Debt | 11. Debt Convertible Notes Convertible Notes - Related Party During 2022 and 2023, the Company issued subordinated convertible promissory notes to related parties Alco Investment Company (“Alco”), Mason Ward, DNX, and William Bryant. Alco held approximately 5 5 8 For the three and six months ended June 30, 2023, the Company recorded a $ 707,000 1,126,451 552,403 125,352 427,051 935,687 215,774 719,913 March 2023 Amendment In March 2023, the Related Party Convertible Notes were amended to extend the maturity to December 31, 2023. The Company evaluated the terms of the First Amendment in accordance with ASC 470-60, Troubled Debt Restructurings, and ASC 470-50, Debt Modifications and Extinguishments. The Company determined that the Company was granted a concession by the lender based on the decrease of the effective borrowing rate on the First Amendment. Accordingly, the Company accounted for the First Amendment as a troubled debt restructuring. As a result, the Company accounted for the troubled debt restructuring by calculating a new effective interest rate for the First Amendment based on the carrying amount of the debt and the present value of the revised future cash flow payment stream. The troubled debt restructuring did not result in recognition of a gain or loss in the consolidated statement of operations but does impact interest expense recognized in the future. Convertible Notes - Third Party During 2022 and 2023, the Company issued additional subordinated convertible notes (the “Third Party Convertible Notes”). The Third Party Convertible Notes bear interest at a rate of 8% per annum, and are convertible into the same series of capital stock of the Company to be issued to other investors upon a Qualified Financing (as defined in the agreement). For the three and six months ended June 30, 2023, the Company recorded a $ 0 330,390 142,353 37,845 104,508 293,977 72,562 221,415 March 2023 Amendment In March 2023, the Third Party Convertible Notes were amended to extend the maturity to December 31, 2023. The Company evaluated the terms of the First Amendment in accordance with ASC 470-60, Troubled Debt Restructurings, and ASC 470-50, Debt Modifications and Extinguishments. The Company determined that the Company was granted a concession by the lender based on the decrease of the effective borrowing rate on the First Amendment. Accordingly, the Company accounted for the First Amendment as a troubled debt restructuring. As a result, the Company accounted for the troubled debt restructuring by calculating a new effective interest rate for the First Amendment based on the carrying amount of the debt and the present value of the revised future cash flow payment stream. The troubled debt restructuring did not result in recognition of a gain or loss in the consolidated statement of operations but does impact interest expense recognized in the future. The following table presents the Related Party and Third Party Convertible Notes, respectively, as of December 31, 2023: Summary of Related Party and Third Party Convertible Notes Related Party Third Party Face value of the convertible notes $ 6,783,538 $ 3,196,206 Debt discount, net (131,867 ) (83,688 ) Carrying value of the convertible notes 6,651,671 3,112,518 Accrued interest 619,697 233,714 Conversion of convertible notes (7,271,368 ) (3,346,232 ) Total convertible notes and accrued interest $ — $ — Promissory Notes Promissory Notes - Related Party On August 30, 2023, the Company issued a subordinate promissory note (“Alco August Promissory Note”) in the aggregate principal amount of $ 150,000 10 8 April 29, 2024 3,711 2,908 2,992 84 8,357 5,983 2,374 150,000 10,027 4,044 On September 13, 2023, the Company issued a subordinate promissory note (“Alco September Promissory Note”) in the aggregate principal amount of up to $ 1,500,000 8 September 30, 2024 8,588 638,808 95,935 29,918 66,017 187,498 59,836 127,662 1,500,000 90,411 30,575 On November 16, 2023, the Company issued a subordinate promissory note (“Alco November Promissory Note”) in the aggregate principal amount of up to $ 750,000 8 April 13, 2024 363,905 31,036 14,959 45,995 217,249 29,918 187,331 750,000 37,315 7,397 On December 13, 2023, the Company issued a subordinate promissory note (“Alco December Promissory Note”) in the aggregate principal amount of up to $ 2,000,000 8 December 31, 2024 1,496,252 317,667 39,890 277,777 549,883 79,780 470,103 2,000,000 87,670 7,890 In connection with the issuances of the Alco September, November, and December Promissory Notes, the Company, 7GC and the Sponsor entered into share transfer agreements (the “Alco Share Transfer Agreements”) with