UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Schedule
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment
No. )
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by the Registrant |
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by a party other than the Registrant |
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Check
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Preliminary
Proxy Statement |
| ☐ |
Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| ☒ |
Definitive
Proxy Statement |
| ☐ |
Definitive
Additional Materials |
| ☐ |
Soliciting
Material under §240.14a-12 |
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of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check all boxes that apply):
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fee required. |
| ☐ |
Fee
paid previously with preliminary materials. |
| ☐ |
Fee
computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. |
Banzai
International, Inc.
435 Ericksen Ave. Suite 250, Bainbridge Island, Washington 98110
NOTICE
OF SPECIAL MEETING OF SHAREHOLDERS
To
the Shareholders of Banzai International, Inc.:
You
are cordially invited to attend a special shareholder meeting of Banzai International, Inc. (the “Company”
or “BANZAI”) to be held on August 29, 2024 at 8:00 a.m. PDT, as a virtual electronic meeting using a video
webinar (the “Meeting”). The Meeting will be held virtually via the Internet only with no physical in-person
meeting excluding the Board of Directors. Technology will be incorporated into the Meeting to increase efficiency and provide for shareholder
participation. In addition to on-line attendance, shareholders can hear all portions of the Meeting, submit written questions during
the Meeting and listen to live responses to shareholder questions.
To
attend the virtual Meeting, go to the link below:
Special
Shareholder Meeting - Demio
After
you register with your name and email address, so that we can log attendees, you will be taken into the waiting room until the meeting
begins. If you are unable to access the meeting or have any issues with the link above, please contact support@demio.com for assistance.
This
proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board”)
of Banzai International, Inc. (the “Company”) for use at the special meeting of Shareholders of the Company
(the “Meeting” ) and at all adjournments and postponements thereof. The Meeting will be held on August 29,
2024, at 8:00 a.m. PDT, to consider and vote upon the proposals noted below.
| |
● |
To
approve an amendment to the Company’s Second Amended and Restated Certificate of Incorporation (as amended, the “COI”),
in substantially the form attached to the accompanying proxy statement as Annex B, to effect a reverse stock split with respect
to the Company’s issued and outstanding Class A common stock, par value $0.0001 per share (“Class A Stock”)
at a ratio of up to 1-for-50, with the final ratio and exact timing to be determined at the discretion of the Board of Directors
and included in a public announcement, subject to the authority of the Board of Directors to abandon such amendment (the “Reverse
Split Proposal”). |
Shareholders
will also be asked to approve a proposal to adjourn the special meeting to a later date if necessary to solicit additional proxies if
there are not sufficient votes at the time of the special meeting, or any adjournment or postponement thereof, to approve the foregoing
matters.
THE
BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE PROPOSALS.
Holders
of record of the Class A Stock and Class B Common Stock, $0.0001 par value per share (the “Class B Stock,”
together with the Class A Common Stock, the “Common Stock”) at the close of business on July 19, 2024 (the
“Record Date”) will be entitled to notice of, and to vote at, this Meeting and any adjournment or postponement
thereof. Each share of Class A Stock entitles the holder thereof to one vote and each share of Class B Stock entitles the holder
thereof to ten votes.
Your
vote is important, regardless of the number of shares you own. Due to the virtual nature of the Meeting, you are urged to vote in favor
of each of the proposals by so indicating on the enclosed Proxy and by signing and returning the enclosed Proxy as promptly as possible,
before 11:59 p.m. EST on August 28, 2024, whether or not you plan to attend the Meeting virtually. The enclosed Proxy is solicited
by the Company’s Board of Directors. Any shareholder giving a Proxy may revoke it prior to the time it is voted by notifying
the Secretary, in writing, to that effect, by filing with him/her a later dated Proxy. You will not be able to vote at the Meeting; therefore,
it is strongly recommended that you complete the enclosed proxy card before 11:59 p.m. EST on August 28, 2024, to ensure that your shares
will be represented at this Meeting.
A
complete list of Shareholders of record entitled to vote at this Meeting will be available for ten days before this Meeting at the principal
executive office of the Company for inspection by Shareholders during ordinary business hours for any purpose germane to this Meeting.
Whether
or not you plan to attend the special meeting, we urge you to read this notice carefully and to vote your shares. Your vote is very important.
If you are a registered shareholder, please vote your shares as soon as possible by completing, signing, dating and returning the
enclosed proxy card in the postage-paid envelope provided. If you hold your shares in “street name” through a bank, broker
or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your
shares are represented and voted at the special meeting. If you sign, date and return your proxy card without indicating how you wish
to vote, your proxy will be voted FOR each of the proposals to be considered at the special meeting.
I
want to thank all of our shareholders as we look forward to what we believe will be an exciting future for our business.
We
strongly encourage you to vote by proxy as described in the Proxy Statement so that your vote can be counted.
This
notice and the enclosed proxy statement are first being mailed to Shareholders on or about August 7, 2024.
You
are urged to review carefully the information contained in the enclosed proxy statement prior to deciding how to vote your shares.
| By
Order of the Board, |
|
| |
|
| /s/
Joseph Davy |
|
| Joseph
Davy |
|
| Chief
Executive Officer |
|
| August
7, 2024 |
|
IF
YOU RETURN YOUR PROXY CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED “FOR” EACH OF THE PROPOSALS.
Important
Notice Regarding the Availability of Proxy Materials
for
the Special Shareholder Meeting to Be Held at 8:00 a.m. PDT, on
August
29, 2024
The
Notice of Special meeting, proxy statement, Annual Report on Form 10-K for year ended December 31, 2023 (the “2023 Annual Report”)
and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 are available at www.proxyvote.com.
TABLE
OF CONTENTS
Banzai
International, Inc.
PROXY
STATEMENT
2024
SPECIAL MEETING OF SHAREHOLDERS
to
be held on August 29, 2024, at 8:00 a.m. PDT
QUESTIONS
AND ANSWERS ABOUT THESE PROXY MATERIALS
Why
am I receiving this proxy statement?
This
notice provides some details about the proposals on which our Board would like you, as a stockholder, to vote at the Meeting, which will
take on August 29, 2024 at 8:00 a.m. PDT
The
Company has decided to hold the Meeting as a virtual electronic meeting using video webinar. The Meeting will be held virtually via the
Internet only with no physical in-person meeting except the Board of Directors. In addition to on-line attendance, shareholders
can hear all portions of the Meeting, submit written questions during the Meeting and listen to live responses to shareholder questions.
To
attend the virtual Meeting, go to the link below:
Special
Shareholder Meeting - Demio
After
you register with your name and email address, so that we can log attendees, you will be taken into the waiting room until the meeting
begins.
We
recommend you log in at least 15 minutes before the Meeting to ensure you are logged in when the meeting starts.
What
are shareholders being asked to vote on?
Shareholders
are being asked to vote on the following proposals:
| |
● |
to
approve an amendment to the Company’s Second Amended and Restated Certificate of Incorporation, in substantially the form attached
to the accompanying proxy statement as Annex B, to effect a reverse stock split with respect to the Company’s issued
and outstanding Class A Stock, at a ratio of up to1-for-50, with the final ratio and exact timing
to be determined at the discretion of the Board of Directors and included in a public announcement, subject to the authority of the
Board of Directors to abandon such amendment (the “Reverse Split Proposal”); and |
| |
|
|
| |
● |
to
approve the adjournment of the special meeting if necessary to solicit additional proxies if there are not sufficient votes to approve
the reverse split proposal or any adjournment or postponement thereof (we refer to this proposal as the adjournment proposal). |
This
proxy statement also gives you information on the proposals so that you can make an informed decision. You should read it carefully.
Your vote is important. You are encouraged to submit your proxy card as soon as possible after carefully reviewing this proxy statement.
In
this proxy statement, we refer to Banzai International, Inc. as the “Company”, “we”, “us” or “our.”
Who
can vote at this Meeting?
Shareholders
who owned shares of our Common Stock on July 19, 2024 (the “Record Date”) may attend and vote at this Meeting.
There were 35,222,036 and 2,311,134 shares of Class A Stock and Class B Stock outstanding, respectively on the Record Date.
Except
as noted below, the holders of the Common
Stock (i) vote together as a single class on all matters (including the election of directors) submitted to a vote, (ii) are entitled
to notice of any stockholders’ meeting in accordance with the Company’s Bylaws, and (iii) are entitled to vote upon such
matters and in such manner as may be provided by applicable law. Each holder of Class A Stock has the right to one (1) vote per
share of Class A Stock held of record by such holder and each holder of Class B Stock has the right to ten (10) votes per share
of Class B Stock held of record by such holder, in each case, on each matter properly submitted to the stockholders of the Corporation
on which the holders of the Common Stock are entitled to vote. Therefore, as of the Record Date there are 58,333,376 votes eligible
to vote (35,222,036 Class A votes and 23,111,340 Class B votes).
Pursuant
to the COI, shares of the Class A Stock and shares of Class B Stock may not be subdivided, combined or reclassified in a different
or disproportionate manner unless such subdivision, combination or reclassification is approved in advance by the holders of a majority
of the outstanding shares of Class A Stock and the holders of a majority of the outstanding shares of Class B Stock, each voting
separately as a class.
What
is the proxy card?
The
card enables you to appoint Joseph Davy as your representative at this Meeting. By completing and returning the proxy card, you are authorizing
these persons to vote your shares at this Meeting in accordance with your instructions on the proxy card. This way, your shares will
be voted whether or not you attend this Meeting. Even if you plan to attend this Meeting, it is strongly recommended to complete and
return your proxy card before 11:59 p.m. EST on August 28, 2024 in case your plans change. If a proposal comes up for vote at this Meeting
that is not on the proxy card, the proxies will vote your shares, under your proxy, according to their best judgment.
How
does the Board recommend that I vote?
Our
Board unanimously recommends that stockholders vote “FOR” each of the proposals.
What
is the difference between holding shares as a shareholder of record and as a beneficial owner?
Certain
of our Shareholders hold their shares in an account at a brokerage firm, bank or other nominee holder, rather than holding shares in
their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.
Shareholder
of Record/Registered Shareholders
If,
on the Record Date, your shares were registered directly in your name with our transfer agent, Continental Stock Transfer & Trust
Company, you are a “Shareholder of record” and we are sending these proxy materials directly to you. As the Shareholder of
record, you have the right to direct the voting of your shares by returning the enclosed proxy card to us. Whether or not you plan to
attend the Meeting, please complete, date and sign the enclosed proxy card to ensure that your vote is counted.
Beneficial
Owner
If,
on the Record Date, your shares were held in an account at a brokerage firm or at a bank or other nominee holder, you are considered
the beneficial owner of shares held “in street name,” and these proxy materials are being forwarded to you by your broker
or nominee who is considered the Shareholder of record for purposes of voting at the Meeting. As the beneficial owner, you have the right
to direct your broker on how to vote your shares and to attend the Meeting. However, since you are not the Shareholder of record, you
may not vote these shares in person unless you receive a valid proxy from your brokerage firm, bank or other nominee holder. To obtain
a valid proxy, you must make a special request of your brokerage firm, bank or other nominee holder. If you do not make this request,
you can still vote by using the voting instruction card enclosed with this proxy statement.
How
do I vote?
If
you were a stockholder of record of the common stock on the Record Date, you may vote in any of the methods described below. Each share
of Class A Stock entitles the holder thereof to 1 vote on all the proposals; each share of Class B Stock entitles the holder
thereof to 10 votes on all the proposals.
You
may vote in one of three ways:
If
your shares are registered in your name: Vote your shares over the Internet by accessing the proxy online voting website at: www.proxyvote.com
and following the on-screen instructions. You will need the control numbers that appear on your proxy card when you access the web
page.
If
your shares are held in the name of a broker, bank or other nominee: Vote your shares over the Internet by following the voting instructions
that you receive from such broker, bank or other nominee.
If
your shares are registered in your name: Vote your shares over the telephone by accessing the telephone voting system toll-free at
1-800-690-6903 in the United States and from foreign countries using any touch-tone telephone and following the telephone voting instructions.
The telephone instructions will lead you through the voting process. You will need the Company number, account and control numbers that
appear on your proxy card.
Vote
by signing and dating the proxy card(s) and returning the card(s) in the prepaid envelope.
If
we receive your proxy card prior to this Meeting and if you mark your voting instructions on the proxy card, your shares will be voted:
| i. | as
you instruct; and |
| | | |
| ii. | according
to the best judgment of the appointed Proxy if a proposal comes up for a vote at this Meeting
that is not on the proxy card. |
If
you return a signed card, but do not provide voting instructions, your shares will be voted:
| ● | FOR
the reverse split proposal; and |
| | | |
| ● | FOR
the adjournment proposal. |
According
to the best judgment of Mr. Davy if a proposal comes up for a vote at the Meeting that is not on the proxy card.
If
I plan on attending the Meeting, should I return my proxy card?
Yes.
Whether or not you plan to attend the Meeting, after carefully reading and considering the information contained in this proxy statement,
please complete and sign your proxy card. Then return the proxy card in the pre-addressed, postage-paid envelope provided herewith as
soon as possible, but prior to 11:59 p.m. EST on August 28, 2024, so your shares may be represented at the Meeting. There will
not be any voting at the Meeting.
May
I change my mind after I return my proxy?
Yes.
You may revoke your proxy and change your vote at any time before the polls close at this Meeting. You may do this by:
| ● | sending
a written notice to the Secretary of the Company at the Company’s executive offices
stating that you would like to revoke your proxy of a particular date; or |
| ● | signing
another proxy card with a later date and returning it to the Secretary before the polls close
at this Meeting. |
What
does it mean if I receive more than one proxy card?
You
may have multiple accounts at the transfer agent and/or with brokerage firms. Please sign and return all proxy cards to ensure that all
of your shares are voted.
What
happens if I do not indicate how to vote my proxy?
Signed
and dated proxies received by the Company without an indication of how the Shareholder desires to vote on a proposal will be voted in
favor of each proposal presented to the Shareholders.
Will
my shares be voted if I do not sign and return my proxy card?
If
you do not sign and return your proxy card, your shares will not be voted.
What
shareholder vote is required for the approval of each proposal at the special meeting?
The
following are the vote requirements necessary for the approval of the proposals at the special meeting:
| ● | Reverse
Stock proposal: Assuming that a quorum is present, the affirmative vote by the holders
of a majority of the outstanding shares of Class A Stock and the holders of a majority
of the outstanding shares of Class B Stock, each voting separately as a class. |
| | | |
| ● | Adjournment
proposal: The affirmative vote of a majority of the voting
power of shares present in person, by remote communication, if applicable, or represented
by proxy at the meeting, though less than a quorum is required. |
Is
my vote kept confidential?
Proxies,
ballots and voting tabulations identifying Shareholders are kept confidential and will not be disclosed, except as may be necessary to
meet legal requirements.
Where
do I find the voting results of this Meeting?
We
will announce voting results at this Meeting and also file a Current Report on Form 8-K with the Securities and Exchange Commission (the
“SEC”) reporting the voting results.
Who
can help answer my questions?
You
can contact Joseph Davy by sending a letter to the offices of the Company at 435 Ericksen Ave NE, Suite 250, Bainbridge Island, WA 98110
with any questions about proposals described in this proxy statement or how to execute your vote.
What
do I need to do now?
Carefully
read and consider the information contained in and incorporated by reference into this proxy statement, including its annexes. Then,
please vote your shares, which you may do by:
| ● | completing,
dating, signing and returning the enclosed proxy card; or |
| | | |
| ● | submitting
your proxy via the Internet or by telephone by following the instructions included on your
proxy card. |
If
you hold shares in “street name” through a broker, bank or other nominee holder of record, please instruct your broker, bank
or other nominee holder of record to vote your shares by following the instructions that the broker, bank or other nominee holder of
record provides to you with these materials.
Where
Can I Get A Copy Of The Proxy Materials?
Copies
of our 2023 Annual Report, including consolidated financial statements as of and for the year ended December 31, 2023, the Quarterly
Report on Form 10-Q for the quarter ended March 31, 2024, the proxy card, the Notice and this Proxy Statement are available on our Company’s
website at https://ir.banzai.io/. The contents of that website are not a part of this Proxy Statement. If you want to receive
a paper or email copy of the Company’s 2023 Annual Report or March 2024 Quarterly Report, you must request one. There is no charge
to you for requesting a copy. Please make your request for a copy by contacting: ir@banzai.io.
THE
SPECIAL MEETING
General
We
are furnishing this proxy statement to you, as a shareholder of Banzai International, Inc., as part of the solicitation of proxies by
our Board for use at the Meeting to be held on August 29, 2024, and any adjournment or postponement thereof. This proxy statement is
first being furnished to Shareholders on or about August 7, 2024. This proxy statement provides you with information you need
to know to be able to vote.
Date,
Time and Place of the Meeting
The
Meeting will be held virtually on August 29, 2024, at 8:00 a.m. PDT, or such other date, time and place to which the Meeting may be adjourned
or postponed.
Purpose
of the Meeting
At
the Meeting, the Company will ask Shareholders to consider and vote upon the following proposals:
| ● | to
approve an amendment to the Company’s Second Amended and Restated Certificate of Incorporation,
in substantially the form attached to the accompanying proxy statement as Annex B,
to effect a reverse stock split with respect to the Company’s issued and outstanding
Class A Stock at a ratio of up to 1-for-50, with the final ratio
within such range and exact timing to be determined at the discretion of the Board of Directors
and included in a public announcement, subject to the authority of the Board of Directors
to abandon such amendment); and |
| | | |
| ● | to
approve the adjournment of the special meeting if necessary to solicit additional proxies
if there are not sufficient votes to approve the reverse split proposal or any adjournment
or postponement thereof (we refer to this proposal as the adjournment proposal). |
Record
Date and Voting Power
Our
Board fixed the close of business on July 19, 2024, as the record date for the determination of the outstanding shares of Common Stock
entitled to notice of, and to vote on, the matters presented at this Meeting. As of the Record Date, there were 35,222,036 shares
of Class A Stock and 2,311,134shares of Class B Stock outstanding. Each holder of Class A Stock has the right to one (1)
vote per share of Class A Stock held of record by such holder and each holder of Class B Stock has the right to ten (10) votes
per share of Class B Stock held of record by such holder. Accordingly, the Class A Stock and the Class B Stock has a total
of 35,222,036 and 23,111,340 votes, respectively that may be cast at the Meeting.
