described from time to time in our future reports filed with the SEC.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in the Annual Report or in this Quarterly Report on Form 10-Q. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Many of the important factors that will determine these results are beyond our ability to control or predict. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and, except as otherwise required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
iii


BENEFICIENT
Form 10-Q
For the Quarter Ended December 31, 2023
Table of Contents

Page No.
Notes to Consolidated Financial Statements
iv

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1 — Financial Statements
BENEFICIENT
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2023
March 31, 2023 (1)
(Dollars and shares in thousands)(unaudited)
ASSETS
Cash and cash equivalents$11,248 $8,726 
Restricted cash20 819 
Investments, at fair value:
Investments held by Customer ExAlt Trusts (related party of $3,759 and $76,154)
378,382 491,859 
Investments held by Ben (related party of $38 and $1,371)
38 5,362 
Other assets, net (related party of nil and $2,195)
26,061 32,903 
Intangible assets3,100 3,100 
Goodwill81,714 2,367,926 
Total assets$500,563 $2,910,695 
LIABILITIES, TEMPORARY EQUITY, AND EQUITY
Accounts payable and accrued expenses (related party of $14,032 and $10,485)
$96,194 $65,724 
Other liabilities (related party of nil and $100)
20,986 14,622 
Warrant liability161 — 
Customer ExAlt Trusts loan payable, net— 52,129 
Debt due to related party, net128,197 99,314 
Total liabilities245,538 231,789 
Redeemable noncontrolling interests
Preferred Series A Subclass 0 Unit Accounts, nonunitized251,052 251,052 
Preferred Series A Subclass 1 Unit Accounts, nonunitized— 699,441 
Total temporary equity251,052 950,493 
Shareholder’s equity:
Preferred stock, par value $0.001 per share, 250,000 shares authorized
Series A preferred stock, 0 and 0 shares issued and outstanding as of December 31, 2023 and March 31, 2023
— — 
Series B-1 preferred stock, 0 and 0 shares issued and outstanding as of December 31, 2023 and March 31, 2023
— — 
Class A common stock, par value $0.001 per share, 1,500,000 shares authorized, 257,210 and 180,178 shares issued as of December 31, 2023 and March 31, 2023, respectively, and 256,666 and 179,634 shares outstanding as of December 31, 2023 and March 31, 2023, respectively
257 180 
Class B convertible common stock, par value $0.001 per share, 20,000 shares authorized, 19,140 and 19,140 shares issued and outstanding as of December 31, 2023 and March 31, 2023
19 19 
Additional paid-in capital1,843,493 1,579,545 
Accumulated deficit(1,992,992)— 
Stock receivable(20,038)— 
Treasury stock, at cost (544 shares as of December 31, 2023 and March 31, 2023)
(3,444)(3,444)
Accumulated other comprehensive income442 9,900 
Noncontrolling interests176,236 142,213 
Total equity
3,973 1,728,413 
Total liabilities, temporary equity, and equity$500,563 $2,910,695 
(1) Retroactively adjusted March 31, 2023 for the de-SPAC merger transaction as described in Note 4. Such adjustments are unaudited.
See accompanying notes to consolidated financial statements.
1

Table of Contents
BENEFICIENT
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three Months Ended December 31,Nine Months Ended December 31,
(Dollars in thousands, except per share amounts)2023202220232022
Revenues
Investment income (loss), net
$7,448 $11,478 $7,935 $(30,738)
Loss on financial instruments, net (related party of $(18,691), $(20,480), $(64,217), and $(63,044), respectively)
(18,024)(23,043)(64,260)(56,101)
Interest and dividend income118 113 348 295 
Trust services and administration revenues (related party of $8, $8, $23, and $23, respectively)
158 173 23 
Other income65 — 65 86 
Total revenues(10,235)(11,444)(55,739)(86,435)
Operating expenses
Employee compensation and benefits 7,340 12,670 58,561 34,752 
Interest expense (related party of $3,018, $746, $5,843, and $2,108, respectively)
4,671 4,147 13,569 11,356 
Professional services4,970 8,073 22,000 29,580 
Provision for credit losses
— 1,799 — 20,580 
Loss on impairment of goodwill883,223 — 2,286,212 — 
Other expenses (related party of $2,096, $2,246, $6,317, and $6,576, respectively)
5,512 7,073 17,604 21,454 
Total operating expenses905,716 33,762 2,397,946 117,722 
Operating loss(915,951)(45,206)(2,453,685)(204,157)
Loss on extinguishment of debt, net
8,846 — 8,846 — 
Loss before income taxes(924,797)(45,206)(2,462,531)(204,157)
Income tax expense (benefit)
75 (2,356)75 (1,072)
Net loss(924,872)(42,850)(2,462,606)(203,085)
Less: Net loss attributable to noncontrolling interests - Customer ExAlt Trusts
26,240 4,058 43,698 105,612 
Less: Net loss attributable to noncontrolling interests - Ben
360,695 5,887 401,985 13,231 
Less: Noncontrolling interest guaranteed payment
(4,229)(3,984)(12,501)(11,778)
Net loss attributable to Beneficient common shareholders$(542,166)$(36,889)$(2,029,424)$(96,020)
Other comprehensive income (loss):
Unrealized gain (loss) on investments in available-for-sale debt securities51 (1,307)4,236 6,400 
Total comprehensive income (loss)
(542,115)(38,196)(2,025,188)(89,620)
Less: comprehensive gain (loss) attributable to noncontrolling interests51 (1,307)4,236 6,400 
Total comprehensive loss attributable to Beneficient$(542,166)$(36,889)$(2,029,424)$(96,020)
Net loss per common share - basic and diluted(1)
Class A$(1.98)$(0.19)$(8.35)$(0.48)
Class B$(1.96)$(0.19)$(7.34)$(0.48)
Weighted average common shares outstanding - basic and diluted(1)
Class A254,923,039180,178,268226,105,978180,178,268
Class B19,140,45119,140,45119,140,45119,140,451
(1) Retroactively adjusted the three and nine months ended December 31, 2022 for the de-SPAC merger transaction as described in Note 4.
See accompanying notes to consolidated financial statements.
2

Table of Contents
BENEFICIENT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
For the three months ended December 31, 2023 and 2022:
Series A preferred stock
Series B-1 preferred stock
Class A common stockClass B common stockAPICAccumulated DeficitStock ReceivableTreasury StockAccumulated Other Comprehensive Income (Loss)
Noncontrolling interests (Note 10)
Total equity
Redeemable noncontrolling interests
(Dollars and units in thousands)SharesAmountSharesAmountSharesAmountSharesAmount
Balance, September 30, 2023
— $— 3,769 $242,884 $243 19,140 $19 $1,842,274 $(1,450,826)$(20,038)$(3,444)$391 $563,636 $932,259 $251,052 
Net income (loss)— — — — — — — — — (542,166)— — — (386,935)(929,101)4,229 
Recognition of share-based compensation cost— — — — — — — — 2,026 — — — — — 2,026 — 
Issuance of common and preferred shares upon closing of de-SPAC transaction, net of issuance costs— — — — — — — — (1,477)— — — — — (1,477)— 
Issuance of shares in connection with equity purchase agreement
— — — — 520 — — — 680 — — — — — 680 — 
Reclass of distributions payable to noncontrolling interest holder— — — — — — — — — — — — — (196)(196)— 
Unrealized gain on available-for-sale debt securities
— — — — — — — — — — — — 51 — 51 — 
Preferred A.0 Unit Accounts guaranteed payment accrual
— — — — — — — — — — — — — — — (4,229)
Distribution to noncontrolling interest— — — — — — — — — — — — — (269)(269)— 
Conversion of Series B-1 preferred stock to Class A common stock
— — (3,769)(4)13,806 14 — — (10)— — — — — — — 
Balance, December 31, 2023
— $— — $— 257,210 $257 19,140 $19 $1,843,493 $(1,992,992)$(20,038)$(3,444)$442 $176,236 $3,973 $251,052 

See accompanying notes to consolidated financial statements.
3

Table of Contents
BENEFICIENT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (cont’d) (1)
(UNAUDITED)
Series A preferred stock
Series B-1 preferred stock
Class A common stockClass B common stockAPICAccumulated DeficitTreasury StockAccumulated Other Comprehensive Income
Noncontrolling interests
Total equityRedeemable noncontrolling interests
(Dollars and units in thousands)SharesAmountSharesAmountSharesAmountSharesAmount
Balance, September 30, 2022
— $— — $— 180,178 $180 19,140 $19 $1,630,478 $— $(3,444)$6,381 $171,880 $1,805,494 $970,452 
Net income (loss)
— — — — — — — — (36,889)— — — (9,139)(46,028)3,178 
Recognition of share-based compensation cost— — — — — — — — 1,918 — — — — 1,918 — 
Payment of employee payroll taxes on restricted equity units— — — — — — — — (61)— — — — (61)— 
Reclass of distributions payable to noncontrolling interest holder
— — — — — — — — — — — — (779)(779)— 
Non-cash dividend to related party— — — — — — — — (37)— — — — (37)— 
Share-based awards to related party employees— — — — — — — — 37 — — — — 37 — 
Unrealized loss on available-for-sale debt securities
— — — — — — — — — — — (1,307)— (1,307)— 
Deemed dividend for BCG Preferred B.2 Unit Accounts preferred return
— — — — — — — — 9,134 — — — — 9,134 (9,134)
Preferred A.0 guaranteed payment accrual
— — — — — — — — — — — — — — (3,985)
Redemption of BCG Preferred B.2 Unit Accounts
— — — — — — — — (1,806)— — — — (1,806)— 
Annual reallocation of FLP— — — — — — — — 2,057 — — — (2,057)— — 
Balance, December 31, 2022
— $— — $— 180,178 $180 19,140 $19 $1,604,831 $— $(3,444)$5,074 $159,905 $1,766,565 $960,511 
(1) Retroactively adjusted September 30, 2022 and three months ended December 31, 2022 for de-SPAC merger transaction as described in Note 4.