Alco Investment Company. Pursuant to which for each $ 500.00 500.00 3,000 1,500 12,000 180 For the Alco Share Transfer Agreements, the Company considered the guidance under ASC 815, Derivatives and Hedging, and determined that the Investor Shares underlying each of the Share Transfer Agreements described above, met the definition of a freestanding financial instrument and are not precluded from being considered indexed to the Company’s common stock. The Company determined that these shares represent a freestanding equity contract issued to the lender, resulting in a discount recorded on the notes when they are issued. Equity-classified contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized if the contracts continue to be classified in equity. The measurement of fair value was determined utilizing various put option models in estimating the discount lack of marketability (the “DLOM”) applied to the public share price as the shares underlying each of the Share Transfer Agreements are subject to a lock-up period pursuant to each agreement, to estimate the fair value of the shares transferred. Option pricing models assume that the cost to purchase a stock option relates directly to the measurement of the DLOM. The logic behind these models is that investors may be able to quantify this price risk, due to lack of marketability, over a particular holding period where price volatility is usually estimated as a proxy for risk. The inputs and assumptions utilized in the fair value estimation included the Company’s stock price on the measurement date, a DLOM as described above, the number of shares pursuant to each Share Transfer Agreement, and a probability weighted factor for the Company’s expected percentage of completing its Business Combination, at each Share Transfer Agreement date. For the Alco September Promissory Note, of which $ 1,000,000 0.77 1,000,000 180 54.0 5.3 10.7 16.0 12.5 80 For the remaining $ 500,000 0.72 500,000 180 52.0 5.4 10.0 15.0 11.5 80 For the Alco November Promissory Note, the DLOM was estimated using the put option models described above and the following assumptions: a holding period for the shares of 208 days (approximately 0.60 180 54.0 5.2 9.5 15.0 11.5 100 For the Alco December Promissory Note, the DLOM was estimated using the put option models described above and the following assumptions: a holding period for the shares of 180 days (approximately 0.49 180 47.0 5.2 7.5 12.0 9.0 100 April 2024 and May 2024 Amendment On April 18, 2024, the Company amended the Alco August Promissory Note and Alco November Promissory Note to extend the maturity dates of each note to May 31, 2024 (the “Alco April 2024 Amendment”). On May 30, 2024, both parties agreed to again amend the Alco August Promissory Note and Alco November Promissory Note to further amend the maturity date to the earlier of (a) August 29, 2024 or (b) the closing of the next transaction (an “Offering”) in which the Company sells any of its Common Stock for cash with net proceeds of $ 4,000,000 Promissory Notes - 7GC The Company assumed two 2,540,091 17,812 Promissory Note - GEM On December 14, 2023, the Company and GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (collectively, “GEM”) agreed to terminate in its entirety the GEM Agreement, pursuant to which GEM was to purchase from the Company shares of common stock having an aggregate value up to $ 100,000,000 3 2.0 five 0 2.0 2.0 On February 5, 2024, the Company and GEM entered into a settlement agreement (the “GEM Settlement Agreement”), pursuant to which (a) the Company and GEM agreed to (i) settle the Company’s obligations under and terminate the binding term sheet entered into between Legacy Banzai and GEM, dated December 13, 2023, and (ii) terminate the share repurchase agreement, dated May 27, 2022, by and among the Company and GEM, and (b) the Company (i) agreed to pay GEM $ 1.2 1.0 100,000 1.2 The GEM Promissory Note provides that, in the event the Company fails to make a required monthly payment when due, the Company shall issue to GEM a number of shares of Class A Common Stock equal to the monthly payment amount divided by the VWAP of the Class A Common Stock for the trading day immediately preceding the applicable payment due date. In addition, the Company agreed to register on a registration statement 40,000 As of June 30, 2024, the Company has issued an aggregate of 20,902 600,000 Convertible Promissory Notes (Yorkville) On December 14, 2023, in connection with and pursuant to the terms of its Standby Equity Purchase Agreement (“SEPA”) with YA II PN, LTD, a Cayman Islands exempt limited partnership managed by Yorkville Advisors