Quorum
and Required Vote
A
quorum of Shareholders is necessary to hold a valid meeting. The presence, in person, by remote
communication, if applicable, or by proxy duly authorized, of the holders of a majority of the voting
power of the then-outstanding shares of capital stock entitled to vote shall constitute a quorum for the transaction of business.
Abstentions and broker non-votes (i.e. shares held by brokers on behalf of their customers, which may not be voted on certain
matters because the brokers have not received specific voting instructions from their customers with respect to such matters) will be
counted solely for the purpose of determining whether a quorum is present at the Meeting.
Abstentions
and broker non-votes will have no direct effect on the outcome of the proposals.
Revocability
of Proxies
Any
proxy may be revoked by the shareholder of record giving it at any time before it is voted. A proxy may be revoked by (A) sending to
our Secretary at Banzai International, Inc., 435 Ericksen Ave NE, Suite 250, Bainbridge Island, WA 98110, either (i) a written notice
of revocation bearing a date later than the date of such proxy or (ii) a subsequent proxy relating to the same shares.
If
the shares are held by the broker or bank as a nominee or agent, the beneficial owners should follow the instructions provided by their
broker or bank.
Proxy
Solicitation Costs
The
cost of preparing, assembling, printing and mailing this proxy statement and the accompanying form of proxy, and the cost of soliciting
proxies relating to this Meeting, will be borne by the Company. If any additional solicitation of the holders of our outstanding shares
of Common Stock is deemed necessary, we (through our directors and officers) anticipate making such solicitation directly. The
solicitation of proxies by mail may be supplemented by telephone, telegram and personal solicitation by officers, directors and other
employees of the Company, but no additional compensation will be paid to such individuals.
No
Right of Appraisal
Under
Delaware law, the Company’s stockholders are not entitled to appraisal rights in connection with any of the proposals to be acted
upon at the Meeting.
Who
Can Answer Your Questions about Voting Your Shares
You
can contact Joseph Davy by sending a letter to the offices of the Company at 435 Ericksen Ave NE, Suite 250, Bainbridge Island, WA 98110,
with any questions about proposals described in this proxy statement or how to execute your vote.
Principal
Offices
The
principal executive offices of our Company are located at 435 Ericksen Ave NE, Suite 250, Bainbridge Island, WA 98110. The Company’s
telephone number at such address is 206-414-1777.
PROPOSAL
NO. 1 — REVERSE STOCK SPLIT
The
Board of Directors has adopted a resolution setting forth a proposed amendment to our Second Amended and Restated Certificate of Incorporation
to effect a reverse stock split of the issued and outstanding shares of Class A Stock, a copy of which is set forth in the certificate
of amendment annexed to this proxy statement as Annex B, declared such amendment advisable, and is recommending that our stockholders
approve, such proposed amendment. Such amendment will be effected after stockholder approval thereof only in the event the Board of Directors
still deems it advisable. Holders of our Common Stock are being asked to approve the proposal that Article IV of our Certificate of Incorporation
be amended to effect a reverse stock split of the Class A Stock at a ratio up to one (1) share of Class A Stock for every
fifty (50) shares of Class A Stock, at such time, within the twelve (12) months following the Meeting date, that the Board, in
its sole discretion, deems it to be in the Company and the shareholders best interest to do so. If the Reverse Stock Split is approved
by our stockholders and if a certificate of amendment is filed with the Secretary of State of the State of Delaware, the certificate
of amendment to our Certificate of Incorporation will effect the Reverse Stock Split by reducing the outstanding number of shares of
Class A Stock. If the Board of Directors does not implement an approved Reverse Stock Split prior to the one-year anniversary
of the Meeting, this vote will be of no further force and effect and the Board will again seek stockholder approval before implementing
any reverse stock split after that time. The Board of Directors may abandon the proposed amendment to effect the Reverse Stock Split
at any time prior to its effectiveness, whether before or after stockholder approval thereof.
As
of the Record Date, the Company had 35,222,036 and 2,311,134 shares of Class A Stock and Class B Stock outstanding, respectively.
For purposes of illustration, if the Reverse Stock Split is effected at a ratio of 1-for-50, the number of issued and outstanding
shares of Class A Stock after the Reverse Stock Split would be approximately 704,441. The Board of Directors’ decision as to whether and when to effect the Reverse Stock Split will be based on a number of factors,
including market conditions, existing and expected trading prices for the Class A Stock, and the continued listing requirements
of Nasdaq. See below for a discussion of the factors that the Board considered in determining the Reverse Stock Split Ratio range, some
of which included, but was not limited to, the following: the historical trading price and trading volume of the Class A Stock;
the expected impact of the Reverse Stock Split on the trading market for the Class A Stock in the short-term and long-term, and
general market, economic conditions, and other related conditions prevailing in our industry.
The
Reverse Stock Split, if effected, will not change the number of issued and outstanding shares of Class B Stock, the authorized
but unissued shares of Common Stock or the par value of Common Stock.
Our
board has requested that shareholders approve a range, as opposed to approval of a specified ratio, in order to give our board maximum
discretion and flexibility to determine the split ratio based, among other factors, upon prevailing market, business and economic conditions
at the time. No further action on the part of the shareholders will be required to either effect or abandon the reverse split.
Purpose
of the Reverse Stock Split
The
Board’s primary objective in asking for authority to effect a reverse split is to increase the per-share trading price of our Class
A Stock. If our Board does not implement the Reverse Stock Split prior to the one-year anniversary of the date on which the Reverse
Stock Split is approved by our stockholders at the Special Meeting, the authority granted in this proposal to implement the Reverse Stock
Split will terminate and the Reverse Stock Split will be abandoned.
As
background, on April 3, 2024, the Company received a letter from the staff at The Nasdaq Stock Market LLC (“Nasdaq”)
notifying the Company that, for the 30 consecutive business days prior to the date of the letter, the Class A Stock did not meet
the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1)
(the “Minimum Bid Price Requirement”). The letter is only a notification of deficiency, not of imminent delisting,
and has no current effect on the listing or trading of the Company’s securities on Nasdaq. In accordance with Nasdaq listing rule
5810(c)(3)(A), the Company has 180 calendar days, or until September 30, 2024 (the “Bid Price Compliance Period”),
to regain compliance. The letter notes that to regain compliance, the Class A Stock must maintain a minimum closing bid price
of $1.00 for at least ten consecutive business days at any time during the Bid Price Compliance Period. In the event the Company does
not regain compliance by the end of the Bid Price Compliance Period, the Company may be eligible for additional time to regain compliance.
To qualify for additional time, the Company must (i) submit a transfer application to transfer to the Nasdaq Capital Market, (ii) meet
the continued listing requirement for the market value of its publicly held shares and all other initial listing standards for the Nasdaq
Capital Market, with the exception of the bid price requirement and (iii) provide written notice of its intention to cure the deficiency
during the second compliance period by effecting a reverse stock split, if necessary. If the Company meets these requirements, the Company
may be granted an additional 180 calendar days to regain compliance. However, if it appears to Nasdaq that the Company will be unable
to cure the deficiency, or if the Company is not otherwise eligible for the additional cure period, Nasdaq will provide written notice
to the Company that its securities are subject to delisting. At that time, the Company may appeal any such delisting determination to
a hearings panel.
The
Company received a second letter from the staff at Nasdaq on April 3, 2024, notifying the Company that, for the 30 consecutive business
days prior to the date of the Letter, the Company’s Market Value of Publicly Held Shares (“MVPHS”) was below
the minimum of $15 million required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(b)(2)(C).
The letter is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of the
Company’s securities on Nasdaq. In accordance with Nasdaq listing rule 5810(c)(3)(D), the Company has 180 calendar days, or until
September 30, 2024 (the “MVPHS Compliance Period”), to regain compliance with the MVPHS deficiency.
Previously,
on February 5, 2024, the Company received a letter from the staff at Nasdaq notifying the Company that, for the 30 consecutive business
days prior to the date of the Letter, the Company’s Minimum Value of Listed Securities (“MVLS”) was below the
minimum of $50 million required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(b)(2)(A). The
staff at Nasdaq also noted in the Letter that the Company is not in compliance with Nasdaq Listing Rule 5450(b)(3)(A), which requires
listed companies to have total assets and total revenue of at least $50,000,000 each for the most recently completed fiscal year or for
two of the three most recently completed fiscal years. The Letter is only a notification of deficiency, not of imminent delisting, and
has no current effect on the listing or trading of the Company’s securities on Nasdaq. In accordance with Nasdaq listing rule 5810(c)(3)(C),
the Company has 180 calendar days, or until August 5, 2024, to regain compliance. The Letter notes that to regain compliance, the Company’s
MVLS must close at or above $50 million for a minimum of ten consecutive business days during the compliance period. The Letter further
notes that if the Company is unable to satisfy the MVLS requirement prior to such date, the Company may be eligible to transfer the listing
of its securities to The Nasdaq Capital Market (provided that the Company then satisfies the requirements for continued listing on that
market). If the Company does not regain compliance by August 5, 2024, Nasdaq staff will provide written notice to the Company that its
securities are subject to delisting. At that time, the Company may appeal any such delisting determination to a hearings panel.
The
Company has yet to resolve any of the deficiencies noted above. We are hereby asking our stockholders to approve a reverse split to,
among other things, give us the option to seek to regain compliance with the Minimum Bid Price Requirement.
The
Board of Directors believes that the failure of stockholders to approve the Reverse Stock Split Proposal could prevent us from maintaining
compliance with the Minimum Bid Price Requirement and could inhibit our ability to conduct capital raising activities, among other things.
If Nasdaq delists the Class A Stock, then the Class A Stock would likely become traded on an over-the-counter market such
as those maintained by OTC Markets Group Inc., which do not have the substantial corporate governance or quantitative listing requirements
for continued trading that Nasdaq has. In that event, interest in the Class A Stock may decline and certain institutions may not
have the ability to trade in the Class A Stock, all of which could have a material adverse effect on the liquidity or trading
volume of the Class A Stock. If the Class A Stock becomes significantly less liquid due to delisting from Nasdaq, our stockholders
may not have the ability to liquidate their investments in the Class A Stock as and when desired and we believe our ability to
maintain analyst coverage, attractive investor interest, and have access to capital may become significantly diminished as a result.
If
the stockholders approve the Reverse Stock Split Proposal and the Board determines to implement the Reverse Stock Split, we will file
a certificate of amendment to amend the existing provision of our Second Amended and Restated Certificate of Incorporation to effect
the Reverse Stock Split. The text of the form of proposed amendment is set forth in the certificate of amendment to the Certificate of
Incorporation, which is annexed to this proxy statement as Annex B.
The
Reverse Stock Split will be effected simultaneously for all issued and outstanding shares of Class A Stock and the Reverse Stock
Split Ratio will be the same for all issued and outstanding shares of Class A Stock. The Reverse Stock Split will affect all of
our Class A Stock stockholders uniformly and will not affect any stockholder’s percentage ownership interests in our company,
except those stockholders who would have otherwise received fractional shares will receive the number of shares rounded up to the nearest
whole number determined in the manner set forth below under the heading “Fractional Shares.” After the Reverse Stock Split,
each share of the Class A Stock will have the same voting rights and rights to dividends and distributions and will be identical
in all other respects to the Class A Stock now authorized. The Reverse Stock Split will not affect us continuing to be subject
to the periodic reporting requirements of the Exchange Act. The Reverse Stock Split is not intended to be, and will not have the effect
of, a “going private transaction” covered by Rule 13e-3 under the Exchange Act.
The
Reverse Stock Split may result in some stockholders owning “odd-lots” of less than 100 shares of the Class A Stock.
Brokerage commissions and other costs of transactions in odd-lots are generally higher than the costs of transactions in “round-lots”
of even multiples of 100 shares. In addition, we will not issue fractional shares in connection with the Reverse Stock Split, and stockholders
who would have otherwise been entitled to receive such fractional shares will receive the number of shares determined in the manner set
forth below under the heading “Fractional Shares.”
Following
the effectiveness of the Reverse Stock Split, if approved by the stockholders and implemented by the Company, current stockholders will
hold fewer shares of Class A Stock.
If
the Board decides to implement the Reverse Stock Split, the Company would communicate to the public, prior to the effective time of the
Reverse Stock Split, additional details regarding the Reverse Stock Split (including the final Reverse Stock Split Ratio, as determined
by the Board of Directors). By voting in favor of the Reverse Stock Split, you are also expressly authorizing the Board to determine
not to proceed with, and to defer or to abandon, the Reverse Stock Split, in the Board of Director’s sole discretion. In determining
whether to implement the Reverse Stock Split following receipt of stockholder approval of the Reverse Stock Split, and which Reverse
Stock Split Ratio to implement, if any, the Board may consider, among other things, various factors, such as:
| ● | our
ability to maintain our listing on the Nasdaq Global Market; |
| | | |
| ● | the
historical trading price and trading volume of the Class A Stock; |
| | | |
| ● | the
then-prevailing trading price and trading volume of the Class A Stock and the expected
impact of the Reverse Stock Split on the trading market for the Class A Stock in the
short and long term; |
| | | |
| ● | which
Reverse Stock Split Ratio would result in the greatest overall reduction in our administrative
costs; and |
| | | |
| ● | prevailing
general market and economic conditions. |
Reasons
for the Reverse Stock Split
To
increase the per share price of our Class A Stock. As discussed above, the primary objective for effecting the Reverse
Stock Split, should our Board choose to effect one, would be to increase the per share price of our Class A Stock and regain
compliance with the Nasdaq Minimum Bid Price Requirement. Our Board believes that, should the appropriate circumstances arise,
effecting the Reverse Stock Split, could, among other things, help us to appeal to a broader range of investors, generate greater
investor interest in the Company, and improve the perception of our Class A Stock as an investment security. Our Class A
Stock is listed on the Nasdaq Global Market and the failure to comply with the $1.00 minimum bid price requirement may be cured
by effecting the Reverse Stock Split.
To
potentially improve the liquidity of the Class A Stock. A Reverse Stock Split could allow a broader range of institutions
to invest in the Class A Stock (namely, funds that are prohibited from buying stocks whose price is below certain thresholds),
potentially increasing trading volume and liquidity of the Class A Stock and potentially decreasing the volatility of the Class
A Stock if institutions become long-term holders of the Class A Stock. A Reverse Stock Split could help increase analyst and
broker interest in the Class A Stock as their policies can discourage them from following or recommending companies with low stock
prices. Because of the trading volatility often associated with low-priced stocks, many brokerage houses and institutional investors
have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers
from recommending low-priced stocks to their customers. Some of those policies and practices may make the processing of trades in low-priced
stocks economically unattractive to brokers. Additionally, because brokers’ commissions on low-priced stocks generally represent
a higher percentage of the stock price than commissions on higher-priced stocks, a low average price per share of Class A Stock
can result in individual stockholders paying transaction costs representing a higher percentage of their total share value than would
be the case if the share price were higher. Some investors, however, may view a Reverse Stock Split negatively since it reduces the number
of shares of Class A Stock available in the public market. If the Reverse Stock Split Proposal is approved and the Board believes
that effecting the Reverse Stock Split is in our best interest and the best interest of our stockholders, the Board may effect the Reverse
Stock Split, regardless of whether our stock is at risk of delisting from Nasdaq Global Market, for purposes of enhancing the liquidity
of the Class A Stock and to facilitate capital raising.
Certain
Risks Associated with the Reverse Stock Split
The
reverse stock split may not increase the price of the Class A Stock.
Although
the Board expects that a reverse stock split will result in an increase in the price of our Class A Stock, the effect of a reverse
stock split cannot be predicted with certainty. Other factors, such as our financial results, market conditions and the market perception
of our business, may adversely affect the stock price. As a result, there can be no assurance that the reverse stock split, if completed,
will result in any of the intended benefits described above, that the stock price will increase as a result of or following the reverse
stock split (or will increase in the same proportion as the final reverse stock split ratio) or that the stock price will not decrease
in the future.
Moreover,
a decline in the market price of the Class A Stock after the reverse stock split may result in a greater percentage decline than
would occur in the absence of the reverse stock split. The market price of the Class A Stock is based on our performance and other
factors, which are unrelated to the number of shares of Class A Stock outstanding.
If
the reverse stock split is implemented, the resulting per-share price may not attract institutional investors, investment funds or brokers
and may not satisfy the investing guidelines of these investors or brokers, and consequently, the trading liquidity of our Class A
Stock may not improve.
While
we believe that a higher share price may help generate investor and broker interest in the Class A Stock, the reverse stock split
may not result in a share price that will attract institutional investors or investment funds or satisfy the investing guidelines of
institutional investors, investment funds or brokers. For example, some investors, analysts and other stock market participants have
a negative perception of reverse stock splits due to: (1) the fact that the share price of some companies that have effected reverse
stock splits has subsequently declined in share price and corresponding market capitalization, (2) the potential that the reduction in
shares outstanding could have adversely impact the liquidity of our Class A Stock; and (3) the costs associated with implementing
a reverse stock split.
The
reverse stock split may leave certain shareholders with “odd lots.”
The
reverse stock split may result in some shareholders owning “odd lots” of fewer than 100 shares. Odd lot shares may be more
difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs
of transactions in “round lots” of even multiples of 100 shares.
The
Reverse Stock Split May Decrease the Liquidity of the Class A Stock.
The
Board believes that the Reverse Stock Split may result in an increase in the market price of the Class A Stock, which could lead
to increased interest in the Class A Stock and possibly promote greater liquidity for our stockholders. However, the Reverse Stock
Split will also reduce the total number of outstanding shares of Class A Stock, which may lead to reduced trading and a smaller
number of market makers for the Class A Stock.
The
Reverse Stock Split May Lead to a Decrease in the Overall Market Capitalization of the Company.