See accompanying notes to consolidated financial statements.
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BENEFICIENT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (cont’d) (1)
(UNAUDITED)
For the nine months ended December 31, 2023 and 2022:
Series A preferred stockSeries B-1 preferred stockClass A common stockClass B common stockAPICAccumulated DeficitStock ReceivableTreasury StockAccumulated Other Comprehensive Income (Loss)
Noncontrolling interests (Note 10)
Total equity
Redeemable noncontrolling interests
(Dollars and units in thousands)SharesAmountSharesAmountSharesAmountSharesAmount
Balance, March 31, 2023
— $— — $— 180,178 $180 19,140 $19 $1,579,545 $— $— $(3,444)$9,900 $142,213 $1,728,413 $950,493 
Net income (loss)— — — — — — — — (36,432)(1,992,992)— — — (445,683)(2,475,107)12,501 
Recognition of share-based compensation cost— — — — — — — — 37,530 — — — — — 37,530 — 
Payment of employee payroll taxes on restricted equity units— — — — — — — — (116)— — — — — (116)— 
Issuance of common and preferred shares upon closing of de-SPAC transaction, net of issuance costs2,749 — — 7,972 — — (5,778)— — — — — (5,767)— 
Conversion of Series A preferred stock to Class A common stock(2,749)(3)— — 688 — — — — — — — — — 
Issuance of shares in connection with recent financings— — — — 3,968 — — 12,432 — — — — (3,060)9,376 — 
Reclass of distributions payable to noncontrolling interest holder— — — — — — — — — — — — — (763)(763)— 
Conversion of BCH Class S Ordinary to Class A common stock
— — — — 404 — — — 3,884 — — — — (3,884)— — 
Conversion of Preferred Series C to Class A common stock— — — — 44,041 44 — — 205,715 — — — — (205,759)— — 
Unrealized gain on available-for-sale debt securities— — — — — — — — — — — — 4,236 — 4,236 — 
Reclassification of realized gain upon transfer from available-for-sale debt security to equity interest— — — — — — — — — — — — (13,694)— (13,694)— 
Deemed dividend for BCG Preferred B.2 Unit Accounts preferred return
— — — — — — — — 6,942 — — — — (6,942)— — 
Preferred A.0 guaranteed payment accrual
— — — — — — — — — — — — — — — (12,501)
Redemption of BCG Preferred B.2 Unit Accounts
— — — — — — — — (1,413)— — — — — (1,413)— 
Settlement of restricted stock units— — — — 5,422 — — (5)— — — — — — — 
Issuance of common shares to settle liability— — — — 731 — — 4,494 — — — — — 4,495 — 
Issuance of Series B-1 preferred stock in connection with recent financings— — 3,769 — — — — 36,703 — — — — 942 37,649 — 
Stock receivable on prepaid forward purchase— — — — — — — — — — (20,038)— — — (20,038)— 
Reclass of BCH Preferred A.1 from temporary to permanent equity— — — — — — — — — — — — — 699,441 699,441 (699,441)
Distribution to noncontrolling interest— — — — — — — — — — — — — (269)(269)— 
Conversion of Series B-1 preferred stock to Class A common stock
— — (3,769)(4)13,806 14 — — (10)— — — — — — — 
Balance, December 31, 2023
— $— — $— 257,210 $257 19,140 $19 $1,843,493 $(1,992,992)$(20,038)$(3,444)$442 $176,236 $3,973 $251,052 
(1) Retroactively adjusted March 31, 2023 for de-SPAC merger transaction as described in Note 4.
See accompanying notes to consolidated financial statements.
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BENEFICIENT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (cont’d) (1)
(UNAUDITED)
Series A preferred stock
Series B-1 preferred stock
Class A common stockClass B common stockAPICAccumulated DeficitTreasury StockAccumulated Other Comprehensive Income
Noncontrolling interests
Total equityRedeemable noncontrolling interests
(Dollars and units in thousands)SharesAmountSharesAmountSharesAmountSharesAmount
Balance, March 31, 2022
— $— — $— 180,178 $180 19,140 $19 $1,634,019 $— $(3,444)$(1,326)$277,888 $1,907,336 $992,238 
Net income (loss)
— — — — — — — — (96,020)— — — (115,336)(211,356)8,271 
Recognition of share-based compensation cost— — — — — — — — 8,162 — — — — 8,162 — 
Payment of employee payroll taxes on restricted equity units— — — — — — — — (166)— — — (919)(1,085)— 
Noncash issuance of noncontrolling interest— — — — — — — — 11,674 — — — 299 11,973 — 
Distribution to noncontrolling interest— — — — — — — — — — — — (131)(131)— 
Reclass of distributions payable to noncontrolling interest holder
— — — — — — — — — — — — (1,336)(1,336)— 
Issuance of noncontrolling interest— — — — — — — — — — — — 2,430 2,430 — 
Deemed dividend upon issuance for GAAP to tax basis true-up— — — — — — — — 314 — — — — 314 (314)
Unrealized gain on available-for-sale debt securities— — — — — — — — — — — 6,400 — 6,400 — 
Deemed dividend for BCG Preferred B.2 Unit Accounts preferred return
— — — — — — — — 27,905 — — — — 27,905 (27,905)
Preferred A.0 guaranteed payment accrual
— — — — — — — — — — — — — — (11,779)
Reclass of allocated income for FLP Subclass 3 to payable— — — — — — — — — — — — (933)(933)— 
Equity issuance costs— — — — — — — — (15)— — — — (15)— 
Redemption of BCG Preferred B.2 Unit Accounts
— — — — — — — — (3,199)— — — — (3,199)— 
Issuance of BCG Preferred B.2 Unit Accounts
— — — — — — — — 20,100 — — — — 20,100 — 
Annual reallocation of FLP— — — — — — — — 2,057 — — — (2,057)— — 
Balance, December 31, 2022
— $— — $— 180,178 $180 19,140 $19 $1,604,831 $— $(3,444)$5,074 $159,905 $1,766,565 $960,511 
(1) Retroactively adjusted March 31, 2022 and the nine months ended December 31, 2022 for de-SPAC merger transaction as described in Note 4.
See accompanying notes to consolidated financial statements.
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BENEFICIENT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended December 31,
(Dollars in thousands)20232022
Cash flows from operating activities:
Net loss $(2,462,606)$(203,085)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization3,033 2,572 
Net amortization of debt premium and discount (related party of $(1,860) and $(4,605))
(1,261)(3,569)
Loss on extinguishment of debt
8,846 — 
Loss on impairment of goodwill2,286,212 — 
Loss on financial instruments, net (related party of $64,217 and $63,044)
64,260 56,101 
Return on investments in alternative assets held by Customer ExAlt Trusts— 8,131 
Investment (income) loss, net(7,935)30,738 
Non cash interest expense (related party of $7,427 and $297)
14,474 8,460 
Non cash interest income(338)(258)
Non cash share-based compensation37,530 8,162 
Provision for credit losses— 20,580 
Provision for deferred taxes— (1,072)
Write-off of deferred financing costs for equity— 1,653 
Changes in assets and liabilities:
Changes in other assets978 (8,554)
Changes in accounts payable and accrued expenses4,440 6,722 
Changes in other liabilities and deferred revenue2,797 (332)
Net cash used in operating activities(49,570)(73,751)
Cash flows from investing activities:
Return of investments in alternative assets held by Customer ExAlt Trusts38,371 45,350 
Purchase of investments in alternative assets held by Customer ExAlt Trusts(1,272)(511)
Purchase of premises and equipment(1,330)(1,629)
Proceeds from sale of put options by Ben968 — 
Purchase of put options by Ben— (7,451)
Net cash provided by investing activities36,737 35,759 
Cash flows from financing activities:
Proceeds from debt financings
25,000 — 
Payments on Customer ExAlt Trust loan payable(6,780)(11,302)
Redemption of Preferred Series B Subclass 2 Unit Accounts(1,413)(3,199)
Proceeds received from issuance of Class A common under equity purchase agreement
681 — 
Redemption of Preferred Series A Subclass 1 Unit Accounts— (3,793)
Payment of deferred financing costs for debt(1,585)— 
Payment of deferred financing costs for equity(5,685)(2,500)
Distribution to noncontrolling interest(269)(131)
Payment of employee income taxes on restricted equity units(116)(1,085)
Proceeds from de-SPAC merger24,761 — 
Payment for prepaid forward purchase agreement(20,038)— 
Payments on debt due to related parties— (750)
Net cash provided by (used in) financing activities
14,556 (22,760)
Net increase (decrease) in cash, cash equivalents, and restricted cash
1,723 (60,752)
Cash, cash equivalents, and restricted cash at beginning of period9,545 76,105 
Cash, cash equivalents, and restricted cash at end of period$11,268 $15,353 
Refer to Note 18 for supplemental cash flow disclosures, including reconciliation of cash, cash equivalents, and restricted cash used in the consolidated statement of cash flows.