Global, LP (“Yorkville”), (refer to Note 15 - Equity 3,500,000 2,000,000 1,800,000 200,000 On February 5, 2024, the Company and Yorkville entered into a supplemental agreement (the “SEPA Supplemental Agreement”) to increase the amount of convertible promissory notes allowed to be issued under SEPA by $ 1,000,000 4,500,000 1,000,000 900,000 100,000 On March 26, 2024, the Company, in exchange for a convertible promissory note with a principal amount of $ 1,500,000 1,250,000 250,000 On May 3, 2024, the Company and Yorkville entered into a Debt Repayment Agreement (the “Original Debt Repayment Agreement”) with respect to the Yorkville Promissory Notes. Under the Original Debt Repayment Agreement, Yorkville agreed that, upon completion of a Company registered offering and repayment of an aggregate $ 2,000,000 200,000 0.0001 On May 22, 2024, the Company and Yorkville entered into an Amended and Restated Debt Repayment Agreement (the “Amended Debt Repayment Agreement”) with respect to the Yorkville Promissory Notes, which amends and restates the Original Debt Repayment Agreement. Under the Amended Debt Repayment Agreement, Yorkville has agreed that, upon completion of a registered offering and repayment of an aggregate $ 750,000 75,000 Pursuant to the terms of the Amended Repayment Agreement, the Company made a cash principal payment of $ 750,000 12,000 75,000 110,040 75,000 35,040 115,800 The Yorkville Promissory Notes have a maturity date (as modified by the Amended Debt Repayment Agreement) of September 25, 2024 0 18 Yorkville has the right to convert any portion of the outstanding principal into shares of Class A common stock at any time subsequent to the Stand-still Period through maturity. The number of shares issuable upon conversion is equal to the amount of principal to be converted (as specified by Yorkville) divided by the Conversion Price (as defined in the Standby Equity Purchase Agreement disclosure in Note 15). Yorkville will not have the right to convert any portion of the principal to the extent that after giving effect to such conversion, Yorkville would beneficially own in excess of 9.99 Additionally, the Company, at its option, shall have the right, but not the obligation, to redeem early a portion or all amounts outstanding under the Promissory Notes at a redemption amount equal to the outstanding principal balance being repaid or redeemed, plus a 10 Upon the occurrence of certain triggering events, as defined in the Yorkville Promissory Notes agreement (each an “Amortization Event”), the Company may be required to make monthly repayments of amounts outstanding under the Yorkville Promissory Notes, with each monthly repayment to be in an amount equal to the sum of (x) $ 1,000,000 10 During January 2024, the Company’s stock price per share fell below the then in effect Floor Price (as defined in the Standby Equity Purchase Agreement disclosure in Note 15) of $ 2.00 14.70 During the three and six months ended June 30, 2024, $ 300,000 800,000 20,176 35,940 1,000,000 28,910 As of June 30, 2024 and December 31, 2023, the principal amount outstanding under the Yorkville Promissory Notes was $ 1,950,000 2,000,000 80,760 The Yorkville Promissory Notes are required to be measured at fair value pursuant to ASC 480 Distinguishing Liabilities from Equity 2,013,000 1,766,000 1.88 71 0.46 14 5.28 10.0 During the three and six months ended June 30, 2024, the Company recorded a loss of $ 34,000 578,000 0.17 125 0.24 20.6 5.48 75.0 Term and Convertible Notes (CP BF) During 2021, the Company entered into a loan agreement with CP BF Lending, LLC (“CP BF”) comprised of a Term Note and a Convertible Note. The Term Note bears cash interest at a rate of 14 1.5 15.5 For all respective periods presented, the Company was not in compliance with the Minimum Gross Profit Margin covenant in section 7.14.1 of the Loan Agreement, the Minimum ARR Growth covenant in section 7.14.2 of the Loan Agreement, and the Fixed Charge Coverage Ratio covenant in section 7.14.3 of the Loan Agreement. As a result of the Company’s noncompliance with the financial covenants, the entire principal amount and all unpaid and accrued interest will be classified as current on the Company’s consolidated balance sheets. The effective interest rate for the Term Note was 16 294,613 586,940 267,359 533,707 27,254 53,233 284,097 562,261 264,320 523,763 19,777 38,498 The effective interest rate for the CP BF Convertible Note and First Amendment Convertible Note was 16 121,448 237,859 112,908 221,504 8,540 16,355 101,719 200,151 95,534 187,394 6,185 12,757 The Company utilizes a combination of scenario-based methods and Black-Scholes