The
Reverse Stock Split may be viewed negatively by the market and, consequently, could lead to a decrease in our overall market capitalization.
If the per share market price of the Class A Stock does not increase in proportion to the Reverse Stock Split Ratio, then our
value, as measured by our market capitalization, will be reduced.
Our
directors and executive officers have no substantial interests, directly or indirectly, in the matters set forth in this proposed amendment,
except to the extent of their ownership in shares of our Common Stock and securities convertible or exercisable for Common Stock.
Procedures
for Effecting the Reverse Stock Split
If
our shareholders approve the Reverse Split Proposal, the Board will have discretion to determine when to effect it and how many to effect
at any time on or prior to August 29, 2025, the first anniversary date of this Meeting. If implemented by the Board, the reverse stock
split would become effective upon the date, as approved by the Board by Board resolution, to be the effective date of the Reverse Stock
Split pursuant to the authority granted by the shareholders. The actual timing of the effective date of the Reverse Stock Split will
be made by the Board at such time as the Board believes to be most advantageous to us and our shareholders.
Principal
Effects of the Reverse Split
On
the effective date of a reverse stock split, depending upon the final ratio the Board chooses, each such number of shares of our Class
A Stock issued and outstanding immediately prior to the Reverse Split on the effective date (the “Old Shares”) will automatically
and without any action on the part of the stockholders be converted into one share of our Class A Stock (the
“New Shares”). For example, if the Board chooses to implement a 1-for-50 Reverse Split, every 50 shares of Class A Stock
would be combined into 1 share of Class A Stock.
The
Board has sole discretion to determine the final ratio that will be implemented, if at all, but we believe the following discussion is
more helpful by assuming and selecting a ratio. For illustrative purposes only, in the following discussion, we provide examples
of the effects of a one-for-fifty reverse stock split should the Board decide on a 1-for-50 ratio. If approved, the Board will
have discretion to select any ratio up to one-for-fifty.
Corporate
Matters. The Reverse Split would have the following effects based upon the number of shares of Class A Stock outstanding as
of the Record Date:
| ● | in
a one-for-fifty reverse stock split, every 50 of our Old Shares owned by a stockholder would
be exchanged for one New Share; and |
| | | |
| ● | the
number of shares of our Class A Stock issued and outstanding will be reduced from
35,222,036 shares of Class A Stock to 704,401 shares of Class A Stock. |
The
Reverse Split will be effected simultaneously for all of our outstanding shares of Class A Stock and the exchange ratio will be
the same for all of our outstanding shares Class A Stock. The Reverse Split will affect all of our Class A Stock stockholders
uniformly and will not affect any stockholder’s percentage ownership interests in the Company, except to the extent that the Reverse
Split results in any of our stockholders owning a fractional share. Class A Stock issued pursuant to the Reverse Split will remain
fully paid and non-assessable.
Fractional
Shares. No scrip or fractional shares will be issued in connection with the Reverse Split. Stockholders who otherwise would be entitled
to receive fractional shares because they hold a number of Old Shares not evenly divisible by the one for fifty reverse stock split ratio,
will be entitled, to a number of shares of New Shares rounded up to the nearest whole number. The ownership of a fractional interest
will not give the stockholder any voting, dividend or other rights except to have his or her fractional interest rounded up to the nearest
whole number when the New Shares are issued.
Authorized
Shares. The Company is presently authorized under its Articles of Incorporation to issue 350,000,000 shares, consisting of (i) 250,000,000
shares of Class A Stock, (ii) 25,000,000 shares of Class B Stock, and (iii) 75,000,000 shares of preferred stock, par value $0.0001
per share (“Preferred Stock”). A reverse stock split will not have any effect on the Company’s authorized capital
or number of shares that will be available for issuance after a reverse stock split. The issuance in the future of additional shares
of our Common Stock may have the effect of diluting the earnings per share and book value per share, as well as the stock ownership
and voting rights of the currently outstanding shares of our Common Stock. Authorized but unissued shares will be available for
issuance, and we may issue such shares in future financings or otherwise. If we issue additional shares, the ownership interest of holders
of our Common Stock would be diluted. Also, the issued shares may have rights, preferences or privileges senior to those of our
Common Stock.
Outstanding
Derivative Securities. A reverse stock split will require that proportionate adjustments be made to the conversion rate, the per
share exercise price and the number of shares issuable upon the exercise, vesting or conversion of the following outstanding derivative
securities issued by us, in accordance with the split ratio (all figures are as of the Record Date and are on a pre-Reverse Stock Split
basis), including:
| ● | 1,832,473
shares of Class A Stock issuable upon the exercise of stock options, at a weighted
average exercise price of $3.25; |
| | | |
| ● | 11,500,000
shares issuable upon exercise of outstanding warrants with an exercise price of $11.50;828,533
shares issuable upon exercise of a warrant with an exercise price of $6.49 per share, subject
to adjustment; |
| | | |
| ● | 3,432,494
shares issuable for repayment of an outstanding promissory note based on a VWAP of $0.1457; |
| | | |
| ● | 685,613
shares issuable upon conversion of an outstanding Senior Convertible Note that matures in
February 19, 2025; |
| | | |
| ● | 6,632,653shares
issuable upon conversion of outstanding promissory notes if we do not comply with certain
redemption requirements set forth therein; |
| | | |
| ● | 2,311,134
shares issuable upon conversion of outstanding shares of Class B Stock; |
| | | |
| ● | 13,888,890
shares issuable upon exercise of outstanding common stock purchase warrants with an exercise
price of $0.18; |
| | | |
| ● | 833,333
shares issuable upon exercise of Placement Agent Warrants issued pursuant to the “best
efforts” public offering the Company completed in May 2024; and |
| | | |
| ● | 877,903
shares issuable upon vesting of outstanding restricted stock units granted through July 19,
2024. |
The
adjustments to the above securities, as required by a reverse stock split and in accordance with the split ratio, would result in approximately
the same aggregate price being required to be paid under such securities upon exercise, and approximately the same value of shares of
Class A Stock being delivered upon such exercise or conversion, immediately following a reverse stock split as was the case immediately
preceding the reverse stock split.
Accounting
Matters. The Reverse Split will not affect the par value of our Class A Stock. As a result, on the effective date of the Reverse
Split, the stated capital on our balance sheet attributable to our Class A Stock will be reduced in proportion to the Reverse
Split ratio (that is, in a one-for-fifty reverse stock split, the stated capital attributable to our Class A Stock will be reduced
to one fiftieth of its existing amount) and the additional paid-in capital account shall be credited with the amount by which the stated
capital is reduced. The per share net income or loss and net book value of our Class A Stock will also be increased because there
will be fewer shares of our Class A Stock outstanding.
Potential
Anti-Takeover Effect. Although the issuance of additional shares of Class A Stock could, under certain circumstances, have
an anti-takeover effect (for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change
in the composition of our Board or contemplating a tender offer or other transaction for the combination of the Company with another
company), the Reverse Split was not proposed in response to any effort of which we are aware to accumulate our shares of Common Stock
or obtain control of us, nor is it part of a plan by management to recommend a series of similar actions having an anti-takeover effect
to our Board of Directors and stockholders. Other than the Reverse Split Proposal, our Board of Directors does not currently contemplate
recommending the adoption of any other corporate action that could be construed to affect the ability of third parties to take over or
change control of the Company.
The
number of shares held by each individual stockholder will be reduced if a reverse stock split is implemented. This will increase the
number of stockholders who hold less than a “round lot,” or 50 shares. Typically, the transaction costs to stockholders selling
“odd lots” are higher on a per share basis. Consequently, a reverse stock split could increase the transaction costs to existing
stockholders in the event they wish to sell all or a portion of their shares.
The
Company is subject to the periodic reporting and other requirements of the Exchange Act. The proposed reverse stock split(s) will not
affect the registration of the Class A Stock under the Exchange Act. If a proposed reverse stock split is implemented, our Class
A Stock will continue to be reported on The Nasdaq Global Market under the ticker symbol “BNZI,” subject to compliance
with applicable listing standards. We will continue to be subject to the periodic reporting requirements of the Securities Exchange Act
of 1934, as amended.
Book
Entry Shares. If the Reverse Stock Split is effected, stockholders, either as direct or beneficial owners, will have their holdings
electronically adjusted by our transfer agent (and, for beneficial owners, by their brokers or banks that hold in “street name”
for their benefit, as the case may be) to give effect to the Reverse Stock Split. Banks, brokers, custodians or other nominees will be
instructed to effect the Reverse Stock Split for their beneficial holders holding Class A Stock in street name. However, these
banks, brokers, custodians or other nominees may have different procedures than registered stockholders for processing the Reverse Stock
Split and making payment for fractional shares. If a stockholder holds shares of Class A Stock with a bank, broker, custodian
or other nominee and has any questions in this regard, stockholders are encouraged to contact their bank, broker, custodian or other
nominee. We do not issue physical certificates to stockholders.
No
Appraisal Rights. Under the Delaware General Corporation Law, our stockholders are not entitled to dissenters’ rights
or appraisal rights with respect to the Reverse Stock Split described in the Reverse Stock Split Proposal, and we will not independently
provide our stockholders with any such rights.
Procedure
for Effecting a Reverse Split
A
reverse stock split will be accomplished by amending the Company’s Articles of Incorporation to include a paragraph in substantially
the same form as follows:
“As of [ ], (the “Effective Time”), each [ ] shares of
Class A Common Stock either issued and outstanding or held by the Corporation as treasury stock shall, automatically and without any action
on the part of the respective holders thereof, be combined and converted into one (1) share of Class A Common Stock (the “Reverse
Stock Split”). No fractional shares shall be issued in connection with the Reverse Stock Split. All shares of Class A Common Stock
(including fractions thereof) issuable upon the Reverse Stock Split to a given holder shall be aggregated for purposes of determining
whether the Reverse Stock Split would result in the issuance of a fractional share. If, after the aforementioned aggregation, the Reverse
Stock Split would result in the issuance of a fraction of a share of Class A Common Stock, the Corporation shall, in lieu of issuing any
such fractional share, round up to the nearest whole number of shares in order to bring the number of shares held by such holder up to
the next whole number of shares of Class A Common Stock. No certificates representing fractional shares of Class A Common Stock shall
be issued in connection with the Reverse Stock Split. Each book entry that immediately prior to the Effective Time represented shares
of Class A Common Stock (“Old Certificates”) shall thereafter represent the number of shares of Class A Common Stock, as applicable
into which the shares of Class A Common Stock represented by the Old Certificate shall have been combined, subject to the elimination
of fractional share interests as described above.”
A
copy of the form of Articles of Amendment of the Articles of Incorporation of the Company (“Amendment”) is
attached hereto as Annex B.
Any
reverse stock split will become effective at such future date as determined by the Board of Directors, as evidenced by the filing of
an Amendment with the Secretary of State of the State of Nevada (which we refer to as the “Effective Time”),
but in no event later than August 29, 2025. Beginning at the Effective Time, each book entry representing Old Shares will be deemed for
all corporate purposes to evidence ownership of New Shares.
As
soon as practicable after the Effective Time, stockholders will be notified that a reverse stock split has been effected. Since all shares
of Common Stock are held in book entry, once the reverse split is effective, our transfer agent will process the exchange automatically
and book entry statements will be mailed to Class A Stock shareholders showing the new amount of shares of Class A Stock
they own.
After
the effective date of a reverse stock split, the CUSIP number for our Class A Stock will change.
Material
U.S. Federal Income Tax Consequences of the Reverse Split
The
following is a discussion of certain material U.S. federal income tax consequences of a reverse stock split that are applicable to U.S.
holders (as defined below) of the Company’s Class A Stock, but does not purport to be a complete analysis of all potential
tax effects. This summary is based upon current provisions of the Internal Revenue Code (the “Code”), existing treasury regulations,
judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service (the “IRS”),
all in effect as of the date hereof and all of which are subject to differing interpretations or change. Any such change or differing
interpretation, which may be retroactive, could alter the tax consequences to the Company’s stockholders as described in this summary.
This
discussion does not address all U.S. federal income tax consequences relevant to the Company’s stockholder. In addition, it does
not address consequences relevant to the Company’s stockholders that are subject to particular U.S. or non-U.S. tax rules, including,
without limitation to the Company’s stockholders that are:
| ● | persons
who do not hold their Class A Stock as a “capital asset” within the meaning
of Section 1221 of the Code; |
| | | |
| ● | brokers,
dealers or traders in securities; banks; insurance companies; other financial institutions;
mutual funds; |
| | | |
| ● | real
estate investment trusts; regulated investment companies; tax-exempt organizations or governmental
organizations; |
| | | |
| ● | pass-through
entities such as partnerships, S corporations, disregarded entities for federal income tax
purposes and limited liability companies (and investors therein); |
| | | |
| ● | persons
who are not U.S. holders (as defined below); |
| | | |
| ● | stockholders
who are subject to the alternative minimum tax provisions of the Code; |
| | | |
| ● | persons
who hold their shares as part of a hedge, wash sale, synthetic security, conversion transaction,
or other integrated transaction; |
| | | |
| ● | persons
that have a functional currency other than the U.S. dollar; traders in securities who elect
to apply a mark-to-market method of accounting; |
| | | |
| ● | persons
who hold shares of the Company’s Class A Stock that may constitute “qualified
small business stock” under Section 1202 of the Code or as “Section 1244 stock”
for purposes of Section 1244 of the Code; |
| | | |
| ● | persons
who elect to apply the provisions of Section 1400Z-2 to any gains realized in the Reverse
Split; |
| | | |
| ● | persons
who acquired their shares of the Company’s Class A Stock in a transaction subject
to the gain rollover provisions of Section 1045 of the Code; |
| | | |
| ● | persons
subject to special tax accounting rules as a result of any item of gross income with respect
to the Company’s Class A Stock being taken into account in an “applicable
financial statement” (as defined in the Code); |
| | | |
| ● | persons
deemed to sell the Company’s Class A Stock under the constructive sale provisions
of the Code; |
| | | |
| ● | persons
who acquired their shares of stock pursuant to the exercise of options or otherwise as compensation
or through a tax-qualified retirement plan or through the exercise of a warrant or conversion
rights under convertible instruments; and |
| | | |
| ● | certain
expatriates or former citizens or long-term residents of the United States. |
The
Company’s stockholders subject to particular U.S. or non-U.S. tax rules that are described in this paragraph are urged to consult
their own tax advisors regarding the consequences to them of the Reverse Split.
If
an entity that is treated as a partnership for U.S. federal income tax purposes holds the Company’s Class A Stock, the U.S.
federal income tax treatment of a partner in the partnership will generally depend upon the status of the partner, the activities of
the partnership and certain determinations made at the partner level. If you are a partnership or a partner of a partnership holding
the Company’s capital stock or any other person not addressed by this discussion, you should consult your tax advisors regarding
the tax consequences of the Reverse Split.
In
addition, the following discussion does not address: (a) the tax consequences of transactions effectuated before, after or at the same
time as the Reverse Split, whether or not they are in connection with the Reverse Split; (b) any U.S. federal non-income tax consequences
of the Reverse Split, including estate, gift or other tax consequences; (c) any state, local or non-U.S. tax consequences of the Reverse
Split; or (d) the Medicare contribution tax on net investment income. No ruling from the IRS or opinion of counsel, has been or will
be requested in connection with the Reverse Split. The Company’s stockholders should be aware that the IRS could adopt a position
which could be sustained by a court contrary to that set forth in this discussion.
Definition
of “U.S. Holder”
For
purposes of this discussion, a “U.S. holder” is a beneficial owner of the Company’s Class A Stock that is, for
U.S. federal income tax purposes:
| ● | an
individual who is a citizen or resident of the United States; |
| | | |
| ● | a
corporation or any other entity taxable as a corporation created or organized in or under
the laws of the United States, any state thereof, or the District of Columbia; |
| | | |
| ● | a
trust if either (i) a court within the United States is able to exercise primary supervision
over the administration of such trust, and one or more United States persons (within the
meaning of Section 7701(a)(30) of the Code) are authorized or have the authority to control
all substantial decisions of such trust, or (ii) the trust was in existence on August 20,
1996 and has a valid election in effect under applicable Treasury Regulations to be treated
as a United States person for U.S. federal income tax purposes; or |
| | | |
| ● | an
estate, the income of which is subject to U.S. federal income tax regardless of its source. |
Tax
Consequences of a Reverse Stock Split
A
reverse stock split should constitute a “recapitalization” for U.S. federal income tax purposes within the meaning of Section
368(a) of the Code. As a result, a U.S. holder generally should not recognize gain or loss upon the Reverse Split, except with respect
to cash received in lieu of a fractional share of the Company’s Class A Stock (which fractional share will be treated as
received and then exchanged for such cash). A U.S. holder’s aggregate tax basis in the shares of the Company’s Class A
Stock received pursuant to the Reverse Split should equal the aggregate tax basis of the shares of the Company’s Class A
Stock surrendered (excluding any portion of such basis that is allocated to any fractional share of the Company’s Class
A Stock), and such U.S. holder’s holding period in the shares of the Company’s Class A Stock received should include
the holding period in the shares of the Company’s Class A Stock surrendered. Treasury Regulations provide detailed rules
for allocating the tax basis and holding period of the shares of the Company’s Class A Stock surrendered to the shares of
the Company’s Class A Stock received in a recapitalization pursuant to the Reverse Split. U.S. holders of shares of the
Company’s Class A Stock acquired on different dates and at different prices should consult their tax advisors regarding
the allocation of the tax basis and holding period of such shares.
A
U.S. holder that receives cash in lieu of a fractional share of the Class A Stock pursuant to the Reverse Split should recognize
capital gain or loss in an amount equal to the difference between the amount of cash received and the U.S. holder’s tax basis in
the shares of the Class A Stock surrendered that is allocated to such fractional share of the Class A Stock. Any such gain
or loss generally will be long-term capital gain or loss if, as of the effective time of the Reverse Split, the U.S. holder’s holding
period for such fractional share exceeds one year. Long-term capital gains of certain non-corporate taxpayers, including individuals,
are generally taxed at preferential rates. The deductibility of capital losses is subject to limitations.