See accompanying notes to consolidated financial statements.
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BENEFICIENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.    Overview of the Business
Legal Structure
Beneficient, a Nevada corporation, is a technology-enabled financial services holding company (including its subsidiaries, but excluding its noncontrolling interest holders, collectively, “Ben,” “our,” “the Company, or “we”) that provides simple, rapid, cost-effective liquidity solutions and trust products and services to participants in the alternative assets industry through its end-to-end online platform, Ben AltAccess (as defined below). Prior to the conversion described below, Beneficient Management, L.L.C. (“Ben Management”), a Delaware limited liability company, was Ben’s general partner and Ben was controlled by, and the exclusive and complete authority to manage the operations and affairs of Ben was granted to, Ben Management’s Board of Directors.
On June 6, 2023, the Company converted from a Delaware limited partnership to a Nevada corporation and changed its corporate name from “The Beneficient Company Group, L.P.” (“BCG”) to “Beneficient” (the “Conversion”). On June 6, 2023, following the BCG Recapitalization (as defined in Note 2) and the Conversion, the Company, as the sole member of Beneficient Company Group, L.L.C. (“Ben LLC”), adopted the First Amended and Restated Limited Liability Company Agreement of Ben LLC (the “Ben LLC A&R LLCA”). The Ben LLC A&R LLCA establishes managing member interests and non-managing members interests, referred to as the Class A Units of Ben LLC. Beneficient is designated as the sole managing member. In addition, certain additional amendments were made that principally focused on the management of Ben LLC by the managing member. After the adoption of the Ben LLC A&R LLCA, Beneficient contributed to Ben LLC all of the limited partnership interests and general partnership interests of Beneficient Company Holdings, L.P. (“BCH”) held by Beneficient (the “Contribution”), and Ben LLC became the general partner of BCH and the holder of 100% of the outstanding Class A Units of BCH.
On June 7, 2023, in accordance with the Business Combination Agreement, dated September 21, 2022 and amended April 18, 2023, with Avalon Acquisition, Inc. (“Avalon”), (the “Business Combination Agreement,” and the transactions contemplated thereby, collectively, the “Business Combination”), the Company completed its previously announced de-SPAC merger transaction (the “Transaction”) with Avalon. On June 8, 2023, Beneficient began trading on the Nasdaq Global Market. See Note 4 for additional disclosures related to the Conversion and Transaction.
BCH is a Delaware limited partnership formed on July 1, 2010. BCH is primarily a holding company that directly or indirectly receives all active and passive income of the Company and allocates that income among the partnership interests issued by BCH. As of December 31, 2023, BCH has issued and outstanding general partnership Subclass 1 Class A Units (“BCH Class A Units”), Class S Ordinary Units of BCH (the “BCH Class S Ordinary Units”), Class S Preferred Units of BCH (the “BCH Class S Preferred Units”), FLP Unit Accounts (Subclass 1, Subclass 2, and Subclass 3), Preferred Series A Subclass 0 Unit Accounts (“BCH Preferred A.0”), and Preferred Series A Subclass 1 Unit Accounts (“BCH Preferred A.1”).
Business Overview
Ben markets an array of liquidity, trustee, and trust administration products and services to alternative asset investors primarily comprised of mid-to-high net worth (“MHNW”) individual investors (generally those with a net worth of $5.0 million to $30.0 million), small-to-midsize institutional (“STMI”) investors, family offices (“FAMOs”) and fund general partners and sponsors (“GPs” and together with MHNW individuals, STMI investors and FAMOs, “Customers”). Ben provides Customers seeking an early exit from their alternative asset investments a suite of bespoke liquidity solutions for their otherwise illiquid alternative asset investments through a proprietary financing and trust structure, which we implement for our customers (we refer to such trusts collectively as the “Customer ExAlt Trusts”). We plan to offer comprehensive alternative asset trust and custody services, and novel insurance products covering risks attendant to owning, managing and transferring alternative assets, and additional broker-dealer services in connection with our liquidity products and services.
Ben’s primary operations, which commenced on September 1, 2017, relate to its liquidity and trust administration products and services. Ben offers or plans to offer its products and services through its operating subsidiaries, which include: (i) Ben AltAccess, L.L.C., a Delaware limited liability company (“Ben AltAccess”), which offers an online platform designed to provide a digital experience for Customers seeking liquidity, custody, trust and data services for their alternative assets; (ii) Ben Liquidity, L.L.C., a Delaware limited liability company, and its subsidiaries (collectively, “Ben Liquidity”), which offers liquidity products; (iii) Ben Custody, L.L.C., a Delaware limited liability company, and its subsidiaries (collectively, “Ben Custody”), which provides services for private fund, trustee, and trust administration; (iv) Ben Data, L.L.C., a Delaware
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limited liability company (“Ben Data”), which provides data analytics and evaluation services; (v) Ben Markets L.L.C., including its subsidiaries (“Ben Markets”), was recently launched and intends to provide broker-dealer services and transfer agency services in connection with offering Ben’s products and services; and (vi) Ben Insurance, L.L.C., including its subsidiaries (“Ben Insurance Services”), which intends to offer insurance products and services covering risks attendant to owning, managing and transferring alternative assets. Ben serves as trustee of certain of the Customer ExAlt Trusts, which operate for the benefit of the Charities (defined below) and Economic Growth Zones (defined below).
Ben Liquidity offers simple, rapid and cost-effective liquidity products to its Customers through the use of the Customer ExAlt Trusts, which facilitate the exchange of a Customer’s alternative assets for consideration using a proprietary financing and trust structure (such structure and related process, the “ExAlt PlanTM”). In ExAlt PlanTM financings, a subsidiary of Ben Liquidity, Beneficient Fiduciary Financial, L.L.C. (“BFF”), a Kansas based trust company that provides fiduciary financing to fidfin trusts, makes fiduciary loans (each, an “ExAlt Loan”) 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. BFF is registered as a chartered Kansas Technology Enabled Fiduciary Financial Institution (“TEFFI”) under the Technology-Enabled Fiduciary Financial Institution Act (the “TEFFI Act”) and regulated by the Kansas Office of the State Bank Commissioner (“OSBC”). Only BFF, our subsidiary, is regulated by the OSBC. The OSBC does not regulate the entirety of Ben. Ben Liquidity generates interest and fee income earned in connection with the ExAlt Loans, which are collateralized by a portion of the cash flows from the exchanged alternative assets, then owned by Customer ExAlt Trusts (the “Collateral”). The ExAlt Loans are eliminated upon consolidation of the Customer ExAlt Trusts solely for financial reporting purposes.
Under the applicable trust and other agreements, certain Texas and Kansas charities are the ultimate beneficiaries of the Customer ExAlt Trusts (which we refer to as “Charities” or “Economic Growth Zones” respectively, and collectively, the “Charitable Beneficiaries”), and their interests are reported as noncontrolling interests in our consolidated financial statements. The TEFFI Act requires that two and a half percent (2.5%) of the cash distributions from alternative assets serving as collateral to Ben Liquidity loans be charitably contributed by certain of the Customer ExAlt Trusts to a designated Kansas Economic Growth Zone. Accordingly, for ExAlt Loans originated on or after December 7, 2021, Economic Growth Zones are paid $0.025 for every $1.00 earned on ownership of exchanged alternative assets. For ExAlt Loans originated prior to December 7, 2021, in accordance with the terms of the applicable trust and other agreements, the Charitable Beneficiaries of the Customer ExAlt Trusts formed prior to such date, are paid $0.05 for every $0.95 paid to the applicable ExAlt Loan lender.
Ben Custody currently provides full-service trust and custody administration services to the trustees (including BFF) of certain of the Customer ExAlt Trusts, which own the exchanged alternative assets following liquidity transactions in exchange for fees payable quarterly.
The Customer ExAlt Trusts’ earnings on its alternative assets supports the repayment of the ExAlt Loans plus any related interest and fees. Since Ben consolidates the Customer ExAlt Trusts, Ben Liquidity’s ExAlt Loans and related interest and fee income and provision for credit losses and Ben Custody’s fee income are eliminated in the presentation of our consolidated financial statements solely for financial reporting purposes; however, such amounts directly impact the allocation of income (loss) to Ben’s or BCH’s equity holders. Likewise, the amounts expensed by the Customer ExAlt Trusts for interest and fees owed to Ben’s operating subsidiaries are eliminated in the presentation of our consolidated financial statements, but are recognized for purposes of the allocation of income (loss) to the beneficial owners of the Customer ExAlt Trusts. Refer to Note 3 for additional information.