option pricing models to determine the average share count outstanding at conversion and the simulated price per share for the Company as of the valuation date. Key inputs into these models included the timing and probability of the identified scenarios, and for Black-Scholes option pricing models used for notes that included a valuation cap, equity values, risk-free rate and volatility. The following table presents the CP BF convertible notes as of June 30, 2024: Summary of Convertible Notes Face value of the CB BF convertible notes $ 1,821,345 Debt discount, net (26,757 ) Carrying value of the CB BF convertible notes 1,794,588 Accrued interest 1,135,983 Total CB BF convertible notes and accrued interest $ 2,930,571 The following table presents the CP BF convertible notes as of December 31, 2023: Face value of the CB BF convertible notes $ 1,821,345 Debt discount, net (41,983 ) Carrying value of the CB BF convertible notes 1,779,362 Accrued interest 914,479 Total CB BF convertible notes and accrued interest $ 2,693,841 The following table presents the CP BF term note as of June 30, 2024: Face value of the CB BF term note $ 6,500,000 Debt discount, net (76,353 ) Carrying value of the CB BF term note 6,423,647 Accrued interest 664,562 Total CB BF term note and accrued interest $ 7,088,209 The following table presents the CP BF term note as of December 31, 2023: Face value of the CB BF term note $ 6,500,000 Debt discount, net (129,586 ) Carrying value of the CB BF term note 6,370,414 Accrued interest 289,373 Total CB BF term note and accrued interest $ 6,659,787 | 14. Debt Convertible Notes Convertible Notes-Related Party On March 21, 2022, the Company issued a subordinated convertible promissory note (“Old Alco Note”) for a principal sum of $ 2,000,000 5 15 The outstanding principal and interest under the Old Alco Note was, at the Holder’s election, either (i) effective upon the closing of an Equity Financing (as defined in the agreement), to be converted into shares of the same series of preferred stock of the Company issued to other investors in the Equity Financing (the “Equity Financing Securities”) at a conversion price equal to 85 The embedded redemption put feature upon an Equity Financing is not clearly and closely related to the debt host instrument, was separated from the debt host and initially measured at fair value. Subsequent changes in fair value of the feature are recognized in the Consolidated Statement of Operations. The fair value (see Note 8-Fair Value Measurements Discounts to the principal amounts were included in the carrying value of the Old Alco Note and amortized to interest expense over the remaining term of the underlying debt. During 2022, the Company recorded a $ 151,000 124,621 100,274 24,347 20 On July 19, 2022, the Company and Alco entered into an exchange agreement whereby Alco and the Company agreed to the cancellation of the Old Alco Note in exchange for the issuance of a new subordinated convertible promissory note in the principal amount of $ 2,101,744 Debt 56,653 Between July and September 2022, the Company issued additional subordinated convertible notes (together with the New Alco Note, the “2022 Related Party Convertible Notes”) for an aggregate amount of $ 4,200,538 2,583,000 5 The Related Party Convertible Notes bear interest at a rate of 8 80 50,000,000 The embedded redemption put feature upon an Equity Financing and the optional redemption upon a Liquidity Event at a substantial premium are not clearly and closely related to the debt host instrument, were separated and bundled together, assigned probabilities of being affected and initially measured at fair value. Subsequent changes in fair value of the feature will be recognized in the Consolidated Statement of Operations. The fair value of the bifurcated derivative liability was estimated utilizing the with and without method which uses the probability weighted difference between the scenarios with the derivative and the plain vanilla maturity scenario without a derivative (see Note 8-Fair Value Measurements Discounts to the principal amounts are included in the carrying value of the Related Party Convertible Notes and amortized to interest expense over the contractual term of the underlying debt. During 2022, the Company recorded a $ 1,311,025 1,292,777 18,248 1,126,451 2,307,013 464,071 1,842,942 March 2023 Amendment In March 2023, the 2022 Related Party Convertible Notes were amended to extend the maturity to December 31, 2023. The Company evaluated the terms of the First Amendment in accordance with ASC 470-60, Troubled Debt Restructurings, and ASC 470-50, Debt Modifications and