Information
Reporting and Backup Withholding
Payments
of cash made in lieu of a fractional share of the Company’s Class A Stock may, under certain circumstances, be subject to
information reporting and backup withholding. Backup withholding will not apply, however, to a U.S. holder who (i) furnishes a correct
taxpayer identification number and certifies the holder is not subject to backup withholding on IRS Form W-9 or a substantially similar
form, or (ii) certifies the holder is otherwise exempt from backup withholding. If a U.S. holder does not provide a correct taxpayer
identification number on IRS Form W-9 or other proper certification, the stockholder may be subject to penalties imposed by the IRS.
Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the federal income tax liability
of a U.S. holder of the Company’s capital stock, if any, provided the required information is timely furnished to the IRS. The
Company’s stockholders should consult their tax advisors regarding their qualification for an exemption from backup withholding,
the procedures for obtaining such an exemption, and in the event backup withholding is applied, to determine if any tax credit, tax refund
or other tax benefit may be obtained.
Because
of the complexity of the tax laws and because the tax consequences to the Company or to any particular stockholder may be affected by
matters not discussed herein, stockholders are urged to consult their own tax advisors as to the specific tax consequences to them in
connection with the Reverse Split, including tax reporting requirements, the applicability and effect of foreign, U.S. federal, state
and local and other applicable tax laws and the effect of any proposed changes in the tax laws.
Vote
Required
The
proposal to grant the Board authority to implement one or more reverse stock splits and file the Certificate of Amendment regarding
same requires the affirmative vote of the holders of a majority of the outstanding shares of Class A Stock and the holders
of a majority of the outstanding shares of Class B Stock, each voting separately as a class. Therefore, we need a majority of
the 35,222,036 outstanding shares of Class A Stock and a majority of the 2,311,134 outstanding shares of Class B Stock to vote in
favor of this Proposal. Abstentions and broker non-votes will have no effect on the result of the vote.
Recommendation
of the Board
The
Board unanimously recommends that you vote all of your shares “FOR” the Reverse Stock Proposal described in this Proposal
No. 1.
PROPOSAL
2: ADJOURNMENT OF THE SPECIAL MEETING
Purpose
of Adjournment Proposal
Shareholders
are being asked to approve a proposal that will give the board of directors authority to adjourn the special meeting one or more times
if necessary to solicit additional proxies if there are not sufficient votes to approve the reverse split proposal or any adjournment
or postponement thereof. If this proposal is approved, the special meeting could be adjourned to any date. Any determination of whether
it is necessary to adjourn the special meeting (or any adjournment or postponement thereof) to solicit additional proxies will be made
solely by the Company.
If
the special meeting is adjourned, shareholders who have already submitted their proxies will be able to revoke them at any time prior
to their use. If you sign and return a proxy and do not indicate how you wish to vote on any proposal, or if you indicate that you wish
to vote in favor of the reverse split proposal, but do not indicate a choice on the adjournment proposal, your shares will be voted in
favor of the adjournment proposal. But if you indicate that you wish to vote against the reverse split proposal, your shares will only
be voted in favor of the adjournment proposal if you indicate that you wish to vote in favor of that proposal.
Vote
Required
The
affirmative vote of a majority of the voting power of shares present in person, by remote communication,
if applicable, or represented by proxy at the meeting, though less than a quorum is required to approve the adjournment proposal.
Recommendation
of the Board
Each
of the special committee and our board of directors unanimously recommends a vote “FOR” approval of the adjournment proposal.
OTHER
MATTERS
Our
Board knows of no other matter to be presented at the Meeting. If any additional matter should properly come before the Meeting, it is
the intention of the persons named in the enclosed proxy to vote such proxy in accordance with their judgment on any such matters.
OTHER
INFORMATION
Electronic
Delivery Of Future Shareholder Communications
Registered
shareholders can further save the Company expense by consenting to receive all future proxy statements, forms of proxy and annual reports
electronically via e-mail or the Internet. To sign up for electronic delivery, please access the website www.proxyvote.com when
transmitting your voting instructions and, when prompted, indicate that you agree to receive or access shareholder communications electronically
in future years. Your choice will remain in effect unless and until you revoke it.
To
revoke your decision to receive or access shareholder communications electronically, access the website www.proxyvote.com, enter
your current PIN, select “Cancel my Enrollment” and click on the Submit button. After submitting your entry, the Cancel Enrollment
Confirmation screen will be displayed. This screen will show your current Enrollment Number. To confirm your enrollment cancellation,
click on the Submit button. Otherwise, click on the Back button to return to the Enrollment Maintenance screen. After submitting your
entry, the Cancel Enrollment Complete screen will be displayed. This screen will indicate that your enrollment has been cancelled. You
may be asked to complete a brief survey to help us understand why you opted out of electronic delivery. You will be sent an e-mail message
confirming the cancellation of your enrollment. No further electronic communications will be conducted for your account and your Enrollment
Number will be marked as “Inactive.” You may at any time reactivate your enrollment. You will be responsible for any fees
or charges that you would typically pay for access to the Internet.
Deadline
for Submission of Shareholder Proposals for 2024 Annual Meeting of Shareholders
For
any proposal to be considered for inclusion in our proxy statement and form of proxy for submission to the Shareholders at our 2024 Annual
Meeting of Shareholders, it must be submitted in writing and comply with the requirements of Rule 14a-8 of the Exchange Act. Such proposals
must be received by the Company at its offices 435 Ericksen Ave NE, Suite 250, Bainbridge Island, WA 98110, Attention: Chief Executive
Officer, not earlier than the close of business on the 120th day prior to such annual meeting and
not later than the close of business on the later of (i) the 90th day prior to such annual meeting and (ii) the 10th day following the
day on which public announcement of the date of such meeting is first made by the corporation.
If
we are not notified of a Shareholder proposal a reasonable time prior to the time we send our proxy statement for our 2024 annual
meeting, then our Board will have discretionary authority to vote on the Shareholder proposal, even though the Shareholder proposal is
not discussed in the proxy statement. In order to curtail any controversy as to the date on which a Shareholder proposal was received
by us, it is suggested that Shareholder proposals be submitted by certified mail, return receipt requested, and be addressed to Banzai
International, Inc., 435 Ericksen Ave NE, Suite 250, Bainbridge Island, WA 98110 Attention: Chief Executive Officer. Notwithstanding,
the foregoing shall not effectuate any rights of Shareholders to request inclusion of proposals in our proxy statement pursuant to Rule
14a-8 under the Exchange Act nor grant any Shareholder a right to have any nominee included in our proxy statement.
Proxy
Solicitation
The
solicitation of proxies is made on behalf of the Board and we will bear the cost of soliciting proxies. Proxies may be solicited through
the mail and through telephonic or telegraphic communications to, or by meetings with, Shareholders or their representatives by our directors,
officers and other employees who will receive no additional compensation therefor. We may also retain a proxy solicitation firm to assist
us in obtaining proxies by mail, facsimile or email from record and beneficial holders of shares for the Meeting. If we retain a proxy
solicitation firm, we expect to pay such firm reasonable and customary compensation for its services, including out-of-pocket expenses.
We
request persons such as brokers, nominees and fiduciaries holding stock in their names for others, or holding stock for others who have
the right to give voting instructions, to forward proxy material to their principals and to request authority for the execution of the
proxy. We will reimburse such persons for their reasonable expenses.
Annual
Report and Quarterly Report
The
Annual Report and Quarterly Report is being sent with this Proxy Statement to each Shareholder and is available at www.proxyvote.com
as well as on the SEC’s website at www.sec.gov. The Annual Report contains our audited financial statements for the
fiscal year ended December 31, 2023. The Quarterly Report on Form 10-Q contains unaudited financial statements for the quarter ended
March 31, 2024. The Annual Report and the Quarterly Report, however, is not to be regarded as part of the proxy soliciting material.
Delivery
of Proxy Materials to Households
Only
one copy of this proxy statement, one copy of our Annual Report and one copy of our Quarterly Report are being delivered to multiple
registered Shareholders who share an address unless we have received contrary instructions from one or more of the Shareholders. A separate
form of proxy and a separate notice of the Meeting are being included for each account at the shared address. Registered Shareholders
who share an address and would like to receive a separate copy of our Annual Report, Quarterly Report and/or a separate copy of this
proxy statement, or have questions regarding the householding process, may contact the Company’s transfer agent: Continental Stock
Transfer & Trust Company, by calling (212) 509-4000, or by forwarding a written request addressed to Continental Stock Transfer &
Trust Company, 1 State Street, Floor 30, New York, NY 10004. Promptly upon request, a separate copy of our Annual Report on Form 10-K,
Quarterly Report on Form 10-Q and/or a separate copy of this proxy Statement will be sent. By contacting Continental Stock Transfer &
Trust Company, registered Shareholders sharing an address can also (i) notify the Company that the registered Shareholders wish to receive
separate annual reports or quarterly reports to Shareholders, proxy statements and/or Notices of Internet Availability of Proxy Materials,
as applicable, in the future or (ii) request delivery of a single copy of annual reports or quarterly reports to Shareholders and proxy
statements in the future if registered Shareholders at the shared address are receiving multiple copies.
Many
brokers, brokerage firms, broker/dealers, banks and other holders of record have also instituted “householding” (delivery
of one copy of materials to multiple Shareholders who share an address). If your family has one or more “street name” accounts
under which you beneficially own shares of Common Stock, you may have received householding information from your broker, brokerage
firm, broker/dealer, bank or other nominee in the past. Please contact the holder of record directly if you have questions, require additional
copies of this proxy statement, Annual Report, Quarterly Report or wish to revoke your decision to household and thereby receive multiple
copies. You should also contact the holder of record if you wish to institute householding.
Where
You Can Find Additional Information
Accompanying
this proxy statement is a copy of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Such Report constitutes
the Company’s Annual Report to its Shareholders for purposes of Rule 14a-3 under the Exchange Act. Such Report includes the Company’s
audited financial statements for the 2023 fiscal year and certain other financial information, which is incorporated by reference herein.
We are also including a copy of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 with this proxy
statement. The Company is subject to the informational requirements of the Exchange Act and in accordance therewith files reports, proxy
statements and other information with the SEC. Such reports, proxy statements and other information are available on the SEC’s
website at www.sec.gov. Shareholders who have questions in regard to any aspect of the matters discussed in this proxy statement
should contact Joseph Davy, our CEO, at ir@banzai.io.
Annex
A
Form
of Proxy Card
BANZAI
INTERNATIONAL, INC.
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
To
Be Held at 8:00a.m. PDT on August 29, 2024
(Record
Date — July 19, 2024)
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints Joseph Davy, as proxy of the undersigned, with full power to appoint his substitute, and hereby authorizes
him to represent and to vote all the shares of stock of Banzai International, Inc. which the undersigned is entitled to vote, as specified
below on this card, at the special meeting of Shareholders of Banzai International, Inc. to be held virtually on August 29, 2024, at
8:00 a.m. PDT, and at any adjournment or postponement thereof.
To
attend the virtual Meeting, go to: Special Shareholder Meeting - Demio.
THIS
PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS FOR EACH OF THE PROPOSALS. This proxy authorizes
the above designated proxy to vote in his discretion on such other business as may properly come before the meeting or any adjournments
or postponements thereof to the extent authorized by Rule 14a-4(c) promulgated under the Securities Exchange Act of 1934, as amended.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” PROPOSALS 1 AND 2.
PLEASE
SIGN, DATE AND RETURN PROMPTLY, BEFORE 11:59 P.M. EST ON AUGUST 28, 2024, IN THE ENCLOSED ENVELOPE.
PLEASE
MARK YOUR VOTE IN BLUE OR BLACK INK
PROPOSAL
1: The approval of an amendment to the Company’s Second Amended and Restated Certificate of Incorporation, in substantially
the form attached to the accompanying proxy statement as Annex B, to effect a reverse stock split with respect to the Company’s
issued and outstanding Class A common stock, par value $0.0001 per share (“Class A Stock”) at a ratio
of up to 1-for-50, with the final ratio within such range and exact timing to be determined at the discretion of the Board of Directors
and included in a public announcement, subject to the authority of the Board of Directors to abandon such amendment (the “Reverse
Split Proposal”).
| |
|
For |
|
Against |
|
Abstain |
|
|
| |
|
O |
|
O |
|
O |
|
|
PROPOSAL
2: The approval of an adjournment of the Special Meeting to a later date or dates, if necessary, to permit the further solicitation
and vote of proxies in the event there are not sufficient votes in favor of the Reverse Split Proposal.
| |
|
For |
|
Against |
|
Abstain |
|
|
| |
|
O |
|
O |
|
O |
|
|
Please
indicate if you intend to attend this meeting ☐ YES ☐ NO
| Signature
of Shareholder: |
|
|
|
|
|
|
| Date: |
|
|
|
|
|
|
| Name
shares held in (Please print): |
|
|
|
Account
Number (if any): |
|
|
| No.
of Shares Entitled to Vote: |
|
|
|
|
|
|
| Note: |
Please
sign exactly as your name or names appear in the Company’s stock transfer books. When shares are held jointly, each holder
should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. |
If
the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such.
If
the signer is a partnership, please sign in partnership name by authorized person.
Please
provide any change of address information in the spaces below in order that we may update our records:
Annex
B
CERTIFICATE
OF AMENDMENT OF THE
SECOND
AMENDED AND RESTATED
CERTIFICATE
OF INCORPORATION OF
BANZAI
INTERNATIONAL, INC.
(Pursuant
to Section 242 of the
General
Corporation Law of the State of Delaware)
Banzai
International, Inc.(the “Corporation”), a corporation organized and existing under and by virtue of the provisions
of the General Corporation Law of the State of Delaware (the “General Corporation Law”),
1.
The Board of Directors of the Corporation has duly adopted a resolution pursuant to Section 242 of the General Corporation Law of the
State of Delaware setting forth a proposed amendment to the Second Amended and Restated Certificate of Incorporation of the Corporation,
as amended (the “Restated Certificate”), and declaring said amendment to be advisable. The requisite stockholders
of the Corporation have duly approved said proposed amendment in accordance with Section 242 of the General Corporation Law of the State
of Delaware. The amendment amends the Amended and Restated Certificate of Incorporation of the Corporation as follows:
Article
IV, Section (A) of the Restated Certificate is hereby amended to add the following paragraph immediately after the first paragraph of
Article IV, Section (A):
“Upon
this Certificate of Amendment to the Amended and Restated Certificate of Incorporation becoming effective pursuant to the General Corporation
Law of the State of Delaware (the “Effective Time”), the shares of the Corporation’s Class A Common Stock
either issued and outstanding or held by the Corporation as treasury stock shall, automatically and without any action on the part
of the respective holders thereof, be reclassified as and combined into a smaller number of shares such that every [●]1
shares of issued and outstanding Class A Common Stock shall be combined into one (1) validly issued, fully paid and nonassessable
share of Class A Common Stock (the “Reverse Stock Split”). Notwithstanding the immediately preceding sentence,
no fractional shares shall be issued and, in lieu thereof, any person who would otherwise be entitled to a fractional share of Class
A Common Stock as a result of the reclassification and combination following the Effective Time (after taking into account all fractional
shares of Class A Common Stock otherwise issuable to such holder) shall be rounded up to the nearest whole number.
Each
stock certificate or book-entry position that, immediately prior to the Effective Time, represented shares of Class A Common Stock
that were issued and outstanding immediately prior to the Effective Time shall, from and after the Effective Time, automatically
and without the necessity of presenting the same for exchange, represent that number of whole shares of Class A Common Stock after the
Effective Time into which the shares of Class A Common Stock formerly represented by such certificate or book-entry position shall
have been reclassified and combined.”
2.
This Certificate of Amendment shall be effective at ___________ Eastern Time on ____________, 2024.
IN
WITNESS WHEREOF, this Corporation has caused this Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation
to be signed by its Chief Executive Officer this ____ day of ________, 2024.
| |
|
| |
Joseph
Davy |
| |
Chief
Executive Officer
|
[1]
The Board of Directors will have the discretion to effect the Reverse Stock Split at a ratio of any whole number up to, but not
exceeding 1-for-50.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
| ☒ |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year 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 001-39826
Banzai
International, Inc.
(Exact
name of Registrant as specified in its Charter)
| Delaware |
|
85-3118980 |
(State
or other jurisdiction of
incorporation
or organization) |
|
(I.R.S.
Employer
Identification
No.) |
| |
|
|
435
Ericksen Ave, Suite 250
Bainbridge
Island, Washington |
|
98110 |
| (Address
of principal executive offices) |
|
(Zip
Code) |
Registrant’s
telephone number, including area code: (206) 414-1777
Securities
registered pursuant to Section 12(b) of the Act:
| Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
| Class
A common stock, par value $0.0001 per share |
|
BNZI |
|
The
Nasdaq Global Market |
| Redeemable
Warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 |
|
BNZIW |
|
The
Nasdaq Capital Market |
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
☐ No ☒
Indicate
by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
☐ No ☒
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 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 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 filer |
☐ |
Accelerated
filer |
☐ |
| Non-accelerated
filer |
☒ |
Smaller
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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☒
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒
The
aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price
of the shares of common stock on the last business day of the registrant’s most recently competed second fiscal quarter, was approximately
$35,027,792, based on the last sales price reported for such date on The Nasdaq Stock Exchange LLC.
The
number of shares outstanding of each of the registrant’s classes of common stock, as of March 22, 2024:
Class
A Common Stock - 17,756,963 shares
Class
B Common Stock - 2,311,134 shares
Documents
Incorporated by Reference: None.