As discussed further in Note 3, certain of our operating subsidiary products and services involve or are offered to certain of the Customer ExAlt Trusts, which are consolidated subsidiaries of Ben solely for financial reporting purposes, and therefore transactions between our operating subsidiaries and the Customer ExAlt Trusts are eliminated in the presentation of our consolidated financial statements.
Liquidity and Going Concern
As of December 31, 2023, we had unrestricted cash and cash equivalents of $11.2 million. We generated net losses totaling $924.9 million and $42.9 million for the three months ended December 31, 2023 and 2022, respectively. For the nine months ended December 31, 2023 and 2022, we generated net losses totaling $2.5 billion and $203.1 million, respectively. As of January 31, 2024, we had unrestricted cash and cash equivalents of approximately $13.0 million. All of these conditions raised substantial doubt about the Company’s ability to continue as a going concern; however, based on management’s plan, as described below, such substantial doubt has been alleviated.
We expect to satisfy our obligations and fund our operations through 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
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investments held by Ben, potentially refinancing some or all of the existing borrowings due prior to their maturity, with either our current lender or other lenders, and through the implementation of measures designed to reduce corporate overhead, including through the use of workforce reductions and other expense reductions. We also intend to raise capital through equity or debt investments by third parties. On June 27, 2023, we entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (“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 common stock. As more fully described in Note 8, on October 19, 2023, we entered into a three-year $25.0 million term loan with HH-BDH LLC, which was fully drawn upon closing and, the proceeds of which were used or are intended to be used to repay certain outstanding obligations, fund development of our products, and provide additional working capital. The HH-BDH Credit Agreement contains certain financial maintenance covenants, including a debt service coverage ratio. If any of these limitations were to materially impede the flow of cash to us, our ability to service and repay our debt and pay dividends would be materially and adversely affected.
Ben 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.
Based on projections of growth in revenue and net income in the coming quarters, the expected additional investments into Ben by third parties, potentially refinancing certain existing borrowings with either our current lender or other lenders, the additional financing source from the SEPA, and expected proceeds from our debt and equity offerings, we believe that we will have sufficient cash resources to finance our operations, satisfy other obligations, and to fund expected lending transactions within one year after the date that the unaudited interim consolidated financial statements are issued. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a reasonable period of time.
Operating Cost Reduction Plan
On July 11, 2023, Beneficient’s board of directors (the “Board”) approved certain measures to reduce the operating expenses of the Company with a view toward focusing resources on areas of current business needs. As part of this plan, we commenced the furlough of approximately 30 employees, representing approximately 20% of our workforce as of July 11, 2023. We also implemented a reduction in spending with third-party vendors in certain parts of our business as part of the plan to reduce operating expenses.
Effective November 3, 2023, the Board approved additional measures to reduce the operating expenses of the Company, including the termination of the previously furloughed employees and the layoff of an additional 15 employees, representing approximately an additional 10% of our workforce as of November 3, 2023. We intend to continue to reduce spending with third-party vendors in certain parts of our business as part of the plan to further reduce operating expenses.
2.    Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of Ben are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of Ben, its wholly-owned and majority-owned subsidiaries and, certain variable interest entities (“VIEs”), in which the Company is the primary beneficiary. An enterprise is determined to be the primary beneficiary of a VIE if it holds a controlling financial interest consistent with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”), as amended.
The Customer ExAlt Trusts are considered VIEs for which Ben has a variable interest and is considered the primary beneficiary. Thus, Ben is required to consolidate all of the Customer ExAlt Trusts. The entities in which the Customer ExAlt Trusts hold an ownership interest are investment companies (i.e., funds) under ASC 946, Financial Services — Investment Companies (“ASC 946”). Thus, the investments in non-investment companies made by these funds are accounted for in accordance with ASC 946 and are not subject to consolidation or the disclosure requirements of ASC 810. Moreover, further consolidation provisions of ASC 946 are not applicable to Ben since these investment companies do not have an investment in an operating entity that provides services to the investment company or to Ben.
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All intercompany accounts and transactions have been eliminated in consolidation, and the portion of income allocated to owners other than the Company is included in “net income (loss) attributable to noncontrolling interests” in the consolidated statements of comprehensive income (loss). With the consolidation of the Customer ExAlt Trusts, interest and fees income and any related receivable charged by Ben Liquidity and Ben Custody to the Customer ExAlt Trusts are eliminated in the presentation of our consolidated financial statements. While these amounts are eliminated solely for financial reporting purposes, such amounts are earned by Ben Liquidity and/or Ben Custody from the Customer ExAlt Trusts and directly impact the income (loss) allocable to Ben’s and BCH’s equity holders, as further discussed in Note 3.
The accompanying unaudited interim consolidated financial statements of the Company do not contain the detail or footnote disclosure concerning accounting policies and other matters that would be included in full fiscal year consolidated financial statements; therefore, they should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on July 13, 2023 (“Annual Report”). The consolidated statement of financial condition as of March 31, 2023 is from the Company’s audited financial statements. In the opinion of management, all material adjustments, consisting of normal and recurring adjustments, have been made that were considered necessary to present fairly the financial condition, results of operations and cash flows at the interim date and for the interim periods presented. Operating results for the interim periods disclosed herein are not necessarily indicative of results that may be expected for a full year.
Initial Recapitalization and Common Unit Conversion
On June 6, 2023, immediately prior to the Conversion, BCG was recapitalized, as further described in Note 4. For the periods prior to the closing, the number of outstanding units, weighted average number of outstanding units, loss per common unit, equity-based compensation and other financial amounts previously expressed on the basis of common units have been retroactively adjusted on the basis of Common Stock reflecting the common unit conversion ratio, as described above.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates and assumptions are based on information available as of the date of the consolidated financial statements and could differ from actual results. Material estimates that are particularly susceptible to change in the near term relate to the fair value determination of investments in alternative assets held by the Customer ExAlt Trusts, the fair value determination of the investment in debt securities, determination of the allowance for credit losses as an input to the allocation of income (loss) to Ben’s or BCH’s equity holders, evaluation of potential impairment of goodwill and other intangibles, and determining the grant date fair value for certain share-based compensation awards.
Significant accounting policies are detailed in Note 2 to the consolidated financial statements included in the Company’s Annual Report. Other than new policies related to the adoption of ASU 2016-13 (as defined below and described in Note 3) and those below, there are no new or revised significant accounting policies as of December 31, 2023.
Warrant Liability
The Company accounts for the warrants assumed in the Transaction (as described in Note 4), in accordance with the guidance contained in ASC 815, Derivatives and Hedging, whereby under that provision these warrants do not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, the Company classifies these warrant instruments as a liability at fair value and adjusts the instruments to fair value at each reporting period using quoted market prices. This liability is re-measured at each balance sheet date until the warrants are exercised or expire, and any change in fair value will be recognized in the Company’s consolidated statements of comprehensive income (loss). Such warrant classification is also subject to re-evaluation at each reporting period.
Income Taxes
On June 6, 2023, The Beneficient Company Group, L.P. changed both its regulatory and tax status from a Delaware Limited Partnership to a Nevada Corporation and changed its name from The Beneficient Company Group, L.P. to Beneficient. Beneficient made a tax election to be treated as a corporation for US tax purposes effective as of this date.
As a result of this tax election, Beneficient records current tax liabilities or assets through charges or credits to the current tax provision for the estimated taxes payable or refundable for the current year. Deferred tax assets and liabilities are recorded for future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A deferred tax valuation allowance is established if it is more likely than not that all or a portion of the deferred tax assets will not be realized. A tax position that fails to meet a more-likely-than-not recognition threshold will result in either reduction of current
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or deferred tax assets, and/or recording of current or deferred tax liabilities. Interest and penalties related to income taxes are recorded in the other expense line item of the consolidated statements of comprehensive income (loss).
Prior to the restructuring that resulted in Beneficient becoming a corporation, Beneficient was taxed as a Delaware Limited Partnership. In the event the subsequent entity, Beneficient a corporation, is audited by the taxing authority and assessed additional amounts due to the underpayment of tax in previous tax years, management intends to make the push-out election allowed by the U.S. Treasury Department. That election allows Beneficient to notify its partners of their share of imputed underpayment amounts for inclusion in their current tax returns.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current year presentation. Specifically, $0.6 million of other expenses was reclassified to professional services for the nine months ended December 31, 2022. This reclassification had no effect on total operating expenses.
Accounting Standards Recently Adopted
On April 1, 2023, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) (“CECL”), along with the subsequently issued guidance amending and clarifying various aspects of ASU 2016-13, using the modified retrospective method as required. In accordance with that method, the comparative period’s information continues to be reported under the relevant accounting guidance in effect for that period. Upon adoption of ASU 2016-13, the incurred loss impairment method was replaced with a new impairment model that reflects current expected lifetime losses for our ExAlt Loans receivables. The adoption of ASU 2016-13 resulted in a cumulative-effect adjustment to decrease opening common units (in the absence of retained earnings or accumulated deficit) prior to the consolidation of the Customer ExAlt Trusts by $61.1 million, resulting from an increase to our allowance for credit losses on ExAlt Loans. There is no impact to the consolidated financial statements as loans receivable and its related allowance for credit losses is eliminated in the presentation of the consolidated financial statements. The adoption of this new guidance did not result in a material impact to our available-for-sale debt securities portfolio or asset classes other than loans receivable.
