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 $ 10.00 10.00 150,000 75,000 600,000 180 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 2,540,091 890,611 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 2,000,000 As of June 30, 2024, the Company has issued an aggregate of 1,045,118 600,000 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 $ 750,000 600,000 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 0.294 During the three and six months ended June 30, 2024, $ 300,000 800,000 1,008,808 1,797,019 1,000,000 1,445,524 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 |