Table
of Contents
Cautionary
Note Regarding Forward-Looking Statements
This
Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements often use words such as “believe,” “may,” “will,”
“estimate,” “target,” “continue,” “anticipate,” “intend,” “expect,”
“should,” “would,” “propose,” “plan,” “project,” “forecast,”
“predict,” “potential,” “seek,” “future,” “outlook,” and similar variations
and expressions. Forward-looking statements are those that do not relate strictly to historical or current facts. Examples of forward-looking
statements may include, among others, statements regarding the Company’s:
| ● | future
financial, business and operating performance and goals; |
| | | |
| ● | annualized
recurring revenue and customer retention; |
| | | |
| ● | ongoing,
future or ability to maintain or improve its financial position, cash flows, and liquidity
and its expected financial needs; |
| | | |
| ● | potential
financing and ability to obtain financing; |
| | | |
| ● | acquisition
strategy and proposed acquisitions and, if completed, their potential success and financial
contributions; |
| | | |
| ● | strategy
and strategic goals, including being able to capitalize on opportunities; |
| | | |
| ● | expectations
relating to the Company’s industry, outlook and market trends; |
| | | |
| ● | total
addressable market and serviceable addressable market and related projections; |
| | | |
| ● | plans,
strategies and expectations for retaining existing or acquiring new customers, increasing
revenue and executing growth initiatives; and |
| | | |
| ● | product
areas of focus and additional products that may be sold in the future. |
Because
forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that
are difficult to predict and many of which are outside of our control. Forward-looking statements are not guarantees of future performance,
and our actual results of operations, financial condition and liquidity and development of the industry in which the Company operates
may differ materially from those made in or suggested by the forward-looking statements. Therefore, investors should not rely on any
of these forward-looking statements. Factors that may cause actual results to differ materially include changes in the markets in which
the Company operates, customer demand, the financial markets, economic, business and regulatory and other factors, such as the Company’s
ability to execute on its strategy. More detailed information about risk factors can be found in this Annual Report on Form 10-K and
the Company’s Quarterly Reports on Form 10-Q under the heading “Risk Factors,” and in other reports filed by the Company,
including reports on Form 8-K. The Company does not undertake any duty to update forward-looking statements after the date they are made.
PART
I
Unless
the context requires otherwise, references in this annual report to “Banzai,” “Company,” “we,” “us”
and “our” and similar designations refer to Banzai International, Inc. and its subsidiaries.
Item
1. Business.
Overview
Banzai
International, Inc. (f/k/a 7GC & Co. Holdings Inc.) is a marketing technology (“MarTech”) company that produces data-driven
marketing and sales solutions for businesses of all sizes. We were originally incorporated in Delaware in September 2020 as a blank check
company formed for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses or entities. Upon closing our initial business combination on December 14, 2023 (the “Business
Combination”) pursuant to that certain Agreement and Plan of Merger and Reorganization, dated as of December 8, 2022, with Banzai
Operating Co LLC (f/k/a Banzai International, Inc.) (“Legacy Banzai”), 7GC Merger Sub I, Inc. (“First Merger Sub”),
and 7GC Merger Sub II, LLC (“Second Merger Sub”) (as amended by the Amendment to Agreement and Plan of Merger, dated as of
August 4, 2023, the “Merger Agreement”), we acquired Legacy Banzai. Legacy Banzai operates under the name “Banzai Operating
Co Inc.” (the “Operating Company”) and is one of our two wholly owned subsidiaries. Legacy Banzai was incorporated
in Delaware in September 2015. Our business operations are currently conducted by the Operating Company.
As
a MarTech company, our mission is to help our customers accomplish their mission—to enable better marketing, sales, and customer
engagement outcomes by increasing the value of every customer interaction. We plan to do this by delivering software-as-a-service (“SaaS”)
MarTech tools that leverage data, analytics, and artificial intelligence (“AI”) to improve all types of customer interactions
and provide powerful benefits to our customers across three key areas of focus: targeting, engagement, and measurement. As part of our
acquisition strategy, we also endeavor to acquire companies strategically positioned to enhance our product and service offerings, increasing
the value provided to current and prospective customers.
Our
platform currently includes three products. The first product we launched was Reach, a SaaS and managed services offering designed to
increase registration and attendance of marketing events, followed by the acquisition of Demio, a SaaS solution for webinars designed
for marketing, sales, and customer success teams in 2021. In 2023, we launched Boost, a SaaS solution for social sharing designed to
increase attendance for Demio-hosted events by enabling easy social sharing by event registrants.
We
sell our products using a recurring subscription license model typical in SaaS businesses, with customer contracts that vary in term
length from single months to multiple years. As of December 31, 2023, our customer base included over 2,770 customers operating in over
90 countries, representing a variety of industries, including (among others) healthcare, financial services, e-commerce, technology,
media and others. Our customers range in size from solo entrepreneurs and small businesses to Fortune 500 companies. No single customer
represents more than 1% of our revenue.
Industry
Background and Trends
The
MarTech industry has experienced significant growth and transformation in recent years. As companies increasingly rely on digital channels
to reach customers, the demand for MarTech solutions has grown. MarTech refers to the software and tools that enable marketers to plan,
execute, and measure their campaigns across various channels.
The
MarTech landscape is vast and complex, with thousands of vendors offering a wide range of solutions. There are 11,038 MarTech companies
included in the 2023 Marketing Technology Landscape report published by ChiefMartec, a leading marketing technology research group. MarTech
solutions can be grouped into several broad categories, including advertising and promotion, content and experience, social and relationships,
commerce and sales, data management and analytics, and marketing automation.
One
of the key drivers of growth in the MarTech industry is the increasing importance of data-driven marketing. As companies collect more
data on their customers’ behaviors and preferences, they need more sophisticated tools to analyze this data and use it to inform
and optimize their marketing strategies. This has led to a proliferation of customer data platforms, customer relationship management
(“CRM”) systems, analytics tools, and other solutions that help marketers make sense of their data and utilize it more effectively.
Another
trend driving growth in the MarTech industry is the rise of AI and machine learning. These technologies can be used to automate many
aspects of marketing campaigns, from ad targeting to content creation. Overall, the MarTech industry is expected to continue growing
rapidly in the coming years as companies invest more heavily in digital marketing channels. However, with so many vendors offering similar
solutions, competition is fierce, making it essential for MarTech companies to differentiate themselves through innovation and exceptional
customer service.
There
are several key trends in MarTech that are shaping the industry and driving innovation:
| 1. | Personalization:
Consumers today expect personalized experiences from the brands they interact with, and MarTech
solutions are helping companies deliver on this expectation. By leveraging data and AI, marketers
can create highly targeted campaigns that speak directly to individual customers’ needs
and preferences. |
| | | |
| 2. | Automation:
As marketing campaigns become more complex, automation is becoming increasingly important.
By leveraging data and AI, MarTech solutions can automate many aspects of marketing, from
ad targeting to content creation, freeing up marketers’ time to focus on strategy and
creativity. |
| | | |
| 3. | Integration:
With so many different MarTech solutions available, integration has become a major challenge
for marketers. To address this issue, many vendors are working to create more open platforms
that can easily integrate with other tools and systems. The growing trend of open platforms
allows us to gather larger amounts of data as an input from an increasing variety of marketing
tools and platforms to then leverage in AI systems. |
| | | |
| 4. | Data
Privacy: With the increasing importance of data-driven marketing comes a greater need
for data privacy and security. MarTech vendors are working to ensure that their solutions
comply with regulations like the EU General Data Protection Regulation (“GDPR”)
and the California Consumer Privacy Act of 2018 (“CCPA”), while also providing
customers with greater control over their data. |
| | | |
| 5. | Results
Driven Environment: In today’s economic environment, marketers are faced with internal
pressure to prove the value of every dollar spent while also maintaining results across every
channel. Marketers require a complete view of performance and ROI of all marketing campaigns
and investments to enable better decision making and streamline their operations. |
The
MarTech industry is constantly evolving, and these trends are just a few of the many factors shaping its future. As technology continues
to advance, the success of any MarTech company will depend on its ability to adapt to these trends and deliver real value to marketers
and their customers alike.
Market
Size
We
compete within the business-to-business (“B2B”) MarTech value chain, which encompasses tasks ranging from acquiring and nurturing
leads, to executing and optimizing campaigns and managing and measuring content, data, and performance.
In
2023, we engaged Verista Partners Inc., also known as Winterberry Group (“Winterberry”), to conduct an analysis of our opportunity
within the MarTech space. Winterberry provided a Strategic Due Diligence Assessment Report (the “Winterberry Report”) on
April 14, 2023, which estimated that the size of our total addressable market (our “TAM”), which is defined to include B2B
spending in the United States on demand generation, marketing automation, digital events platforms, account-based marketing, customer
relationship management, engagement, content management systems, customer data platforms, measurement and attribution, and predictive
and prescriptive analytics. The Winterberry Report forecasted our TAM to reach an estimated $39.42 billion by 2026, which would represent
a projected compound annual growth rate (“CAGR”) of 11.80% during the 2020 to 2026 period. The Winterberry Report also estimated
our Serviceable Addressable Market (our “SAM”), which is defined to include B2B spending in the United States on measurement
and attribution, demand generation, and digital events platforms. The Winterberry Report forecasted our SAM to reach an estimated $8.37
billion by 2026. This would represent a projected CAGR of 16.07% during the 2020 to 2026 period.
To
calculate our estimated SAM and TAM, Winterberry started with the B2B MarTech stack from acquiring and nurturing leads to executing and
optimizing campaigns to managing and measuring content, data and performance. Within that value chain, Winterberry identified which components
were core to the Banzai business as of the date of the Winterberry Report (i.e., measurement and attribution, demand generation, and
digital events platforms) and which would be natural adjacencies and future offerings (i.e., demand generation, marketing automation,
digital events platforms, account-based marketing, customer relationship management, engagement, content management systems, customer
data platforms, measurement and attribution, and predictive and prescriptive analytics). The identified core components make up our SAM,
and both core components and adjacent and future offerings are included in our TAM. Winterberry then sized each component individually
utilizing a range of sources estimating market spending and forecasted growth rates, including Winterberry proprietary models, as well
as various other market research company products and forecasts. Depending on the estimate and whether it was global or included in B2B
use cases, Winterberry utilized assumptions that 25% of spend is B2B and 33% of global spend is U.S.-specific.
The
models provided by Winterberry were based on economic forecasts from government and private sector analysts as well as third-party media
forecasts primarily provided by marketing agencies, governing bodies and associations, trade publications, and research analysts, all
of which are subject to change. There are uncertainties inherent in attempting to make such projections and forecasts, and we encourage
our stockholders and investors to perform their own investigation and carefully consider such uncertainties.
Products
and Services
Our
platform offers three SaaS products: Demio, Boost, and Reach.
Demio
Demio
is a user-friendly, browser-based webinar platform with extensive data and marketing features designed to help businesses effectively
engage with their audience through live events and on-demand, interactive video content. Demio enables customers to create, host, and
manage webinars with ease, providing a suite of tools and features that enhance audience interaction, generate leads, and drive sales.
Demio provides the following features and benefits to customers:
| 1. | Easy
Webinar Creation and Setup: Demio allows users to quickly create and schedule webinars
with a simple, intuitive interface. Users can customize their webinar registration pages,
add branding elements, and set up email reminders for attendees. |
| | | |
| 2. | Live
Webinars: Customers can host live webinars, where they can interact with their audience
in real-time using features like polls, question & answer sessions, featured actions,
and pre-loaded content. |
| | | |
| 3. | Automated
Webinars: Automated webinars run on a pre-set schedule and can run with or without participation
from the host. This flexibility enables businesses to reach their audience at the most convenient
times and increase engagement. |
| | | |
| 4. | Audience
Interaction: Demio offers a range of engagement tools, such as polls, question &
answer sessions, and real-time chat, which allow presenters to interact with their audience
during the webinar and helps create a more interactive experience, leading to higher attendee
engagement. |
| | | |
| 5. | Screen
Sharing and Presentations: Presenters can share their screen, display slides, or play
videos during the webinar, providing a seamless multimedia experience for the audience. This
helps to create a more professional and polished presentation. |
| | | |
| 6. | Integration
with Marketing Tools: Demio integrates with various marketing tools and platforms, such
as CRM systems, email marketing services, and marketing automation software, allowing users
to streamline their lead generation and follow-up processes. |
| | | |
| 7. | Analytics
and Reporting: Demio provides detailed analytics and reporting features, giving users
insights into attendee engagement, registration conversion, and overall webinar performance.
This data can help businesses optimize their webinar strategies and improve their results. |
| | | |
| 8. | Lead
Generation and Sales: With customizable registration forms, Demio enables customers to
capture lead information during the registration process. Additionally, Demio’s built-in
call-to-action (“CTA”) feature allows presenters to promote products or services
during the webinar, driving sales and audience conversions. |
In
summary, Demio enables customers to create and host engaging, interactive webinars with ease, helping businesses generate leads, drive
sales, and foster strong relationships with their audience.
Boost
Boost
is a tool utilized by customers to enhance participation in their Demio webinars. This tool allows registered attendees to promote Demio
webinars on social media platforms. Moreover, Boost offers incentives to current registrants to encourage additional signups. In this
manner, registrants become promoters, with the ability to tailor promotional content for platforms such as Facebook, LinkedIn, Twitter,
and email. Boost’s native integration with Demio ensures a smooth user experience. Boost offers customers a series of features
and benefits, as outlined below:
| 1. | Email
Notifications: Boost integrates with Demio to send automated notifications to all event
registrants directing them to a share page. |
| | | |
| 2. | Social
Sharing: Boost provides a share page that makes it easy for registrants to share Demio
registration links on LinkedIn, Twitter, Facebook, and via email. |
| | | |
| 3. | Link
Tracking: Boost’s seamless link tracking enables customers to identify which registrants
have driven additional registrations through their links. |
| | | |
| 4. | Rewards:
Boost enables offering rewards for registrants who drive additional registrations and tracking
reward attainment through tracking links. |
In
summary, Boost enables customers to create social sharing campaigns for their events more easily, leading to increased registrations.
Reach
Customers
use Reach to directly connect with their event’s target audience to increase registrations for their events. Reach’s Audience
AI feature generates target lists of potential event attendees, and the email marketing feature sends personalized email invitations
to those target lists. Reach provides features such as:
| 1. | Audience
AI: Reach enables targeting of a potential audience based on customer-defined criteria
such as region, job title, company size, and revenue. |
| | | |
| 2. | Automatic
Event Invitations: Event invitations are automatically generated and sent to targeted
customers. |
| | | |
| 3. | Event
Confirmation and Reminders: Confirmations and reminders are automatically generated and
sent to registrants to improve attendance rate. |
| | | |
| 4. | Opt-ins
and Privacy Compliance: Reach enables customers to define customized privacy policy and
opt-in language to help customers maintain compliance with privacy regulations such as GDPR. |
| | | |
| 5. | Target
Lists: Account and contact lists can be specified for inclusion or exclusion, allowing
customers to enact account-based marketing (“ABM”) campaigns or exclude sensitive
accounts or contacts. |
| | | |
| 6. | List
Scrubbing: Target lists are pre-validated to remove invalid email addresses and other
invalid contacts, improving email deliverability rates. |
Reach
can be used to drive event attendance and reach leads that customers might be otherwise unable to engage.
Product
Roadmap and Enhancements
Improving
our family of products is how we create more value for our customers and our product roadmap is an essential part of delivering on our
vision of improving the value of customer interactions for companies throughout the world. The role of product management at Banzai is
to identify and prioritize underserved and unmet customer and market needs and to use our ability to create products and features based
on data and AI to increase customer value.
| 1. | Strategic
Vision and Alignment: We align our cross-functional objectives around a set of strategies
that we update as the needs of our business change. We use these strategies to create alignment
for our engineering, sales, and marketing teams. This helps us to work cohesively towards
shared goals, maximizing the efficiency and effectiveness of our efforts. |
| | | |
| 2. | Customer-Centric
Approach: By prioritizing innovation, we demonstrate a commitment to addressing the evolving
needs and expectations of our customers. This customer-centric approach helps us maintain
a competitive edge, as we continuously adapt our products and services to stay relevant and
valuable to our existing and future customers. |
| 3. | Long-Term
Growth: By identifying opportunities for new features, enhancements, and market segments,
we can strategically plan and execute our growth initiatives, supporting our long-term sustainability
and success. |
| | | |
| 4. | Customer
Expansion: We believe our strategies support increasing the average amount of revenue
we earn per customer per year (our average customer value or “ACV”) through development
of features that are correlated with usage by higher value customers. We also develop add-on
features and products that can be sold to our existing customers. |
| | | |
| 5. | Resource
Allocation: Our strategic planning process allows us to better allocate resources between
projects, allowing us to advance multiple initiatives at once. This capability is essential
for a multi-product company to maintain product leadership on multiple fronts. |
| | | |
| 6. | Stakeholder
Communication: A product roadmap serves as a powerful communication tool, enabling us
to set clear expectations with our customers. We use tools such as Product Board to accept
customer feedback and share upcoming product changes. |
There
are several product areas that we are focused on for the foreseeable future. These may change from time to time as we learn from our
customers and make changes to our strategy.
| 1. | Mobile
Capabilities: By expanding our mobile web experience or developing future mobile apps,
we believe we can increase customer value across multiple products, including Demio. |
| | | |
| 2. | Integrations:
Integrations are a core feature of Demio. Over time, we will want to develop integrations
with new systems, as well as improve our existing integrations. |
| | | |
| 3. | AI:
We are exploring a number of additional AI-powered features such as text-to-voice, translation,
transcription, and content generation. |
| | | |
| 4. | Analytics
& Insights: We are embedding analytics and insights features into multiple products,
including Demio. These features seek to enable our customers to see new perspectives on their
data, further improve their results, and dramatically reduce their manual analysis effort. |
| | | |
| 5. | Ad
Generation: We believe there may be opportunities in automating ad-creative generation
(e.g., text, images, and videos) to help our customers improve their ad performance through
automated testing. |
| | | |
| 6. | Content
and Experience Hosting: We are expanding the content and experiences that can be hosted
and deployed using Banzai products. For example, we plan to improve our automated events
capability in Demio. |
Research
and Development Expenses
As
a product-led company, we attain and maintain our competitive advantage through our investment in our products. Maintenance of existing
products and development of new products are both essential to our long-term success. Therefore, our management team feels that significant
investment in technology is required in the future. We plan to utilize a combination of in-house employees and development partners to
maintain and improve our technology.