Accounting Standards Not Yet Adopted
ASU 2023-09, Income Taxes, (Topic 740) was issued in December 2023, which expands income tax disclosure requirements to include additional information related to the rate reconciliation of our effective tax rates to statutory rates as well as additional disaggregation of taxes paid. The amendments in ASU 2023-09 also remove disclosures related to certain unrecognized tax benefits and deferred taxes. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, or our fiscal year beginning April 1, 2025. The amendments may be applied prospectively or retrospectively, and early adoption is permitted. We are currently assessing the impact of the requirements on our consolidated financial statements and disclosures.
ASU 2023-07, Segment Reporting, (Topic 280) was issued in November 2023 and expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. Additionally, the amendments require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 will have no impact on the Company’s financial condition or results of operations. The Company is evaluating the impact to the related segment reporting disclosures.
ASU 2020-04, Reference Rate Reform, (Topic 848) was issued in March 2020. The amendments in Topic 848 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. Topic 848 can be applied by all entities as of the beginning of the interim period that includes March 12, 2020, or any date thereafter, and entities may elect to apply the amendments prospectively through December 31, 2022. On December 31, 2022, ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 was issued, which extends the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022 to December 31, 2024. We have not utilized the optional expedients and exceptions provided by this standard, and are currently evaluating the impact of this standard on our consolidated financial statements and disclosures.
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3.    Understanding our Financial Statements and the Impact to the Common Shareholder
Ben’s current products and services, which are offered by the Ben Liquidity and Ben Custody business segments, involve or are principally offered to certain of the Customer ExAlt Trusts, which are consolidated VIEs solely for financial reporting purposes, and are not owned directly or indirectly by Ben or BCH equity holders. Transactions involving products and services between Ben’s operating subsidiaries and the Customer ExAlt Trusts are eliminated in the presentation of our consolidated financial statements. Thus, the consolidated financial statements reflect the (i) assets, liabilities, revenues, expenses, investment income and cash flows of Ben, including the Customer ExAlt Trusts, which hold the collateral for the ExAlt Loans, on a gross basis, and (ii) a portion of the economic interests of certain of the Customer ExAlt Trusts held by the residual beneficiaries that are attributed to noncontrolling interests in the accompanying consolidated financial statements.
As a result, Ben’s primary tangible assets reflected on its consolidated statements of financial condition are investments, mainly comprised of alternative assets held by the Customer ExAlt Trusts and the primary sources of revenue reflected on our consolidated statements of comprehensive income (loss) are investment income (loss), net, which represents changes in the net asset value (“NAV”) of these investments held by the Customer ExAlt Trusts, and gain (loss) on financial instruments, net, which represents changes in fair value of equity securities, debt securities, a derivative liability, and put options, primarily held by the Customer ExAlt Trusts. Such investment income (loss), net, and gain (loss) on financial instruments that are held by the Customer ExAlt Trusts is included in the net income (loss) allocated to noncontrolling interests – Customer ExAlt Trusts in the consolidated statement of comprehensive income (loss). The revenues and expenses recognized in these line items for the activities of the Customer ExAlt Trusts do not directly impact net income (loss) attributable to Ben’s or BCH’s equity holders.
Instead, the interest and fee income earned by Ben Liquidity and Ben Custody from the Customer ExAlt Trusts, which are eliminated in the presentation of our consolidated financial statements, directly impact the net income (loss) attributable to Ben’s and BCH’s equity holders. Our Ben Liquidity and Ben Custody business segments, which relate to our current operating subsidiaries, are owned by the Company’s equity holders (including those of BCH), and recognize revenue through (i) interest income on ExAlt Loans made to the Customer ExAlt Trusts in connection with our liquidity transactions for Customers with interest rates between 5.0% and 14.0% per annum charged against the outstanding principal balance of the ExAlt Loan, (ii) fee income billed at closing, but recognized as revenue ratably over the expected life of the alternative asset, for each liquidity transaction with Customers for services including access to and use of the AltAccess platform, transfer of the alternative assets, and delivery of the consideration to the client, with fee rates of 7.0% of the sum of the NAV and remaining unfunded commitment of the transacted alternative asset, and (iii) recurring fee income recognized each period for providing services including trustee, custody, and trust administration of the Customer ExAlt Trusts while they hold investments, with fee rates of 2.8% per annum of the sum of the NAV and remaining unfunded commitment of the alternative assets held. Ben Liquidity and Ben Custody revenue recognized for the three and nine months ended December 31, 2023 and 2022 is as follows:
a.Ben Liquidity recognized $11.3 million and $12.7 million in interest income during the three months ended December 31, 2023 and 2022, respectively. For the nine months ended December 31, 2023 and 2022, Ben Liquidity recognized interest income of $36.3 million and $37.9 million, respectively.
b.Ben Custody recognized $5.7 million and $7.2 million in trust services and administration revenues during the three months ended December 31, 2023 and 2022, respectively, comprised of both the fee income billed at the closing of the transactions that is being amortized into revenue and the recurring fee income billed during the periods. For the nine months ended December 31, 2023 and 2022, Ben Custody recognized trust services and administration revenues of $18.8 million and $22.3 million, respectively.
In addition, the Corporate/Other segment, which also relates to Ben or subsidiaries owned by the holders of equity in the Company (including BCH), may include fee revenue recognized through services provided to Customers or the Customer ExAlt Trusts through business lines not included within Ben Liquidity and Ben Custody.
Additionally, Ben Liquidity’s provision for credit losses is eliminated in the presentation of our consolidated financial statements but directly impacts the net income (loss) attributable to the various equity securities of Ben and BCH. Likewise, the amounts expensed by the Customer ExAlt Trusts for interest and fees owed to Ben’s operating subsidiaries are eliminated in the presentation of our consolidated financial statements but are recognized for purposes of the allocation of net income (loss) attributable to the beneficial owners of the Customer ExAlt Trusts.
The following table presents a reconciliation of operating income (loss) of our reportable segments, excluding the Customer ExAlt Trusts, to net income (loss) attributable to Beneficient’s common shareholders. This reconciliation serves to provide users of our financial statements an understanding and visual aide of the reportable segments that impact net income (loss)
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attributable to the common shareholder and reiterates that the consolidation of the Customer ExAlt Trusts has no impact on the net income (loss) attributable to Beneficient’s common shareholders.
(in thousands)Three Months Ended December 31,Nine Months Ended December 31,
2023202220232022
Operating income (loss)
Ben Liquidity$(606,405)$(18,997)$(1,781,521)$(27,651)
Ben Custody(267,995)5,879 (538,840)18,320 
Corporate & Other(20,217)(30,718)(94,532)(89,213)
Less: Loss on extinguishment of debt, net (intersegment elimination)
3,940 — 3,940 — 
Less: Income tax expense (benefit)
75 (2,356)75 (1,072)
Less: Net loss attributable to noncontrolling interests - Ben
360,695 5,887 401,985 13,231 
Less: Net (income) loss attributable to noncontrolling interests - CT
— 2,688 — (1)
Less: Noncontrolling interest guaranteed payment
(4,229)(3,984)(12,501)(11,778)
Net loss attributable to common shareholders$(542,166)$(36,889)$(2,029,424)$(96,020)
Significant Accounting Policies - Impacting Allocation of Net Income (Loss) to Beneficient’s Equity Holders
As described above, certain income and expenses involving transactions between Ben and the Customer ExAlt Trusts are eliminated in consolidation for financial reporting purposes; however, the income or expenses are important to determine the net income (loss) allocable to Ben’s and BCH’s equity holders. Significant accounting policies related to the significant income and expense items eliminated in our consolidated financial statements, but impacting the allocation of net income (loss) to Beneficient’s equity holders, are detailed in Note 3 to the consolidated financial statements included in the Company’s Annual Report. Other than new policies related to the adoption of ASU 2016-13 as described below, there are no new or revised significant accounting policies as of December 31, 2023.
Allowances for Credit Losses and related Provision
The ExAlt Loans’ allowance for credit losses is an input to the allocation of income (loss) to Ben’s or BCH’s equity holders.
Ben adopted CECL on April 1, 2023. The CECL approach 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. Credit losses are charged off against the allowance when management believes a loan balance is confirmed to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Management analyzes the loans individually as the loans do not have similar risk characteristics.
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, a widely accepted commercial private equity database, 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 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&P500 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,
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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.
Prior to the adoption of ASU 2016-13, management’s determination of the allowance was based upon an evaluation of the loan portfolio, impaired loans, economic conditions, volume, growth and composition of the collateral to the loan portfolio, and other risks inherent in the portfolio. Currently, management individually reviews all ExAlt Loans due to the low volume and non-homogenous nature of the current portfolio. Management relies heavily on statistical analysis, current NAV and distribution performance of the underlying alternative asset and industry trends related to alternative asset investments to estimate losses. Management evaluates the adequacy of the allowance by reviewing relevant internal and external factors that affect credit quality. The cash flows generated from the alternative asset interests supporting the collateral are the sole source of repayment of the ExAlt Loans and related interest. Ben recognizes any charge-off in the period in which it is determined, at which time impaired ExAlt Loans are written down to their estimated net present value.