Extinguishments. The Company determined that the Company was granted a concession by the lender based on the decrease of the effective borrowing rate on the First Amendment. Accordingly, the Company accounted for the First Amendment as a troubled debt restructuring. As a result, the Company accounted for the troubled debt restructuring by calculating a new effective interest rate for the First Amendment based on the carrying amount of the debt and the present value of the revised future cash flow payment stream. The troubled debt restructuring did not result in recognition of a gain or loss in the consolidated statement of operations but does impact interest expense recognized in the future. Conversion of Related Party Convertible Notes On December 14, 2023, all outstanding principal and accrued interest, net of the remaining debt discount, related to the Related Party Convertible Notes, totaling $ 7,271,368 22,929 Convertible Notes-Third Party Between July and September 2022, the Company issued additional subordinated convertible notes (the “2022 Third Party Convertible Notes”) for an aggregate amount of $ 1,761,206 1,435,000 The Third Party Convertible Notes bear interest at a rate of 8 80 50,000,000 The embedded redemption put feature upon an Equity Financing and the optional redemption upon a Liquidity Event at a substantial premium are not clearly and closely related to the debt host instrument, were separated and bundled together, assigned probabilities of being affected and initially measured at fair value. Subsequent changes in fair value of the feature will be recognized in the Consolidated Statement of Operations. The fair value of the bifurcated derivative liability was estimated utilizing the with and without method which uses the probability weighted difference between the scenarios with the derivative and the plain vanilla maturity scenario without a derivative (see Note 8-Fair Value Measurements Discounts to the principal amounts are included in the carrying value of the Third Party Convertible Notes and amortized to interest expense over the contractual term of the underlying debt. During 2022, the Company recorded a $ 548,871 541,223 7,648 559,390 1,063,093 188,059 875,034 March 2023 Amendment In March 2023, the 2022 Related Party Convertible Notes were amended to extend the maturity to December 31, 2023. The Company evaluated the terms of the First Amendment in accordance with ASC 470-60, Troubled Debt Restructurings, and ASC 470-50, Debt Modifications and Extinguishments. The Company determined that the Company was granted a concession by the lender based on the decrease of the effective borrowing rate on the First Amendment. Accordingly, the Company accounted for the First Amendment as a troubled debt restructuring. As a result, the Company accounted for the troubled debt restructuring by calculating a new effective interest rate for the First Amendment based on the carrying amount of the debt and the present value of the revised future cash flow payment stream. The troubled debt restructuring did not result in recognition of a gain or loss in the consolidated statement of operations but does impact interest expense recognized in the future. Conversion of Third Party Convertible Notes On December 14, 2023, all outstanding principal and accrued interest, net of the remaining debt discount, related to the Third Party Convertible Notes, totaling $ 3,346,232 10,597 The following table presents the Related Party and Third Party Convertible Notes, respectively, as of December 31, 2023: Schedule of Related Party and Third Related Party Convertible Notes Related Party Third Party Face value of the convertible notes $ 6,783,538 $ 3,196,206 Debt discount, net (131,867 ) (83,688 ) Carrying value of the convertible notes 6,651,671 3,112,518 Accrued interest 619,697 233,714 Conversion of convertible notes (7,271,368 ) (3,346,232 ) Total convertible notes and accrued interest $ - $ - The following table presents the Related Party and Third Party Convertible Notes, respectively, as of December 31, 2022: Related Party Third Party Face value of the convertible notes $ 4,200,538 $ 1,761,206 Debt discount, net (849,656 ) (398,034 ) Carrying value of the convertible notes 3,350,882 1,363,172 Accrued interest 155,626 45,654 Total convertible notes and accrued interest $ 3,506,508 $ 1,408,826 Promissory Notes Promissory Notes-Related Party On August 30, 2023, the Company issued a subordinate promissory note (“Alco August Promissory Note”) in the aggregate principal amount of $ 150,000 10 8 April 29, 2024 3,711 4,494 4,044 450 150,000 4,044 On September 13, 2023, the Company issued a subordinate