Our
Growth Strategies
Our
growth strategy is to expand our platform to make it more valuable to customers and find new ways to enhance a wider range of MarTech
interactions. The key elements of our growth strategy are:
| 1. | Cost
Efficient Customer Acquisition: Continue to acquire new customers cost effectively through
organic traffic, content, affiliates, social media, partnerships, advertising, word-of-mouth,
and other sources. |
| | | |
| 2. | Customer
Retention and Expansion: Continue to expand our customer success and customer marketing
organizations to increase customer retention and customer expansion. |
| | | |
| 3. | Implement
Product Improvements: Continue to develop our family of products to create defensibly
differentiated solutions that are essential to customers. |
| | | |
| 4. | Introduce
New Products: Roll out new products that attract new customers and expand the ways we
can serve existing customers. |
| | | |
| 5. | Acquisition
Strategy: Banzai announced and has signed a non-binding LOI to acquire 4 target companies
in Q1 2024. These companies are highly profitable with rapid business growth in the MarTech
space that provide data analytics, innovative solutions in social media and B2B scraping
across multiple platforms. Completion of these acquisitions will enhance the company’s
product offerings that will lead to the next stage of growth for Banzai. |
Sales
and Marketing
Our
primary focus is on increasing mid-market and enterprise customers for Demio. Progress towards this is reflected in our increase in multi-host
Demio customers from 12 on January 1, 2021 to 116 on December 31, 2023, an approximately 10-fold increase.
As
a product-led growth company, we utilize a hybrid self-service and direct sales go-to-market approach. Our self-service customers subscribe
or purchase directly from our product websites or start free product trials which can lead to a later paid subscription or purchase.
Our direct sales customers subscribe or purchase through sales representatives, who are compensated with a base salary and typically
participate in incentive plans such as commissions or bonuses.
Trials,
customers, and leads come from organic website visitors, affiliates and partners, and visitors from paid ads such as Google ads. We also
utilize partner marketing, account-based marketing, lead generation and demand generation programs, webinars, and other direct and indirect
marketing activities to reach our target audience and acquire leads and customers.
We
sell our products using a recurring subscription license model typical in SaaS businesses. Pricing tiers for our main product, Demio,
are based on the number of host-capable users, desired feature sets, and maximum audience size. Boost pricing tiers are based on the
Demio plan to which the customer subscribes. Reach pricing is based on the number of event campaigns a customer has access to run simultaneously
or the maximum number of registrations a customer is allowed to generate per subscription period. Our customer contracts vary in term
length from single months to multiple years. It is common for our customers to purchase services to supplement their subscriptions to
include additional licenses or products. For example, as of December 31, 2023, less than 8 months after the launch of the Boost product,
approximately 1.0% of Demio customers had also purchased the Boost add-on product.
Competition,
Strengths, and Differentiation
We
compete across five distinct categories within the B2B MarTech landscape: digital events and webinars, demand generation, creative development,
engagement platforms and marketing automation, and measurement and attribution.
We
believe our strengths are:
| 1. | Brand:
Our recognizable brand, and the brands of our products, especially Demio, can be leveraged
to acquire customers at lower costs than reliance on paid advertising alone. |
| | | |
| 2. | Existing
Customer Base: Our existing customers can be cross-sold additional products we may offer
in the future. We can also cross sell our current products to existing customers. |
| | | |
| 3. | Customer
Success: We have developed an operational competency in customer success, enabling us
to more effectively leverage our customer base to drive expansion sales. |
We
seek to differentiate ourselves from the crowded MarTech market in the following ways:
| 1. | Data:
Our products incorporate data either as a primary value proposition or an enabling feature,
or by utilizing data through integrations to simplify and streamline otherwise complex business
processes. |
| | | |
| 2. | AI
/ Machine Learning: Many of our products incorporate AI and machine learning to deliver
new capabilities or improved performance for our customers. |
| | | |
| 3. | Marketing
Industry Focus: Our focus exclusively on the marketing industry differentiates us from
broad-market competitors such as Zoom and GoToWebinar in the digital event, analytics, and
webinar product categories. |
| | | |
| 4. | Organic
Customer Acquisition: The majority of our product trials and new leads come from organic
customer acquisition due to our content, social media, affiliates, word-of-mouth, and brand
awareness. |
| | | |
| 5. | Multi-Product
Strategy: Multiple products provide opportunities to grow our customer base through expansion
that single-product companies typically do not have. |
Intellectual
Property
To
establish and protect our proprietary rights, we rely on a combination of trademarks and trade secrets, including know-how, license agreements,
confidentiality procedures, non-disclosure agreements with third parties, employee disclosure and invention assignment agreements, and
other contractual rights. As of December 31, 2023, we held two registered trademark in the United States: “Banzai”, “Demio”.
For more information regarding risks related to our intellectual property, please see “Risk Factors-Risks Related to Business
and Industry-Failure to protect or enforce our intellectual property rights could harm our business and results of operations”
and “Risk Factors-Risks Related to Business and Industry-Third parties may initiate legal proceedings alleging that we are infringing
or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could harm our business.”
Government
Regulation
We
are subject to federal, state, and foreign legal requirements on matters customary to the SaaS and MarTech industries such as data privacy
and protection, employment and labor relations, immigration, taxation, anti-corruption, import/export controls, trade restrictions, internal
and disclosure control obligations, securities regulation, and anti-competition considerations.
Regarding
privacy and communications, we are subject to the following regulatory standards and laws: the GDPR, CCPA, Telephone Consumer Protection
Act (TCPA), Canada’s Anti-Spam Legislation (CASL), the Controlling the Assault of Non-Solicited Pornography and Marketing Act of
2003 (CAN-SPAM), and others that may apply in the various regions in which we operate.
Violations
of one or more of these diverse legal requirements in the conduct of our business could result in significant fines and other damages,
criminal sanctions against us or our officers, prohibitions on doing business and damage to our reputation. Violations of these regulations
or contractual obligations related to regulatory compliance in connection with the performance of customer contracts could also result
in liability for significant monetary damages, fines and/or criminal prosecution, unfavorable publicity and other damage to our reputation,
restrictions on our ability to compete for certain work and allegations by our customers that we have not performed our contractual obligations.
To date, we have not experienced material fines or penalties related to these regulations.
Employees
and Management
As
of December 31, 2023, we had 13 full-time employees, 0 part-time employees, and 54 contractors.
Our
culture is unique and an important contributor to our success. Our culture allows us to scale our business by attracting and retaining
great people who are aligned to our values. Having shared values enables our team members to make independent decisions, encourages accountability,
and fosters collaboration. Our culture is defined by four core values:
| 1. | Learning.
Technology and marketing are constantly changing. We value learning because adaptation
is essential to delivering the best solutions for our customers. Our team members are open-minded,
critical-thinkers who are willing to disagree, try new things, and change their minds when
warranted. |
| | | |
| 2. | Serving
Others. Nothing happens without our customers. We value Serving Others because serving
customers is the reason we exist. Our team members prioritize the needs of our customers,
our team, and our communities. |
| | | |
| 3. | Game
Changing. To succeed in a competitive marketplace, we have to deliver impactful solutions
for our customers. Our team members find creative solutions, raise the bar, take risks, and
help our customers realize more successful outcomes. |
| | | |
| 4. | “10,000
Years.” To achieve long-term success, we must plan and act with the end goal in
mind. We value the symbolism of the term “10,000 Years” (the literal translation
of the Japanese word “Banzai”), because it reminds us that we’re building
for the future—to something greater than what we see today—and that each day
we’re contributing toward that vision. |
Business
Combination
On
December 14, 2023, we consummated the Business Combination with Legacy Banzai. Pursuant to the terms of the Merger Agreement, the Business
Combination was effected through (a) the merger of First Merger Sub with and into Legacy Banzai, with Legacy Banzai surviving as a wholly-owned
subsidiary of 7GC (Legacy Banzai, in its capacity as the surviving corporation of the merger, the “Surviving Corporation”)
(the “First Merger”) and (b) the subsequent merger of the Surviving Corporation with and into Second Merger Sub, with the
Second Merger Sub being the surviving entity of the Second Merger, which ultimately resulted in Legacy Banzai becoming a wholly-owned
direct subsidiary of 7GC (the “Second Merger” and, together with the First Merger, the “Mergers”). Upon closing
the Business Combination, we changed our name from 7GC & Co. Holdings Inc. to Banzai International, Inc.
A
description of the Business Combination and the material terms of the Merger Agreement are included in the final prospectus and definitive
proxy statement, dated November 13, 2023 (the “Proxy Statement/Prospectus”), filed by the Company with the Securities and
Exchange Commission (the “SEC”) in the section entitled “Stockholder Proposal No. 1—The Business Combination
Proposal” beginning on page 92 of the Proxy Statement/Prospectus.
Available
Information
We
file with, or furnish to, the SEC reports, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports are available free
of charge via EDGAR through the SEC website (www.sec.gov) and are also available free of charge on our corporate website (https://ir.banzai.io/financial-information/sec-filings)
as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The foregoing website addresses are
provided as inactive textual references only. The information provided on our website (or any other website referred to in this report)
is not part of this report and is not incorporated by reference as part of this Annual Report.
Item
1A. Risk Factors.
Investing
in our securities involves risks. Before you make a decision to buy or sell our securities, in addition to the risks and uncertainties
discussed above under “Cautionary Note Regarding Forward-Looking Statements” above, you should carefully consider the specific
risks set forth herein. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and
results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment.
Additionally, the risks and uncertainties described in this Annual Report are not the only risks and uncertainties that we face. Additional
risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect
our business.
Risks
Factors Summary
The
following is a summary of the principal risks that could materially adversely affect our business, financial condition or results of
operations in future periods. The summary should be read together with the more detailed description of each risk factor described below.
Risks
Related to our Business and Industry
| ● | We
have incurred significant operating losses in the past and may never achieve or maintain
profitability. |
| | | |
| ● | We
have a limited operating history with our current offerings, which makes it difficult to
evaluate our current and future business prospects and increases the risk of your investment. |
| | | |
| ● | Our
revenue growth rate depends on existing customers renewing and maintaining or expanding their
subscriptions, and if we fail to retain our customers at current or expanded subscriptions,
our business will be harmed. |
| | | |
| ● | If
we are unable to attract new customers on a cost-effective basis, our business will be harmed. |
| | | |
| ● | If
we fail to effectively manage our growth, our business, results of operations, and financial
condition may be harmed. |
| | | |
| ● | We
may be unable to successfully execute on our growth initiatives, business strategies, or
operating plans. |
| | | |
| ● | If
the assumptions, analyses, and estimates upon which our forecasts, projections and outlook
are based prove to be incorrect or inaccurate, our actual results may differ materially from
those forecasted or projected. |
| ● | If
we fail to attract and retain qualified personnel, our business could be harmed. |
| | | |
| ● | Our
management team has a limited history working together operating the Company and, as a result,
our past results may not be indicative of future operating performance. |
| | | |
| ● | We
may not successfully develop or introduce new and enhanced products that achieve market acceptance,
or successfully integrate acquired products or services with our existing products, and our
business could be harmed and our revenue could suffer as a result. |
| | | |
| ● | If
we do not adequately fund our development efforts, we may not be able to compete effectively
and our business and operating results may be harmed. |
| | | |
| ● | Our
acquisitions of, and investments in, other businesses, products, or technologies may not
yield expected benefits and our inability to successfully integrate acquisitions may negatively
impact our business, financial condition, and results of operations. |
| | | |
| ● | We
face significant competition from both established and new companies offering marketing,
sales, and engagement software and other related applications, as well as internally developed
software, which may harm our ability to add new customers, retain existing customers, and
grow our business. |
| | | |
| ● | Our
business, results of operations, and financial condition may fluctuate on a quarterly and
annual basis, which may result in a decline in our stock price if such fluctuations result
in a failure to meet any projections that we may provide or the expectations of securities
analysts or investors. |
| | | |
| ● | Because
we recognize revenue from subscriptions for our product offerings over the terms of the subscriptions,
our financial results in any period may not be indicative of our financial health and future
performance. |
| | | |
| ● | Our
sales cycle can be lengthy and unpredictable, which may cause our operating results to vary
significantly. |
| | | |
| ● | Covenant
restrictions in our existing or future debt instruments may limit our flexibility to operate
and grow our business, and if we are not able to comply with such covenants or pay amounts
when due, our lenders could accelerate our indebtedness, proceed against certain collateral
or exercise other remedies, which could have a material adverse effect on us. |
| | | |
| ● | The
impacts of geopolitical, macroeconomic, and market conditions, including pandemics, epidemics
and other public health crises, have had, and may continue to have, a significant effect
on our industry, which in turn affects how we and our customers are operating our respective
businesses. Our business is susceptible to declines or disruptions in the demand for meetings
and events, including those due to economic downturns, natural disasters, geopolitical upheaval,
and global pandemics. |
| | | |
| ● | Cybersecurity
and data security breaches and ransomware attacks may create financial liabilities for us,
damage our reputation, and harm our business. |
| | | |
| ● | Privacy
and data security laws and regulations could impose additional costs and reduce demand for
our solutions. |
| | | |
| ● | Our
product offerings, solutions, and internal systems, as well as external internet infrastructure,
may be subject to disruption that could harm our reputation and future sales or result in
claims against us. |
| | | |
| ● | Undetected
defects in our product offerings could harm our reputation or decrease market acceptance
of our product offerings, which would harm our business and results of operations. |
| | | |
| ● | We
rely on internet infrastructure, bandwidth providers, data center providers, other third
parties, and our own systems for providing solutions to our customers, and any failure or
interruption in the services provided by these third parties or our own systems could expose
us to litigation and negatively impact our relationships with customers, adversely affecting
our brand and our business. |
| | | |
| ● | If
we fail to effectively maintain and enhance our brands, our business may suffer. |
| | | |
| ● | Our
ability to use our net operating loss to offset future taxable income may be subject to certain
limitations. |
| | | |
| ● | We
need to continue making significant investments in software development and equipment to
improve our business. |
| | | |
| ● | Adverse
litigation results could have a material adverse impact on our business. |
| | | |
| ● | Failure
to protect or enforce our intellectual property rights could harm our business and results
of operations. |
| | | |
| ● | Third
parties may initiate legal proceedings alleging that we are infringing or otherwise violating
their intellectual property rights, the outcome of which would be uncertain and could harm
our business. |
| | | |
| ● | Our
use of open source software could adversely affect our ability to offer our solutions and
subject us to possible litigation. |
Risks
Related to Ownership of Our Securities
| ● | In
order to support the growth of our business and repay our indebtedness, we will need to seek
capital through new equity or debt financings or incur additional indebtedness under our
credit facilities, which sources of additional capital may not be available to us on acceptable
terms or at all. |
| | | |
| ● | Future
sales of shares of Class A Common Stock may depress their stock price. |
| | | |
| ● | Issuances
of shares of Class A Common Stock pursuant to any Advances under the SEPA (as defined below),
exercise of the GEM Warrant (as defined below) and conversion of any amounts under the Notes
would result in substantial dilution of our stockholders and may have a negative impact on
the market price of our Class A Common Stock. |
| | | |
| ● | Nasdaq
(as defined below) may delist our securities from trading on its exchange, which could limit
investors’ ability to make transactions in our securities and subject us to additional
trading restrictions. |
| | | |
| ● | If
our Class A Common Stock ceases to be listed on a national securities exchange it will become
subject to the so-called “penny stock” rules that impose restrictive sales practice
requirements. |
| | | |
| ● | Our
dual class common stock structure has the effect of concentrating voting power with our Chief
Executive Officer and Co-Founder, Joseph Davy, which limits an investor’s ability to
influence the outcome of important transactions, including a change in control. |
| | | |
| ● | We
cannot predict the impact our dual class structure will have on the market price of Class
A Common Stock. |
| | | |
| ● | As
a “controlled company” within the meaning of Nasdaq listing rules, we qualify
for exemptions from certain corporate governance requirements and have the opportunity to
elect to avail ourselves of any of the exemptions afforded a controlled company. If we elect
to rely on some of these exemptions, our stockholders will not have the same protections
afforded to stockholders of companies that are subject to such requirements. |
| | | |
| ● | The
market price of Class A Common Stock is likely to be highly volatile, and you may lose some
or all of your investment. |
| | | |
| ● | Volatility
in the price of Class A Common Stock could subject us to securities class action litigation. |
| | | |
| ● | If
securities or industry analysts do not publish research or reports about us, or publish negative
reports, then our stock price and trading volume could decline. |
| | | |
| ● | We
will incur increased costs and demands upon management as a result of complying with the
laws and regulations affecting public companies, which could adversely affect our business,
results of operations, and financial condition. |
| | | |
| ● | We
have identified material weaknesses in our internal control over financial reporting. If
we are unable to remediate these material weaknesses, or if we identify additional material
weaknesses in the future or otherwise fail to maintain an effective system of internal controls,
we may not be able to accurately or timely report our financial condition or results of operations,
which may adversely affect our business and stock price. |
| | | |
| ● | Our
executive officers, directors, and holders of 5% or more of the outstanding shares of Class
A Common Stock collectively beneficially own approximately 69.50% of the outstanding Class
A Common Stock and have substantial control over us, which will limit your ability to influence
the outcome of important transactions, including a change in control. |
| | | |
| ● | It
is not currently anticipated that we will pay dividends on shares of Class A Common Stock,
and, consequently, your ability to achieve a return on your investment will depend on appreciation,
if any, in the market price of Class A Common Stock. |
| | | |
| ● | The
Delaware General Corporation Law (“DGCL”) and our Second Amended and Restated
Certificate of Incorporation (“Charter”) and Second Amended and Restated Bylaws
(“Bylaws”) contain certain provisions, including anti-takeover provisions, that
limit the ability of stockholders to take certain actions and could delay or discourage takeover
attempts that stockholders may consider favorable. |
| ● | Our
Charter designates the Court of Chancery of the State of Delaware and, to the extent enforceable,
the federal district courts of the United States of America as the exclusive forums for substantially
all disputes between us and our stockholders, which restricts our stockholders’ ability
to choose the judicial forum for disputes with us or our directors, officers, or employees. |
| | | |
| ● | The
exclusive forum clause set forth in the Warrant Agreement may have the effect of limiting
an investor’s rights to bring legal action and could limit the investor’s ability
to obtain a favorable judicial forum. |
| | | |
| ● | We
are an emerging growth company and smaller reporting company, and we cannot be certain if
the reduced reporting requirements applicable to emerging growth companies and smaller reporting
companies will make our shares less attractive to investors. |
| | | |
| ● | If
our estimates or judgments relating to our critical accounting policies prove to be incorrect
or financial reporting standards or interpretations change, our results of operations could
be adversely affected. |
| | | |
| ● | The
Warrants may never be in the money and they may expire worthless and therefore we may not
receive cash proceeds from the exercise of the Warrants. The terms of the warrants may be
amended in a manner adverse to a holder if holders of at least 50% of the then outstanding
public warrants approve of such amendment. |
| | | |
| ● | We
may redeem your unexpired Public Warrants prior to their exercise at a time that is disadvantageous
to you, thereby making your Public Warrants worthless. |
| | | |
| ● | We
may issue additional shares of Common Stock or Preferred Stock, including under our equity
incentive plan. Any such issuances would dilute the interest of our stockholders and likely
present other risks. |
| | | |
| ● | Sales
of a substantial number of shares of Class A Common Stock in the public market pursuant to
our effective registration statement could reduce the market price of Class A Common Stock. |
| | | |
| ● | If
certain holders of the Class A Common Stock sell a significant portion of their securities,
it may negatively impact the market price of the shares of the Class A Common Stock and such
holders still may receive significant proceeds. |
Risks
Related to our Business and Industry
We
have incurred significant operating losses in the past and may never achieve or maintain profitability.