For purposes of determining income allocations to Ben’s and BCH’s equity holders, interest income is adjusted for the ExAlt Loans’ provision for credit losses, which was approximately $8.1 million and $27.2 million for the three months ended December 31, 2023 and 2022, respectively. ExAlt Loans’ provision for credit losses was approximately $78.1 million and $53.2 million for the nine months ended December 31, 2023 and 2022, respectively.
4.    De-SPAC Merger Transaction
Forward Purchase Agreement
On June 5, 2023, BCG entered into a Prepaid Forward Purchase Agreement, by and between BCG and RiverNorth SPAC Arbitrage Fund, L.P. (the “Purchaser”), pursuant to which the Purchaser agreed to, among other things, effect certain purchases of shares of Avalon Class A common stock (“Avalon Class A Common Stock”) that would have been redeemed in connection with the special meeting of Avalon’s stockholders (the “Special Meeting”) to approve the transactions contemplated by the Business Combination Agreement (as amended through June 25, 2023, the “Forward Purchase Agreement”).
Pursuant to the Forward Purchase Agreement, Purchaser agreed to purchase shares of Avalon Class A Common Stock (the “AVAC FPA Shares”) at a purchase price per share of $10.588 (for aggregate consideration of $25.0 million from unaffiliated third-parties). The AVAC FPA Shares were redeemed in connection with the Special Meeting and converted into shares of Class A common stock and Series A Convertible Preferred Stock, par value $0.001 per share, of Beneficient (“Series A preferred stock”) upon consummation of the Business Combination. The Series A preferred stock converted in accordance with its terms to shares of Class A common stock, and Purchaser held an aggregate of 2,956,480 shares of Class A common stock following such conversion in respect of the AVAC FPA Shares (such shares of Class A common stock, the “FPA Shares”).
The $25.0 million in proceeds (the “Disbursed Amount”) in respect of the FPA Shares was disbursed from the Avalon trust account following the consummation of the Business Combination. Specifically, $5.0 million of the Disbursed Amount was disbursed to Beneficient, with the remaining $20.0 million (the “Reserve Amount”) disbursed to Purchaser to be held by Purchaser until the Maturity Date (as defined below) or until its earlier release per the terms of the Forward Purchase Agreement. Such Reserve Amount is reflected as a Stock Receivable classified in equity on the consolidated statements of financial condition.
The Forward Purchase Agreement provides for two categories of FPA Shares: (i) 1,064,333 FPA Shares categorized as “Purchased Shares” (the “Purchased Shares”) and (ii) the remaining 1,892,147 FPA Shares categorized as “Prepaid Forward Shares” (the “Prepaid Forward Shares”).
If by the 10th anniversary of the close of the Business Combination, Purchaser has received less than $5.0 million, in gross proceeds from, and Purchaser has used good faith efforts to sell, the Purchased Shares, Beneficient has agreed to cause BCH to issue Purchaser an amount of BCH Preferred A.0 (or such other senior most preferred security of Beneficient) as consideration for any shortfall amounts less than $5.0 million from the sale of the Purchased Shares. Purchaser has agreed for
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the first six months following the Business Combination not to sell any Purchased Shares below $5.00 per share or to sell more than 10% of the daily trading volume of the Class A common stock if the volume weighted average price of the Class A common stock is between $5.00 and $8.00 for any such trading day.
Upon the sales of the Prepaid Forward Shares, the Purchaser will remit $10.588 per share, or such lesser price per share designated by the Company (“Designated Price”) by written notice setting forth the Designated Price and the number Prepaid Forward Shares that may be sold at such price (“Designated Price Notice”) delivered to Purchaser prior to any such sales, to the Company. On June 8, 2025 (“Maturity Date”), any Prepaid Forward Shares not sold by the Purchaser will be returned to the Company and any remaining amounts in respect of the Prepaid Forward Shares will be retained by the Purchaser, less any amounts still owed to the Company from sales effected prior to the Maturity Date. The Forward Purchase Agreement permits the Company, in its sole discretion, to lower the Designated Price to a per share amount lower than $10.588 in order to permit the Purchaser to effect additional sales of its Prepaid Forward Shares at a price lower than the prevailing trading price of the Company’s Class A common stock in exchange for the remitting of a portion of the proceeds of any such sales to the Company. The Prepaid Forward Shares include an embedded put option, which is accounted for separately and classified as a liability in the other liabilities line item of the consolidated statements of financial condition. The Prepaid Forward Shares are measured at fair value each reporting period with the change in fair value recognized in the gain (loss) on financial instruments, net line item of the consolidated statements of comprehensive income (loss).
Prior to June 30, 2023, the Purchaser received $5.0 million in gross proceeds from the sale of a portion of the Purchased Shares. No sales of any of the Prepaid Forward Shares have occurred as of December 31, 2023. To the Company’s knowledge, all shares purchased by the Purchaser in connection with the Forward Purchase Agreement were from unaffiliated third-parties.
Recapitalization of BCG
On June 6, 2023, immediately prior to the Conversion, the BCG was recapitalized (the “BCG Recapitalization”) as follows: (i) the limited partnership agreement of BCG was amended to create one new subclass of BCG common units, the Class B Common Units (the “BCG Class B Common Units”), and the existing common units were renamed the Class A Common Units (the “BCG Class A Common Units”); and (ii) certain holders of the BCH Preferred A.1 entered into conversion and exchange agreements (the “BCG Conversion and Exchange Agreements”) with BCG and BCH, pursuant to which they converted certain BCH Preferred A.1 to BCH Class S Ordinary Units, which were then contributed to BCG in exchange for BCG Class A Common Units.
Prior to the Conversion on June 6, 2023, when the Company was a Delaware limited partnership, the Company’s equity interests consisted of common units, one series of preferred units, and noncontrolling interests. Pursuant to the Conversion, each BCG Class A Common Unit converted into 1.25 shares of Class A common stock par value $0.001 per share (“Class A common stock”), each BCG Class B Common Unit converted into 1.25 shares of Class B common stock, par value $0.001 per share (“Class B common stock” and together with the Class A common stock, the “Common Stock”), and the capital account balance of the Preferred Series B Subclass 2 Unit Accounts of BCG (“BCG Preferred B.2 Unit Accounts”) converted into shares of Class A common stock at a rate based on a 20% discount to the $10.00 valuation of the Class A common stock (or $8.00). As a result, in the Conversion, we issued 86,116,884 shares of Class A common stock with respect to the BCG Class A Common Units, 19,140,451 shares of Class B common stock with respect to the BCG Class B Units and 94,050,534 shares of Class A common stock with respect to the BCG Preferred B.2 Unit Accounts.
The following table provides additional information on the securities contributed and exchanged by each of BHI, Bruce W. Schnitzer and Hicks Holdings Operating, LLC (dollars and units in thousands):
NameConverted Capital Account Balance of BCH Preferred A.1
BCH Class S Ordinary Units Received
BCG Class B Units Received
BHI$177,195 14,176 14,176 
Bruce W. Schnitzer988 79 79 
Hicks Holdings Operating, LLC13,222 1,058 1,058 
Total$191,405 15,313 15,313 
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The following table provides additional information on the securities contributed and exchanged by each of Bruce W. Schnitzer and Richard W. Fisher (dollars and units in thousands):
NameConverted Capital Account Balance of BCH Preferred A.1
BCH Class S Ordinary Units Received
BCG Class A Units Received
Bruce W. Schnitzer$734 659 659 
Richard W. Fisher1,722 738 738 
Total$2,456 1,397 1,397 
As part of the conversion to BCG Class A Common Units, additional value of approximately $15.0 million was provided to certain holders who are members of our Board. The additional value was accounted for as compensation, which resulted in stock-based compensation expense of $15.0 million during the quarter ended June 30, 2023.
Closing of the Transaction
On June 7, 2023, the Company completed its previously announced de-SPAC merger transaction with Avalon. Each share of Avalon common stock issued and outstanding immediately prior to that date automatically converted into one share of Class A common stock and one share of Series A preferred stock of Beneficient. Additionally, each Avalon Warrant (defined below) automatically converted into a Warrant (defined below).
Accordingly, the Company issued (i) an aggregate of 7,971,864 shares of Class A common stock to the former holders of Avalon Class A Common Stock, and Class B Common Stock of Avalon, par value $0.0001 per share (“Avalon Class B Common Stock”), outstanding immediately prior to June 7, 2023, and (ii) an aggregate of 2,796,864 shares of Beneficient Series A preferred stock to non-redeeming Avalon Class A stockholders, and the Avalon Warrants converted into an aggregate of 23,625,000 redeemable Warrants. At closing, $27.9 million of cash remained in the trust account of Avalon. There were $26.1 million in transaction expenses, $20.0 million of which represented the Reserve Amount under the Forward Purchase Agreement, that were either paid by Avalon prior to closing or offset against proceeds received by the Company at closing, resulting in $1.8 million in net proceeds to the Company. Proceeds from the Transaction were used to pay expenses related to the Transaction.