promissory note (“Alco September Promissory Note”) in the aggregate principal amount of up to $ 1,500,000 8 January 10, 2024 8,588 638,808 478,815 30,575 448,240 1,500,000 30,575 In connection with the issuance of the Alco September Promissory Note, the Company, 7GC and the Sponsor entered into a share transfer agreement (the “Alco October Share Transfer Agreement”) with Alco Investment Company, pursuant to which for each $ 500.00 3,000 180 On November 16, 2023, the Company issued a subordinate promissory note (“Alco November Promissory Note”) in the aggregate principal amount of up to $ 750,000 8 April 13, 2024 363,905 94,005 7,397 86,608 750,000 7,397 In connection with the issuance of the Alco November Promissory Note, the Company, 7GC and the Sponsor entered into a share transfer agreement (the “November 2023 Share Transfer Agreement”) with Alco Investment Company, pursuant to which for each $ 500.00 1,500 180 On December 13, 2023, the Company issued a subordinate promissory note (“Alco December Promissory Note”) in the aggregate principal amount of up to $ 2,000,000 8 December 31, 2024 1,496,252 39,087 7,890 31,197 2,000,000 7,890 In connection with the issuance of the Alco December Promissory Note, the Company, 7GC and the Sponsor entered into a share transfer agreement (the “December 2023 Share Transfer Agreement”, together with the November 2023 Share Transfer Agreement and Alco October Share Transfer Agreement, the “Alco Share Transfer Agreements”) with Alco Investment Company, pursuant to which for each $ 500.00 12,000 180 For the Alco Share Transfer Agreements, the Company considered the guidance under ASC 815, Derivatives and Hedging, and determined that the Investor Shares underlying each of the Share Transfer Agreements described above, met the definition of a freestanding financial instrument and are not precluded from being considered indexed to the Company’s common stock. The Company determined that these shares represent a freestanding equity contract issued to the lender, resulting in a discount recorded on the notes when they are issued. Equity-classified contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized if the contracts continue to be classified in equity. The measurement of fair value was determined utilizing various put option models in estimating the discount lack of marketability (the “DLOM”) applied to the public share price as the shares underlying each of the Share Transfer Agreements are subject to a lock-up period pursuant to each agreement, to estimate the fair value of the shares transferred. Option pricing models assume that the cost to purchase a stock option relates directly to the measurement of the DLOM. The logic behind these models is that investors may be able to quantify this price risk, due to lack of marketability, over a particular holding period where price volatility is usually estimated as a proxy for risk. The inputs and assumptions utilized in the fair value estimation included the Company’s stock price on the measurement date, a DLOM as described above, the number of shares pursuant to each Share Transfer Agreement, and a probability weighted factor for the Company’s expected percentage of completing its Business Combination, at each Share Transfer Agreement date. For the Alco September Promissory Note, of which $ 1,000,000 0.77 1,000,000 180 54.0 5.3 10.7 16.0 12.5 80 For the remaining $ 500,000 0.72 500,000 180 52.0 5.4 10.0 15.0 11.5 80 For the Alco November Promissory Note, the DLOM was estimated using the put option models described above and the following assumptions: a holding period for the shares of 208 days (approximately 0.60 180 54.0 5.2 9.5 15.0 11.5 100 For the Alco December Promissory Note, the DLOM was estimated using the put option models described above and the following assumptions: a holding period for the shares of 180 days (approximately 0.49 180 47.0 5.2 7.5 12.0 9.0 100 Modification of Alco September Promissory Note In December 2023, the September 2023 Alco Promissory Note was amended to extend the maturity date to September 30, 2024 10 Promissory Notes-7GC The Company assumed two 2,300,000 250,000 0.0001 10.00 2,550,000 2,550,000 9,909 2,540,091 Note 6-Related Party Transactions Note 21-Subsequent Events Modification of Promissory Notes-7GC On December 12, 2023, in connection with the Merger, the Sponsor came to a non-binding agreement (“First Amendment”) with the Company to amend the optional conversion provision of the 7GC Promissory Notes. The First Amendment provided that the holder has the right to elect to convert up to the full amount of the principal balance of the 7GC Promissory Notes, in