We
have incurred significant operating losses since our inception, including operating losses of $9.8 million, and $6.2 million, in the
years ended December 31, 2023, and 2022, respectively. We expect our costs will increase substantially in the foreseeable future and
our losses will continue as we expect to invest significant additional funds towards growing our business and operating as a public company
and as we continue to invest in increasing our customer base, expanding our operations, hiring additional sales and other personnel,
developing future products, and potentially acquiring complementary technology and businesses. These efforts may prove more expensive
than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. We are unable
to accurately predict when, or if, we will be able to achieve profitability. Even if we achieve profitability in the future, we may not
be able to sustain profitability in subsequent periods. To date, we have financed our operations principally from the sale of our equity,
revenue from sales, and the incurrence of indebtedness. Our cash flow from operations was negative for the year ended December 31, 2023
and December 31, 2022, respectively, and we may not generate positive cash flow from operations in any given period. If we are not able
to achieve or maintain positive cash flow in the long term, we may require additional financing, which may not be available on favorable
terms or at all and/or which would be dilutive to our stockholders. If we are unable to successfully address these risks and challenges
as we encounter them, our business may be harmed. Our failure to achieve or maintain profitability or positive cash flow could negatively
impact the value of our Class A common stock, par value $0.0001 (“Class A Common Stock”), or Class B common stock, par value
$0.0001 (“Class B Common Stock” and, collectively with the Class A Common Stock, the “Common Stock”).
There
is substantial doubt about our ability to continue as a going concern, and holders of our securities could suffer a total loss of their
investment. We may need to raise additional capital to continue our operations. Such capital may not be available to us or may not be
available at terms we deem acceptable, either of which could reduce our ability to compete and could negatively affect our business.
Management
has concluded, and the report of our auditors included in this Annual Report on Form 10-K reflect, that there is substantial doubt about
our ability to continue as a going concern within 12 months after the date of this filing. The reaction of investors to the inclusion
of a going concern statement by management and our auditors and our potential inability to continue as a going concern may materially
adversely affect the price of our publicly traded securities and our ability to raise new capital or enter into partnerships. If we are
unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets
are carried on our financial statements, and it is likely that investors will lose all or part of their investment. Further, the perception
that we may be unable to continue as a going concern may impede our ability to pursue strategic opportunities or operate our business
due to concerns regarding our ability to fulfill our contractual obligations. In addition, if there remains substantial doubt about our
ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on
commercially reasonable terms, or at all.
There
can be no assurance that we will be able to achieve our forecast or to raise additional capital in sufficient amounts or on favorable
terms, or at all. If we are unable to meet or exceed our forecast or raise adequate additional capital when required or in sufficient
amounts or on terms acceptable to us, we may have to significantly reduce expenses, sell assets (potentially at a loss), cease operations
altogether, pursue an acquisition of our company at a price that may result in up to a total loss on investment for our shareholders,
file for bankruptcy or seek other protection from creditors, or liquidate all of our assets.
We
have a limited operating history with our current offerings, which makes it difficult to evaluate our current and future business prospects
and increases the risk of your investment.
While
we served our first customer in 2017 (operating as Legacy Banzai), we have significantly altered our product offerings over the past
few years. Our limited operating history with respect to our current product offerings makes it difficult to effectively assess or forecast
our future prospects. For example, in 2021, we acquired Demio Holding, Inc., a Delaware corporation (“Demio”), a webinar
platform startup, and integrated Demio’s platform into our service offerings and in 2023, we launched Boost, a tool used by Demio
customers to enhance participation in their Demio webinars. You should consider our business and prospects in light of the risks and
difficulties we encounter or may encounter. These risks and difficulties include our ability to cost-effectively acquire new customers,
retain existing customers, and expand the scope of the platform we sell to new and existing customers. Furthermore, in pursuit of our
growth strategy, we may enter into new partnerships to further penetrate our targeted markets and adoption of our solutions, but it is
uncertain whether these efforts will be successful. If we fail to address the risks and difficulties that we may face, including those
associated with the challenges listed above, our business, prospects, financial condition, and operating results may be materially and
adversely harmed.
It
is difficult to predict our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may
emerge and affect our business. In the event that actual results differ from our estimates or we adjust our estimates in future periods,
our operating results and financial position could be materially affected.
Our
revenue growth rate depends on existing customers renewing and maintaining or expanding their subscriptions, and if we fail to retain
our customers at current or expanded subscriptions, our business will be harmed.
Our
customers have no obligation to renew their subscriptions for our product offerings after the expiration of their subscription periods.
Our customers may not renew. Our renewal and reactivation rates may decline because of a number of factors, including, among other things,
customer dissatisfaction, customers’ spending levels, decreased return on investment, increased competition, or pricing changes.
If our customers do not renew their subscriptions or downgrade the products purchased under their subscriptions, our revenue may decline
and our business may be harmed. Our future success also depends in part on existing customers expanding their subscriptions. If our efforts
to sell upgrades to our customers are not successful, it may decrease our revenue growth rate.
If
we are unable to attract new customers on a cost-effective basis, our business will be harmed.
To
grow our business, we must continue to grow our customer base in a cost-effective manner. Increasing our customer base and achieving
broader market acceptance of our product offerings will depend, to a significant extent, on our ability to effectively expand our sales
and marketing activities. We may not be able to recruit qualified personnel, train them to perform, and achieve an acceptable level of
sales production from them on a timely basis or at all. In addition, the cost to attract new customers may increase as we market our
existing and new products to different market segments. If we are unable to maintain effective sales and marketing activities, our ability
to attract new customers could be harmed, our sales and marketing expenses could increase substantially, and our business may be harmed.
Further, to the extent there is a sustained general economic downturn and our customers and potential customers experience delays or
reductions in general customer engagement technology spending, potential customers may be unwilling to take on the additional cost associated
with adopting our product offerings as an alternative to their existing products or service providers, and if they choose to adopt our
products, they may not purchase additional products and services in the future due to budget limitations.
If
we fail to effectively manage our growth, our business, results of operations, and financial condition would likely be harmed.
We
expect to continue to experience growth in our headcount and operations, which will continue to place significant demands on our management
and our administrative, operational, and financial reporting resources. Our growth will require hiring additional employees and making
significant expenditures, particularly in sales and marketing but also in our technology, professional services, finance, and administration
teams. Our ability to effectively manage our growth will require the allocation of management and employee resources along with improvements
to operational and financial controls and reporting procedures and systems. Our expenses may increase more than we plan, and we may fail
to hire qualified personnel, expand our customer base, enhance our existing products, develop new products, integrate any acquisitions,
satisfy the requirements of our existing customers, respond to competitive challenges, or otherwise execute our strategies. If we are
unable to effectively manage our growth, our business, results of operations, and financial condition would likely be harmed.
We
may be unable to successfully execute on our growth initiatives, business strategies, or operating plans.
We
are continually executing on growth initiatives, strategies, and operating plans designed to enhance our business and extend our existing
and future offerings to address evolving needs. The anticipated benefits from these efforts are based on several assumptions that may
prove to be inaccurate. Moreover, we may not be able to successfully complete these growth initiatives, strategies, and operating plans
and realize all of the benefits, including growth targets and cost savings, that we expect to achieve, or it may be more costly to do
so than we anticipate. A variety of risks could cause us not to realize some or all of the expected benefits. These risks include, among
others, delays in the anticipated timing of activities related to such growth initiatives, strategies, and operating plans, increased
difficulty and cost in implementing these efforts, including difficulties in complying with new regulatory requirements, the incurrence
of other unexpected costs associated with operating our business, and lack of acceptance by our customers. Moreover, our continued implementation
of these programs may disrupt our operations and performance. As a result, we cannot assure you that we will realize these benefits.
If, for any reason, the benefits we realize are less than our estimates or the implementation of these growth initiatives, strategies,
and operating plans adversely affect our operations or cost more or take longer to effectuate than we expect, or if our assumptions prove
inaccurate, our business may be harmed.
Any
forecasts, projections or outlook we may provide are based upon certain assumptions, analyses, and estimates. If these assumptions, analyses,
or estimates prove to be incorrect or inaccurate, our actual results may differ materially from those forecasted or projected.
Any
forecasts, projections or outlook, including projected annual recurring revenue, revenue growth, cost of goods sold, operating expense,
gross margin, and anticipated organic and inorganic growth, are subject to significant uncertainty and are based on certain assumptions,
analyses, and estimates, including with reference to third-party forecasts, any or all of which may prove to be incorrect or inaccurate.
These may include assumptions, analyses, and estimates about future pricing, and future costs, all of which are subject to a wide variety
of business, regulatory, and competitive risks and uncertainties. If these assumptions, analyses, or estimates prove to be incorrect
or inaccurate, our actual results may differ materially from those forecasted or projected, and may adversely affect the value of our
Class A Common Stock.
If
we fail to attract and retain qualified personnel, our business could be harmed.
Our
success depends in large part on our ability to attract, integrate, motivate, and retain highly qualified personnel at a reasonable cost
on the terms we desire, particularly sales and marketing personnel, software developers, and technical and customer support. Competition
for skilled personnel, particularly in the technology industry, is intense and we may not be successful in attracting, motivating, and
retaining needed personnel. We also may be unable to attract or integrate into our operations qualified personnel on the schedule we
desire. We have from time to time experienced, and we expect to continue to experience, difficulty in attracting, integrating, motivating,
and retaining highly qualified personnel, which could harm our business. In addition, dealing with the loss of the services of our executive
officers or other key personnel and the process to replace any of our executive officers or other key personnel may involve significant
time and expense, take longer than anticipated, and significantly delay or prevent the achievement of our business objectives, which
may harm our business.
Our
management team has a limited history working together operating the Company and, as a result, our past results may not be indicative
of future operating performance.
We
have a limited history working together operating the Company, which makes it difficult to forecast our future results. You should not
rely on our past quarterly operating results as indicators of future performance. In addition, you should consider and evaluate our prospects
in light of the risks and uncertainties frequently encountered by companies in rapidly evolving markets like ours, as well as the information
included in this Annual Report.
We
may not successfully develop or introduce new and enhanced products that achieve market acceptance, or successfully integrate acquired
products or services with our existing products, and our business could be harmed and our revenue could suffer as a result.
Our
ability to attract new customers and increase revenue from existing customers will likely depend upon the successful development, introduction,
and customer acceptance of new and enhanced versions of our product offerings and on our ability to integrate any products and services
that we may acquire, as well as our ability to add new functionality and respond to technological advancements. Moreover, if we are unable
to expand our product offerings, our customers could migrate to competitors. Our business could be harmed if we fail to deliver new versions,
upgrades, or other enhancements to our existing products to meet customer needs on a timely and cost-effective basis. Unexpected delays
in releasing new or enhanced versions of our product offerings, or errors following their release, could result in loss of sales, delay
in market acceptance, or customer claims against us, any of which could harm our business. The success of any new product depends on
several factors, including timely completion, adequate quality testing, and market acceptance. We may not be able to develop new products
successfully or to introduce and gain market acceptance of new solutions in a timely manner, or at all. If we are unable to develop new
applications or products that address our customers’ needs, or to enhance and improve our product offerings in a timely manner,
we may not be able to maintain or increase customer use of our products.
Our
ability to introduce new products and features is dependent on adequate development resources. If we do not adequately fund our development
efforts, we may not be able to compete effectively and our business and operating results may be harmed.
To
remain competitive, we must continue to develop new product offerings, applications, features, and enhancements to our existing product
offerings. Maintaining adequate development personnel and resources to meet the demands of the market is essential. If we are unable
to develop our product offerings internally due to certain constraints, such as high employee turnover, lack of management ability, or
a lack of other research and development resources, we may miss market opportunities. Further, many of our competitors expend a considerably
greater amount of funds on their development programs, and those that do not may be acquired by larger companies that would allocate
greater resources to our competitors’ development programs. Our failure to maintain adequate development resources or to compete
effectively with the development programs of our competitors could materially adversely affect our business.
Our
acquisitions of, and investments in, other businesses, products, or technologies may not yield expected benefits and our inability to
successfully integrate acquisitions may negatively impact our business, financial condition, and results of operations.
In
the past, we have pursued acquisitions of technology and expertise to enhance the products and services we offer. For example, in 2021,
we acquired webinar platform startup Demio and integrated Demio’s platform into our service offerings. We anticipate that we will
continue to make acquisitions of or investments in businesses, products, and technologies in the future. We may not realize the anticipated
benefits, or any benefits, from our past or future acquisitions. In addition, if we finance acquisitions by incurring debt or by issuing
equity or convertible or other debt securities, our then-existing stockholders may be diluted or we could face constraints related to
the repayment of indebtedness. To the extent that the acquisition consideration is paid in the form of an earnout on future financial
results, the success of such an acquisition will not be fully realized by us for a period of time as it is shared with the sellers. Further,
if we fail to properly evaluate and execute acquisitions or investments, our business and prospects may be harmed and the value of your
investment may decline. For us to realize the benefits of past and future acquisitions, we must successfully integrate the acquired businesses,
products, or technologies with ours. Some of the challenges to successful integration of our acquisitions include:
| ● | unanticipated
costs or liabilities resulting from our acquisitions; |
| ● | retention
of key employees from acquired businesses; |
| | | |
| ● | difficulties
integrating acquired operations, personnel, technologies, or products; |
| | | |
| ● | diversion
of management attention from existing business operations and strategy; |
| | | |
| ● | diversion
of resources that are needed in other parts of our business, including integration of other
acquisitions; |
| | | |
| ● | potential
write-offs of acquired assets; |
| | | |
| ● | inability
to maintain relationships with customers and partners of the acquired businesses; |
| | | |
| ● | difficulty
of transitioning acquired technology and related infrastructures into our existing product
offerings; |
| | | |
| ● | difficulty
maintaining security and privacy standards of acquired technology consistent with our existing
products; |
| | | |
| ● | potential
financial and credit risks associated with the acquired businesses or their customers; |
| | | |
| ● | the
need to implement internal controls, procedures, and policies at the acquired companies; |
| | | |
| ● | the
need to comply with additional laws and regulations applicable to the acquired businesses;
and |
| | | |
| ● | the
income and indirect tax impacts of any such acquisitions. |
Our
failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could
cause us to fail to realize the anticipated benefits of such acquisitions or investments and negatively impact our business, financial
condition, and results of operations.
We
face significant competition from both established and new companies offering marketing, sales, and engagement software and other related
applications, as well as internally developed software, which may harm our ability to add new customers, retain existing customers, and
grow our business.
The
marketing, sales, customer service, operations, and engagement software market is evolving, highly competitive, and significantly fragmented.
With the introduction of new technologies and the potential entry of new competitors into the market, we expect competition to persist
and intensify in the future, which could harm our ability to increase sales, maintain or increase renewals, and maintain our prices.
We
face intense competition from other software companies that develop marketing, sales, customer service, operations, and engagement management
software and from marketing services companies that provide interactive marketing services. Competition could significantly impede our
ability to sell subscriptions to our products on terms favorable to us. Our current and potential competitors may develop and market
new technologies that render our existing or future products less competitive or obsolete. In addition, if these competitors develop
products with similar or superior functionality to our platform, we may need to decrease the prices or accept less favorable terms for
our platform subscriptions in order to remain competitive. If we are unable to maintain our pricing due to competitive pressures, our
margins will be reduced and our operating results will be negatively affected.
Our
competitors include:
| ● | Vimeo,
Zoom, and GoToWebinar with respect to video platforms; |
| | | |
| ● | Mailchimp
and Constant Contact with respect to email marketing; and |
| | | |
| ● | Marketo,
Hubspot, and Braze with respect to marketing automation platforms. |
We
compete across five distinct categories within the B2B (as defined below) MarTech landscape: digital events and webinars, demand generation,
creative development, engagement platforms and marketing automation, and measurement and attribution. Our current and potential competitors
within any or all of such categories may have significantly more financial, technical, marketing, and other resources than we have, be
able to devote greater resources to the development, promotion, sale, and support of their products and services, may have more extensive
customer bases and broader customer relationships than we have, and may have longer operating histories and greater name recognition
than we have. As a result, these competitors may respond faster to new technologies and undertake more extensive marketing campaigns
for their products. In a few cases, these vendors may also be able to offer additional software at little or no additional cost by bundling
it with their existing suite of applications. To the extent any of our competitors has existing relationships with potential customers
for either marketing software or other applications, those customers may be unwilling to purchase our products because of their existing
relationships with our competitor. If we are unable to compete with such companies, the demand for our product offerings could substantially
decline.