Immediately after the Business Combination, 188,674,282 shares of Class A common stock were issued and outstanding, 19,140,451 shares of Class B common stock were issued and outstanding, 2,796,864 shares of Beneficient Series A preferred stock were issued and outstanding and 23,757,500 Warrants were issued and outstanding. Because the Series A preferred stock is not expected to be publicly listed, the Beneficient Series A preferred stock terms provide that upon its issuance, each share of Series A preferred stock will automatically convert into one-quarter of a share of Class A common stock of Beneficient, or an aggregate of 687,588 additional shares of Class A common stock. Following such conversion, there are 189,379,498 shares of Class A common stock of Beneficient outstanding following the Business Combination.
The Transaction is a capital transaction in substance and not a business combination under ASC 805, Business Combinations (“ASC 805”). As a result, Beneficient is treated as the accounting acquirer and Avalon is treated as the acquired company for financial reporting purposes per ASC 805. Accordingly, for accounting purposes, the Transaction is treated similar to an equity contribution in exchange for the issuance of shares of Common Stock. The financial statements of the combined entity represent a continuation of the financial statements of Beneficient, and the net assets of Avalon have been stated at historical cost, with no goodwill or other intangible assets recorded. The equity and net loss per unit attributable to common equity holders of the Company, prior to the closing, have been retroactively restated as shares reflecting the common unit conversion ratio discussed above.
The Company and Avalon incurred $21.7 million and $26.1 million, respectively, of expenses related to the Transaction. These expenses consist of underwriting fees, professional services (legal, accounting, advisory, etc.) and other direct expenses associated with the Transaction. Costs incurred by Ben were initially capitalized as incurred in the other assets on the consolidated statements of financial condition. As a result of the transaction, the transaction costs incurred by the Company related to the issuance of shares were recognized in additional paid-in capital as a reduction of proceeds. The expenses incurred by Avalon were either paid by Avalon prior to closing or netted against proceeds received by the Company at closing.
Common Stock Warrants
The Company assumed 15,525,000 publicly-traded Avalon Warrants (“Avalon Public Warrants”) and 8,100,000 private placement Avalon Warrants (“Avalon Private Warrants” and together with the Avalon Public Warrants, the “Avalon Warrants”), which were originally issued by Avalon in connection with its initial public offering and, as a result of the
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assumption by the Company, became Warrants. The Avalon Public Warrants assumed by Ben are referred to as the “Public Warrants” and the Avalon Private Warrants assumed by Ben are referred to as the “Private Warrants”, and collectively, the “Warrants”. The Warrants are included in derivative warrant liabilities on the Company’s consolidated statements of financial condition. The Warrants entitle the holder to exercise each whole warrant for one share of Class A common stock and one share of Series A preferred stock at an exercise price of $11.50 (each a “Warrant” and collectively, the “Warrants”).
The Public Warrants may only be exercised for a whole number of shares, and will expire on June 7, 2028 (i.e., five years following the closing), or earlier upon redemption or liquidations. Ben may redeem the outstanding Public Warrants (i) in whole and not in part; (ii) at a price of $0.01 per warrant; (iii) upon not less than 30 days’ prior written notice of redemption to each warrant holder; and (iv) if, and only if, the reported last sale price of the Class A common stock for any 20 trading days within a 30-trading day period ending three business days before Ben sends the notice of redemption to the warrant holders (the “Reference Value”) equals or exceeds $18.00 per share. In addition, we have the ability to redeem the outstanding Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.10 per Public Warrant if, among other things, the Reference Value equals or exceeds $10.00 per share. If and when the Public Warrants become redeemable by Ben, Ben may exercise its redemption right even if Ben is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
During any period when Ben fails to maintain an effective registration statement registering the Class A common stock issuable upon the exercise of the Warrants, Ben is required to permit holders of Warrants to exercise their Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act of 1933, as amended, or another exemption.
The Private Warrants, which became transferable, assignable and salable on July 7, 2023 (i.e., 30 days after the closing), are currently held by Avalon Acquisition Holdings, L.L.C (“the Avalon Sponsor”), and are generally identical to the Public Warrants, except they cannot be redeemed by Ben so long as they are held by the Avalon Sponsor or its permitted transferees. An Avalon Sponsor, or its permitted transferees, has the option to exercise the Private Warrants on a cashless basis and have certain registration rights. If the Private Warrants are held by holders other than the Avalon Sponsor or its permitted transferees, the Private Warrants will become redeemable by Ben in all redemption scenarios and exercisable by the holders on the same basis as the Public Warrants.
As of December 31, 2023, there were 24,699,725 Warrants outstanding with a fair value of $0.2 million, as reflected in the warrant liability line item on the consolidated statements of financial condition. During the three and nine months ended December 31, 2023, gains of $0.8 million and $2.5 million, respectively, were recognized in gain (loss) on financial instruments, net in the consolidated statements of comprehensive income (loss). Refer to Note 6 for a reconciliation of the gain (loss) on financial instruments, net for each of the periods presented herein.
5.    Investments, at Fair Value
Investments held by Ben or held by the Customer ExAlt Trusts are comprised of investments in alternative assets, public debt and equity securities, other equity securities (principally of a related party) and put options. The composition of investments recorded at fair value by holder is included in the table below (in thousands):
December 31, 2023March 31, 2023
BenCustomer ExAlt TrustsBenCustomer ExAlt Trusts
Alternative assets$— $302,810 $— $385,851 
Public equity securities and option— 4,210 4,742 8,087 
Debt securities available-for-sale— 3,127 620 76,278 
Other equity securities and interests
38 68,235 — 21,643 
Total investments, at fair value$38 $378,382 $5,362 $491,859 
Investments in Alternative Assets held by the Customer ExAlt Trusts
The investments in alternative assets are held, either through direct ownership or through beneficial interests, by certain of the Customer ExAlt Trusts and consist primarily of limited partnership interests in various alternative investments, including private equity funds. These alternative investments are valued using NAV as a practical expedient. Changes in the NAV of these investments are recorded in investment income (loss), net in our consolidated statements of comprehensive income (loss). The investments in alternative assets provide the economic value that ultimately collateralizes the ExAlt Loans that Ben Liquidity originates with the Customer ExAlt Trusts in liquidity transactions and any associated fees due from the Customer ExAlt Trusts. The decrease in investments in alternative assets since March 31, 2023, was primarily driven by the
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transfer of $56.7 million in NAV to settle the Customer ExAlt Trust loan payable, as further described in Note 7, combined with $38.4 million in distributions.
The NAV calculation reflects the most current report of NAV and other data received from firm/fund sponsors. If no such report has been received, Ben estimates NAV based upon the last NAV calculation reported by the investment manager and adjusts it for capital calls and distributions made in the intervening time frame. Ben also considers whether adjustments to the NAV are necessary, in certain circumstances, in which management is aware of specific material events, changes in market conditions, and other relevant factors that have affected the value of an investment during the period between the date of the most recent NAV calculation reported by the investment manager or sponsor and the measurement date. Public equity securities known to be owned within an alternative investment fund, based on the most recent information reported by the general partners, are marked to market using quoted market prices on the reporting date.
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. The investments are not subject to redemption with the funds. Distributions from funds are received as the underlying investments are liquidated. Timing of liquidation is currently unknown.
Portfolio Information
Our portfolio of alternative asset investments, held by certain of the Customer ExAlt Trusts by asset class of each fund as of December 31, 2023 and March 31, 2023, is summarized below (in thousands):
Alternative Investments Portfolio Summary
December 31, 2023March 31, 2023
Asset ClassCarrying ValueUnfunded CommitmentsCarrying ValueUnfunded Commitments
Venture Capital$139,950 $2,366 $165,933 $2,810 
Private Equity123,664 39,949 145,073 47,218 
Natural Resources20,505 3,351 27,756 5,240 
Private Real Estate9,119 3,134 10,391 4,800 
Hedge Funds
6,135 246 24,935 337 
Other(1)
3,437 383 11,763 730 
Total$302,810 $49,429 $385,851 $61,135 
Certain prior year items have been reclassified to conform with current year presentation.
(1) “Other” includes earnouts, escrow, net other assets, private debt strategies and infrastructure.
As of December 31, 2023, the Customer ExAlt Trusts collectively had exposure to 247 professionally managed alternative asset investment funds, comprised of 900 underlying investments, 89 percent of which are investments in private companies.
Public Equity Securities
Investment in public equity securities primarily represents ownership by both Ben and certain of the Customer ExAlt Trusts in public companies. These investments are carried at fair value, which is determined using quoted market prices. Any realized gains and losses are recorded on a trade-date basis. Realized and unrealized gains and losses are recognized in gain (loss) on financial instruments, net in the consolidated statements of comprehensive income (loss). As of December 31, 2023 and March 31, 2023, the fair value of investments in public equity securities was $4.2 million and $8.8 million, respectively. The balance as of March 31, 2023 included an investment in GWG Holdings’ common stock held by Ben and the Customer ExAlt Trusts of $3.7 million. On August 1, 2023, GWG Holdings’ plan of reorganization was declared effective, and the Company’s investment was transferred to equity interests in the GWG Wind Down Trust (as defined herein). The interests in the GWG Wind Down Trust is reflected as an investment in other equity securities. Refer to Note 6 for a reconciliation of the gain (loss) on financial instruments, net for each of the periods presented herein.