whole or in part, 30 30 9,909 Convertible Promissory Notes (Yorkville) On December 14, 2023, in connection with and pursuant to the terms of its Standby Equity Purchase Agreement (“SEPA”) with YA II PN, LTD, a Cayman Islands exempt limited partnership managed by Yorkville Advisors Global, LP (“Yorkville”), (refer to Note 18-Equity 3,500,000 2,000,000 1,500,000 7,000,000 7,000,000 The Company received net proceeds of $ 1,800,000 .2 The Yorkville Convertible Note has a maturity date of June 14, 2024 0 18 Additionally, Yorkville has the right to convert any portion of the outstanding principal into shares of Class A common stock at any time. The number of shares issuable upon conversion is equal to the amount of principal to be converted (as specified by Yorkville) divided by the Conversion Price (as defined in the Standby Equity Purchase Agreement disclosure below). Yorkville will not have the right to convert any portion of the principal to the extent that after giving effect to such conversion, Yorkville would beneficially own in excess of 9.99 Additionally, the Company, at its option, shall have the right, but not the obligation, to redeem early a portion or all amounts outstanding under the Promissory Notes at a redemption amount equal to the outstanding principal balance being repaid or redeemed, plus a 10 Upon the occurrence of certain triggering events, as defined in the Yorkville Convertible Note agreement (each an “Amortization Event”), the Company may be required to make monthly repayments of amounts outstanding under the Yorkville Convertible Note, with each monthly repayment to be in an amount equal to the sum of (x) $ 1,000,000 10 Note 21-Subsequent Events As of December 31, 2023, the principal amount outstanding under the Yorkville Convertible Note is $ 2 0 The Yorkville Convertible Note is required to be measured at fair value pursuant to ASC 480 Distinguishing Liabilities from Equity 1,800,000 1,766,000 10.96 43 0.5 14.9 5.30 10.0 During the year ended December 31, 2023, the Company recorded a gain of $ 34,000 1.88 71 0.46 14 5.28 10.0 Term and Convertible Notes (CP BF) On February 19, 2021, the Company entered into a loan agreement with CP BF Lending, LLC (“CP BF”) for $ 8,000,000 6,500,000 1,500,000 7,000,000 81.25 18.75 14 monthly 15.5 20 no Additionally, the Company may voluntarily prepay the Principal of the Loans, in accordance with their terms, in whole or in part at any time. On the date of any such prepayment, the Company will owe to Lender: (i) all accrued and unpaid Cash Interest with respect to the principal amount so prepaid through the date the prepayment is made; (ii) if such prepayment is prior to the twelve-month anniversary of the Closing Date, all unpaid interest (including for the avoidance of doubt, PIK Interest and Cash Interest) with respect to the principal amount so prepaid that would have been due and payable on or prior to the twelve-month anniversary of the Closing Date had the Loans remained outstanding until such twelve-month anniversary date (the “Yield Maintenance Premium”); (iii) the Exit Fee with respect to the principal amount so prepaid, calculated as 1.0 The Loan Agreement contains customary covenants, including restrictions on the Company’s ability to incur indebtedness, grant liens or security interest on assets, make acquisitions, loans, advances or investments, or sell or otherwise transfer assets, among others. The Loan Agreement also contains other financial covenants related to minimum gross profit margin, minimum ARR (Annual Recurring Revenue) growth rate, and fixed charge ratio, among other financial covenants per the terms of the Loan Agreement. For all respective periods presented, the Company was not in compliance with the Minimum Gross Profit Margin covenant in section 7.14.1 of the Loan Agreement, the Minimum ARR Growth covenant in section 7.14.2 of the Loan Agreement, and the Fixed Charge Coverage Ratio covenant in section 7.14.3 of the Loan Agreement. As a result of the Company’s noncompliance with the financial covenants, the entire principal amount and all unpaid and accrued interest will be classified as current on the Company’s consolidated balance sheets. Upon the occurrence of an Event of Default, and at any time thereafter unless and until such Event of Default has been waived by CP BF or cured to the satisfaction of Lender, subject to the exercise of customary commercial underwriting standards in determining such satisfaction, Lender may, without notice or demand to the Credit Parties declare the unpaid principal of and any accrued interest shall be immediately due and payable. While the Company and the Lender are