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Put Options
On April 1, 2022, Ben, through CT Risk Management, L.L.C., (“CT”) made aggregate payments of $5.0 million to purchase additional put options in the S&P 500 Index with an aggregate notional amount of $141.3 million. Half of the notional expires in April 2024, while the other half expires in April 2025. On April 27, 2022, CT sold an equity interest for $2.4 million to the third-party involved in a participation loan transaction described in Note 7 and utilized the proceeds to purchase additional put options similar to the put options purchased on April 1, 2022. These put options were sold in September 2023 for $1.0 million, resulting in a recognized loss of $0.7 million.
The put options were designed to protect the NAV of the interests in alternative assets, which generate the collateral to certain of the ExAlt Loans in Ben Liquidity’s loan portfolio or the loans related to the participation loan transaction and provide for distributions to the Customer ExAlt Trusts’ ultimate beneficiary, against market risk. The options were carried at fair value, which was determined using quoted market prices. Any realized gains and losses were recorded on a trade-date basis. Realized and unrealized gains and losses were recognized in gain (loss) on financial instruments, net in the consolidated statements of comprehensive income (loss).
No options were held as of or during the three months ended December 31, 2023. As of March 31, 2023, the fair value of the options was $4.0 million. For the three months ended December 31, 2022, Ben recognized losses of $3.8 million on the put options, of which approximately $2.8 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 nine months ended December 31, 2023 and 2022, Ben recognized losses of $3.0 million and losses of $1.1 million, respectively, on the put options, of which approximately $2.0 million and $0.8 million, respectively, is attributable to Ben or Ben’s loan portfolio, with the remainder attributable principally to the loan involved in the participation loan transaction. Refer to Note 6 for a reconciliation of the gain (loss) on financial instruments, net for each of the periods presented herein.
Debt Securities Available-for-Sale
As of December 31, 2023, investments in debt securities represent ownership in privately held debt securities. Investments in debt securities are classified and accounted for as available-for-sale, with unrealized gains and losses presented as a separate component of equity under the accumulated other comprehensive income (loss) line item.
Prior to August 1, 2023, investments in debt securities also included ownership in corporate debt securities, specifically, L Bonds of GWG Holdings (“L Bonds”) held by certain of the Customer ExAlt Trusts. The L Bonds had a maturity date of August 8, 2023. However, upon the effectiveness of GWG Holdings’ plan of reorganization on August 1, 2023, the investments in L Bonds converted to equity interests in the GWG Wind Down Trust, which are reflected in “other equity securities and interests”.
The amortized cost, estimated fair value, and unrealized gains and losses on investments in debt securities classified as available-for-sale as of December 31, 2023 and March 31, 2023 are summarized as follows:
December 31, 2023
(Dollars in thousands)Amortized Cost BasisGross Unrealized GainsGross Unrealized LossesFair Value
Other debt securities$2,685 $1,502 $(1,060)$3,127 
Total available-for-sale debt securities$2,685 $1,502 $(1,060)$3,127 
March 31, 2023
(Dollars in thousands)Amortized Cost BasisGross Unrealized GainsGross Unrealized LossesFair Value
Corporate debt securities (L Bonds)$64,313 $17,433 $(7,924)$73,822 
Other debt securities2,685 1,347 (956)3,076 
Total available-for-sale debt securities$66,998 $18,780 $(8,880)$76,898 
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The table below indicates the length of time individual debt securities have been in a continuous loss position as of December 31, 2023 and March 31, 2023:
December 31, 2023March 31, 2023
(Dollars in thousands)Fair ValueUnrealized LossesFair ValueUnrealized Losses
Corporate debt securities (L Bonds):
Twelve months or longer$— $— $73,822 $7,924 
Other debt securities:
Less than twelve months— — 2,078 956 
Twelve months or longer2,129 1,060 — — 
Total available-for-sale debt securities with unrealized losses$2,129 $1,060 $75,900 $8,880 
The noncredit-related portion of the net unrealized gains of $0.1 million and $4.2 million for the three and nine months ended December 31, 2023, respectively, was recognized as a component of accumulated other comprehensive income (loss). The noncredit-related portion of the net unrealized losses of $1.3 million and gains of $6.4 million for the three and nine months ended December 31, 2022, respectively, was recognized as a component of accumulated other comprehensive income (loss). Unrealized net gains of $13.7 million related to the Company’s previously classified available-for-sale debt securities were reclassified from accumulated other comprehensive income and recognized within the gain (loss) on financial instruments, net line item of the consolidated statements of comprehensive income (loss) during the three and nine months ended December 31, 2023, respectively.
During the three and nine months ended December 31, 2023, the Company determined there was no credit-related loss on its investment in debt securities available-for-sale. During the three and nine months ended December 31, 2022, the Company determined there was other than temporary impairment of nil and $12.6 million, respectively, on its debt securities available-for-sale, which is recorded in the provision for credit losses on the consolidated statements of comprehensive income (loss). The Company determined these losses were other-than-temporary as it does not expect to recover the entire amortized cost basis of the security.
The following table is a rollforward of credit-related losses recognized in earnings for the periods presented below:
(Dollars in thousands)Three Months Ended
December 31,
Nine Months Ended December 31,
2023202220232022
Balance, beginning of period$31,290 $31,290 $31,290 $18,669 
Increase in amounts previously recognized
— — — 12,621 
Balance, end of period$31,290 $31,290 $31,290 $31,290 
The contractual maturities of available-for-sale debt securities as of December 31, 2023 and March 31, 2023 are as follows:
December 31, 2023March 31, 2023
(Dollars in thousands)Amortized Cost BasisFair ValueAmortized Cost BasisFair Value
Due in one year or less$1,687 $2,129 $66,000 $75,900 
No fixed maturity998 998 998 998 
$2,685 $3,127 $66,998 $76,898 
Other Equity Securities and Interests
Ben and certain of the Customer ExAlt Trusts hold investments in equity securities of private companies with a readily determinable fair value, namely the GWG Wind Down Trust. On August 1, 2023, GWG Holdings’ plan of reorganization was declared effective and our investments in its common stock and L Bonds (previously accounted for as public equity securities and available-for-sale debt securities, respectively) were then transferred to an investment in the GWG Holdings Wind Down Trust. The fair value of these equity interests was $3.8 million and $17.4 million as of December 31, 2023 and
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August 1, 2023, respectively. Refer to Note 6 for a reconciliation of the gain (loss) on financial instruments, net for each of the periods presented herein.
Additionally, certain of the Customer ExAlt Trusts hold investments in equity securities that do not have a readily determinable fair value. These equity securities are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The value of these equity securities was $64.5 million and $21.6 million as of December 31, 2023 and March 31, 2023, respectively. The increase in value is primarily due to new investments held as of December 31, 2023 that were not held as of March 31, 2023. Refer to Note 6 for a reconciliation of the gain (loss) on financial instruments, net for each of the periods presented herein, which reflects any upward or downward adjustments to these equity securities for the periods presented herein. There were no impairments to these equity securities during the three and nine months ended December 31, 2023 and 2022.
6.    Fair Value Measurements
Fair value is estimated based on a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs to valuation techniques into three broad levels whereby the highest priority is given to Level 1 inputs and the lowest to Level 3 inputs.
Level 1 - Quoted prices for identical instruments in active markets that the reporting entity has the ability to access as of the measurement date.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable market data.
Level 3 - Valuations for instruments with inputs that are significant and unobservable, are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such instruments.
This hierarchy requires the use of observable market data when available. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Investments that are valued using NAV as a practical expedient are excluded from this hierarchy.
As of December 31, 2023 and March 31, 2023, the fair value of these investments using the NAV per share practical expedient was $302.8 million and $385.9 million, respectively. During the three months ended December 31, 2023 and 2022, gains of $7.4 million and $11.5 million, respectively, were recognized from changes in NAV, which are recorded within the investment income (loss), net, line item of our consolidated statements of comprehensive income (loss). During the nine months ended December 31, 2023 and 2022, a $7.9 million gain and $30.7 million loss, respectively, was recognized from changes in NAV, which is recorded within the investment income (loss), net, line item of our consolidated statements of comprehensive income (loss).
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Financial instruments on a recurring basis
The Company’s financial assets and liabilities carried at fair value on a recurring basis, including the level in the fair value hierarchy, on December 31, 2023 and March 31, 2023 are presented below.
As of December 31, 2023
(Dollars in thousands)Level 1Level 2Level 3Total
Assets:
Public equity securities$4,210 $— $— $4,210 
Other equity interests
— 3,797 — 3,797 
Debt securities available-for-sale, other
— 998 2,129 3,127 
Liabilities:
Warrant liability161 — — 161 
Prepaid forward liability12 — — 12 
As of March 31, 2023
(Dollars in thousands)Level 1