engaged in good faith discussions to resolve these matters, no agreement to resolve such matters has been reached and all of the Loans remain in default for the reasons stated above, and the Lender is not presently exercising remedies, which the Lender reserves the right to so do at any time. On February 19, 2021, the Company capitalized $ 310,589 71,674 The embedded redemption put feature upon a Prepayment and Default Interest triggering events that are unrelated to the creditworthiness of the Company are not clearly and closely related to the debt host instrument, were separated and bundled together, as a derivative and assigned probabilities of being affected and initially measured at fair value in the amount of $ 3,000 Note 8-Fair Value Measurements On October 10, 2022 the Loan Agreement was amended, where CP BF waived payment by the Company of four months of cash interest with respect to the Term Note in replacement for a Convertible Note (“First Amendment Convertible Note”) in the principal amount of $ 321,345 Discounts to the principal amounts, relating to the debt issuance costs and embedded features, are included in the carrying value of the Convertible Notes and amortized to interest expense over the remaining term of the underlying debt. During 2022, the Company recorded a $ 2,000 1,140,106 1,058,230 81,876 16 422,507 395,575 26,932 16 1,110,296 1,042,291 68,006 319,743 303,121 16,622 The Company utilizes a combination of scenario-based methods and Black-Scholes option pricing models to determine the average share count outstanding at conversion and the simulated price per share for the Company as of the valuation date. Key inputs into these models included the timing and probability of the identified scenarios, and for Black-Scholes option pricing models used for notes that included a valuation cap, equity values, risk-free rate and volatility. Modification of Term and Convertible Notes (CP BF) On August 24, 2023, the Company entered into a forbearance agreement (the “Forbearance Agreement”) with CP BF Lending. Under the terms of this Forbearance Agreement, and as a result of the Company’s non-compliance with certain covenants of its Loan Agreement with CP BF, CP BF agreed to (i) amend certain provisions of the Loan Agreement to clarify the treatment of the Merger with 7GC under the Loan Agreement, (ii) consent to the consummation of the Merger Agreement with 7GC and (iii) forbear from exercising any of its rights and remedies under the Loan Agreement with the Company from the effective date of the Forbearance Agreement until the earlier of (a) the four-month anniversary of the closing of the Merger if the Merger is closed on or prior to December 29, 2023, (b) December 29, 2023 if the Merger is not consummated on or prior to December 29, 2023 or (c) the date on which any Termination Event (as defined within the Forbearance Agreement) shall have occurred. In connection with the Forbearance Agreement, CP BF and the Company also agreed to amend and restate CP BF’s existing convertible promissory notes (the “A&R CP BF Notes”) so that they may remain outstanding following the closing of the Merger and, at CP BF’s option, be convertible into Class A shares of the combined company. On December 14, 2023, the Company entered into the First Amendment to the Forbearance Agreement with the Lender. In particular, the Company agreed to pay the Lender an amount in cash equal to $ 23,748 The following table presents the CP BF convertible notes as of December 31, 2023: Summary of Convertible Notes Face value of the CB BF convertible notes $ 1,821,345 Debt discount, net (41,983 ) Carrying value of the CB BF convertible notes 1,779,362 Accrued interest 914,479 Total CB BF convertible notes and accrued interest $ 2,693,841 The following table presents the CP BF convertible notes as of December 31, 2022: Face value of the CB BF convertible notes $ 1,821,345 Debt discount, net (63,715 ) Carrying value of the CB BF convertible notes 1,757,630 Accrued interest 518,904 Total CB BF convertible notes and accrued interest $ 2,276,534 The following table presents the CP BF term note as of December 31, 2023: Summary of Term Notes Face value of the CB BF term note $ 6,500,000 Debt discount, net (129,586 ) Carrying value of the CB BF term note 6,370,414 Accrued interest 289,373 Total CB BF term note and accrued interest $ 6,659,787 The following table presents the CP BF term note as of December 31, 2022: Face value of the CB BF term note $ 6,500,000 Debt discount, net (192,911 ) Carrying value of the CB BF term note 6,307,089 Accrued interest 186,962 Total CB BF term note and accrued interest $ 6,494,051 |