In
addition, if one or more of our competitors were to merge or partner with another of our competitors, our ability to compete effectively
could be adversely affected. Our competitors may also establish or strengthen cooperative relationships with our current or future strategic
distribution and technology partners or other parties with whom we have relationships, thereby limiting our ability to promote and implement
our product offerings. We may not be able to compete successfully against current or future competitors, and competitive pressures may
harm our business.
Our
business, results of operations, and financial condition may fluctuate on a quarterly and annual basis, which may result in a decline
in our stock price if such fluctuations result in a failure to meet any projections that we may provide or the expectations of securities
analysts or investors.
Our
operating results have in the past and could in the future vary significantly from quarter-to-quarter and year-to-year and may fail to
match our past performance, our projections, or the expectations of securities analysts because of a variety of factors, many of which
are outside of our control and, as a result, should not be relied upon as an indicator of future performance. As a result, we may not
be able to accurately forecast our operating results and growth rate. Any of these events could cause the market price of Class A Common
Stock to fluctuate. Factors that may contribute to the variability of our operating results include:
| ● | our
ability to attract new customers and retain existing customers; |
| | | |
| ● | the
financial condition of our current and potential customers; |
| | | |
| ● | changes
in our sales and implementation cycles; |
| | | |
| ● | introductions
and expansions of our product offerings, offerings, or challenges with their introduction; |
| | | |
| ● | changes
in our pricing or fee structures or those of our competitors; |
| | | |
| ● | the
timing and success of new offering introductions by us or our competitors or any other change
in the competitive landscape of our industry; |
| | | |
| ● | increases
in operating expenses that we may incur to grow and expand our operations and to remain competitive; |
| | | |
| ● | our
ability to successfully expand our business; |
| | | |
| ● | breaches
of information security or privacy; |
| | | |
| ● | changes
in stock-based compensation expenses; |
| | | |
| ● | the
amount and timing of operating costs and capital expenditures related to the expansion of
our business; |
| | | |
| ● | adverse
litigation judgments, settlements, or other litigation-related costs; |
| | | |
| ● | the
cost and potential outcomes of ongoing or future regulatory investigations or examinations,
or of future litigation; |
| | | |
| ● | changes
in our effective tax rate; |
| | | |
| ● | our
ability to make accurate accounting estimates and appropriately recognize revenue for our
existing and future offerings; |
| | | |
| ● | changes
in accounting standards, policies, guidance, interpretations, or principles; |
| | | |
| ● | instability
in the financial markets; |
| | | |
| ● | general
economic conditions, both domestic and international; |
| | | |
| ● | volatility
in the global financial markets; |
| | | |
| ● | political,
economic, and social instability, including terrorist activities and outbreaks of public
health threats, such as coronavirus, influenza, or other highly communicable diseases or
viruses, and any disruption these events may cause to the global economy; and |
| | | |
| ● | changes
in business or macroeconomic conditions. |
The
impact of one or more of the foregoing and other factors may cause our operating results to vary significantly. As such, we believe that
quarter-to-quarter and year-to-year comparisons of our operating results may not be meaningful and should not be relied upon as an indication
of future performance.
Because
we recognize revenue from subscriptions for our product offerings over the terms of the subscriptions, our financial results in any period
may not be indicative of our financial health and future performance.
We
generally recognize revenue from subscription fees paid by customers ratably over the terms of their subscription agreements. As a result,
most of the subscription revenue we report in each quarter is the result of agreements entered into during previous quarters. Consequently,
a decline in new or renewed subscriptions in any one quarter will not be fully reflected in our revenue results for that quarter. Any
such decline, however, will negatively affect our revenue in future quarters. Our subscription model also makes it difficult for us to
rapidly increase our revenue through additional sales in any period, as subscription revenue from new customers must be recognized over
the applicable subscription terms.
Our
sales cycle can be lengthy and unpredictable, which may cause our operating results to vary significantly.
Our
sales cycle, which is the time between initial contact with a potential new customer and the ultimate sale to that customer, is often
lengthy and unpredictable. Potential new customers typically spend significant time and resources evaluating product offering solutions,
which requires us to expend substantial time, effort, and money educating them about the value of our platform. Accordingly, it is difficult
for us to forecast when or if a sale will close or the size of any specific sales to new customers. In addition, customers may delay
their purchases from one quarter to another as they wait for us to develop new features, assess their budget constraints, or forecast
future business activity. Any delay in closing, or failure to close, sales in a particular quarter or year could significantly harm our
projected growth rates and could cause our operating results to vary significantly.
Covenant
restrictions in our existing or future debt instruments may limit our flexibility to operate and grow our business, and if we are not
able to comply with such covenants or pay amounts when due, our lenders could accelerate our indebtedness, proceed against certain collateral
or exercise other remedies, which could have a material adverse effect on us.
On
February 19, 2021, we entered into a loan agreement with CP BF Lending LLC (our “Lender” and such agreement, the “Loan
Agreement”). The Loan Agreement contains a number of provisions that impose operating and financial restrictions which, subject
to certain exceptions, limit our ability to, among other things: incur additional indebtedness, pay dividends or make distributions or
redeem or repurchase our securities, make certain investments, grant liens on assets, sell or dispose of any material assets; and acquire
the assets of, or merge or consolidate with, other companies. Additionally, the Loan Agreement contains affirmative covenants that require
to us take, and have taken by certain dates, specific actions, some of which have not been satisfied. As a result, on August 24, 2023,
we entered into a forbearance agreement with our Lender (the “Original Forbearance Agreement”), as amended by the First Amendment
to Forbearance Agreement, dated as of December 14, 2023 (the “Forbearance Amendment” and, together with the Original Forbearance
Agreement, the “Forbearance Agreement”), under which we acknowledged that we were in default of several obligations and such
holder acknowledged such defaults and agreed, subject to certain conditions, not to exercise any right or remedy under the Loan Agreement,
including its right to accelerate the aggregate amount outstanding under the Loan Agreement, until the date that is six months after
the closing of the Business Combination (the “Closing”).
Complying
with these covenants, as well as those that may be contained in any future debt agreements, may limit our ability to finance our future
operations or working capital needs or to take advantage of future business opportunities. Our ability to comply with these covenants
will depend on our future performance, which may be affected by events beyond our control. If we do not maintain and regain compliance
with our continuing obligations or any covenants, terms and conditions of the Loan Agreement, after the expiration of the Forbearance
Agreement, we could be in default and required to repay outstanding borrowings on an accelerated basis, which could subject us to decreased
liquidity and other negative impacts on our business, results of operations and financial condition. In the case of an event of default,
we may not have sufficient funds available to make the required payments under the Loan Agreement and may not be able to borrow sufficient
funds to refinance the Loan Agreement. Even if new financing is available, it may not be on terms that are acceptable to us. If we are
unable to repay amounts owed under the terms of the Loan Agreement, our Lender may choose to exercise its remedies in respect to the
collateral, including a foreclosure of their lien (which may result in a sale of certain of our assets to satisfy our obligations under
the Loan Agreement or ultimately in a bankruptcy or liquidation). The foregoing would materially and adversely affect the ongoing viability
of our business.
The
impacts of geopolitical, macroeconomic, and market conditions, including pandemics, epidemics and other public health crises, have had,
and may continue to have, a significant effect on our industry, which in turn affects how we and our customers are operating our respective
businesses. Our business is susceptible to declines or disruptions in the demand for meetings and events, including those due to economic
downturns, natural disasters, geopolitical upheaval, and global pandemics.
The
macroeconomic impacts of geopolitical events, such as pandemics, inflation, labor shortages, lack of access to capital, lack of consumer
confidence, supply chain disruptions, and market volatility can pose risks to our and our customers’ business. Uncertainty about
the duration of these negative macroeconomic conditions have impacted fiscal and monetary policy, including increases in interest rates,
increased labor costs, and decreased corporate and consumer spending. The effects from a broadening or protracted extension of these
conditions could result in a decrease in overall economic activity, hinder economic growth, or cause a recession in the United States
or in the global economy. We sell our products throughout the United States, as well as in several international countries, commercial
and non-profit customers. As a result, our business may be harmed by factors in the United States and other countries such as disruptions
in financial markets; reductions in spending, or downturns in economic activity in specific countries or regions, or in the various industries
in which we operate; social, political, or labor conditions in specific countries or regions; or adverse changes in the availability
and cost of capital, interest rates, tax rates, or regulations. Further economic weakness and uncertainty may result in significantly
decreased spending on our event marketing and management solutions, which may adversely affect harm our business.
Our
business depends on discretionary corporate spending. Negative macroeconomic conditions may adversely affect our customers’ businesses
and reduce our customers’ operating expense budgets, which could result in reduced demand for our product offerings or cancellations,
increased demands for pricing accommodations or higher rates of delays in collection of, or losses on, our accounts receivable, which
could adversely affect our results of operations and financial position. During periods of economic slowdown and recession, consumers
have historically reduced their discretionary spending, and our ability to sign new customers, and to upsell to and renew contracts with
our existing customers may be significantly impacted. Additionally, challenging economic conditions also may impair the ability of our
customers to pay for products and services they have purchased. As a result, our cash flow may be negatively impacted and our allowance
for credit losses and write-offs of accounts receivable may increase. If we are unable to offset any decrease in revenue by increasing
sales to new or existing customers, or otherwise offset higher costs through price increases, our revenue may decline. The extent to
which the ongoing impacts of these negative macroeconomic conditions will impact our business, results of operations, and financial position
is uncertain and will depend on political, social, economic, and regulatory factors that are outside of our control, including actions
that may be taken by regulators and businesses (including our customers) in response to the macroeconomic uncertainty. Our business and
financial performance may be unfavorably impacted in future periods if a significant number of our customers are unable to continue as
viable businesses or they significantly reduce their operating budgets, or if there is a reduction in business confidence and activity,
a decrease in government, corporate and consumer spending, or a decrease in growth in the overall market, among other factors.
Our
business and financial performance are affected by the health of the worldwide meetings and events industry. Meetings and events are
sensitive to business-related discretionary spending levels and tend to grow more slowly or even decline during economic downturns. Decreased
expenditures by marketers and participants could also result in decreased demand for our product offerings, thereby causing a reduction
in our sales. The impact of economic slowdowns on our business is difficult to predict, but has and may continue to result in reductions
in events and our ability to generate revenue.
Cybersecurity
and data security breaches and ransomware attacks may create financial liabilities for us, damage our reputation, and harm our business.
Our
customers provide us with information that our solutions store, some of which is confidential information. In addition, we store personal
information about our employees. We have security systems and information technology infrastructure designed to protect against unauthorized
access to such information and money, but we may not be successful in protecting against all security breaches and cyber-attacks. Threats
to and breaches of our information technology security can take various forms, including viruses, worms, ransomware, and other malicious
software programs, or actions or omissions by an employee. Significant cybersecurity or data security breaches could result in the loss
of business, litigation, regulatory investigations, loss of customers, and penalties that could damage our reputation and adversely affect
the growth of our business.
In
some cases, we must rely on the safeguards put in place by third parties to protect against security threats. These third parties, including
vendors that provide products and services for our operations and our network of business application providers, could also be a source
of security risk to us in the event of a failure of their own security systems and infrastructure, whether unintentionally or through
a malicious backdoor. We do not review the software code included in third-party integrations in all instances.
Because
the techniques used to obtain unauthorized access, sabotage systems, or otherwise access data and/or data backups change frequently and
generally are not recognized until launched against a target, we or these third parties have been and, in the future, may be unable to
anticipate these techniques or to implement adequate preventative measures. With the increasing frequency of cyber-related frauds to
obtain inappropriate payments, we need to ensure our internal controls related to authorizing the transfer of funds are adequate. We
may also be required to expend resources to remediate cyber-related incidents or to enhance and strengthen our cyber security. Any of
these occurrences could create liability for us, put our reputation in jeopardy, and harm our business.
Privacy
and data security laws and regulations could impose additional costs and reduce demand for our solutions.
We
store and transmit personal information relating to our employees, customers, prospective customers, and other individuals, and our customers
use our technology platform to store and transmit a significant amount of personal information relating to their customers, vendors,
employees, and other industry participants. Federal, state, and foreign government bodies and agencies have adopted, and are increasingly
adopting, laws and regulations regarding the collection, use, processing, storage, and disclosure of personal or identifying information
obtained from customers and other individuals. These obligations have and will likely continue to increase the cost and complexity of
delivering our services.
In
addition to government regulation, privacy advocates and industry groups may propose various self-regulatory standards that may legally
or contractually apply to our business. As new laws, regulations, and industry standards take effect, and as we offer new services in
new markets, market segments and, potentially, new industries, we will need to understand and comply with various new requirements, which
may impede our plans for growth or result in significant additional costs. These laws, regulations, and industry standards have had,
and will likely continue to have, negative effects on our business, including by increasing our costs and operating expenses, and/or
delaying or impeding our deployment of new or existing core functionality. Failure to comply with these laws, regulations, and industry
standards could result in negative publicity, subject us to fines or penalties, expose us to litigation, or result in demands that we
modify or cease existing business practices. Furthermore, privacy and data security concerns may cause our customers’ customers,
vendors, employees, and other industry participants to resist providing the personal information necessary to allow our customers to
use our applications effectively, which could reduce overall demand for our product offerings. Any of these outcomes could harm our business.
Our
product offerings, solutions, and internal systems, as well as external internet infrastructure, may be subject to disruption that could
harm our reputation and future sales or result in claims against us.
Because
our operations involve delivering engagement solutions to our customers through a cloud-based software platform, our continued growth
depends in part on the ability of our platform and related computer equipment, third-party data centers, infrastructure, and systems
to continue to support our product offerings. In addition, in delivering our products to customers, we are reliant on internet infrastructure
limitations. In the past, we have experienced temporary and limited platform disruptions, outages in our product functionality, and degraded
levels of performance due to human and software errors, file corruption, and first and third-party capacity constraints associated with
the number of customers accessing our products simultaneously. While our past experiences have not materially impacted us, in the future
we may face more extensive disruptions, outages, or performance problems. In addition, malicious third parties may also conduct attacks
designed to sabotage, impede the performance, or temporarily deny customers access to, our product offerings. If an actual or perceived
disruption, outage, performance problem, or attack occurs, it could harm our reputation and the market perception of our product offerings;
divert the efforts of our technical and management personnel; impair our ability to operate our business; cause us to lose customer information;
or harm our customers’ businesses. Any of these events may increase non-renewals, limit our ability to acquire new customers, result
in delayed or withheld payments from customers, or result in claims against us.
Undetected
defects in our product offerings could harm our reputation or decrease market acceptance of our product offerings, which would harm our
business and results of operations.
Our
product offerings may contain undetected defects, such as errors or bugs. We have experienced such defects in the past in connection
with new solutions and solution upgrades, and we expect that such defects may be found from time to time in the future. Despite testing
by us, defects may not be found in our product offerings until they are deployed to or used by our customers. In the past, we have discovered
software defects in our product offerings after they have been deployed to customers.
Defects,
disruptions in service, or other performance problems may damage our customers’ business and could hurt our reputation. We may
be required, or may choose, for customer relations or other reasons, to expend additional resources to correct actual or perceived defects
in our product offerings. If defects are detected or perceived to exist in our product offerings, we may experience negative publicity,
loss of competitive position, or diversion of the attention of our key personnel; our customers may delay or withhold payment to us or
elect not to renew their subscriptions; other significant customer relations problems may arise; or we may be subject to liability claims
for damages. A material liability claim or other occurrence that harms our reputation or decreases market acceptance of our product offerings
may harm our business and results of operations.
We
rely on internet infrastructure, bandwidth providers, data center providers, other third parties, and our own systems for providing solutions
to our customers, and any failure or interruption in the services provided by these third parties or our own systems could expose us
to litigation and negatively impact our relationships with customers, adversely affecting our brand and our business.
Our
ability to deliver our solutions is dependent on the development and maintenance of the infrastructure of the Internet and other telecommunications
services by third parties. We currently host our technology platform, serve our customers and members, and support our operations primarily
using third-party data centers and telecommunications solutions, including cloud infrastructure services such as Amazon Web Services
(“AWS”) and Google Cloud. We do not have control over the operations of the facilities of our data center providers, AWS,
or Google Cloud. These facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security
attacks, terrorist attacks, power losses, telecommunications failures, and other events. The occurrence of a natural disaster or an act
of terrorism, a decision to close the facilities without adequate notice, or other unanticipated problems could result in lengthy interruptions
in our product offerings. The facilities also could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism,
and other misconduct. Any errors, failures, interruptions, or delays experienced in connection with these third-party technologies and
information services or our own systems could negatively impact our relationships with customers and harm our business and could expose
us to third-party liabilities.
For
some of these services, we may not maintain redundant systems or facilities. Our technology platform’s continuing and uninterrupted
performance is critical to our success. Members may become dissatisfied by any system failure that interrupts our ability to provide
our solutions to them. We may not be able to easily switch our AWS and Google Cloud operations to another cloud service provider if there
are disruptions or interference with our use of AWS or Google Cloud. Sustained or repeated system failures would reduce the attractiveness
of our technology platform to customers and members and result in contract terminations, thereby reducing revenue. Moreover, negative
publicity arising from these types of disruptions could damage our reputation and may adversely impact use of our existing and future
offerings. We may not carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any
events that cause interruptions in our service. Neither our third-party data and call center providers nor AWS or Google Cloud have an
obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew our agreements with
these providers on commercially reasonable terms, if our agreements with our providers are prematurely terminated, or if in the future
we add additional data or call center providers or cloud service providers, we may experience costs or downtime in connection with the
transfer to, or the addition of, new providers. If these providers were to increase the cost of their services, we may have to increase
the price of our existing and future offerings. Any such increased costs or pricing may have a negative effect on our customer relationships
and may adversely affect our business and results of operations.
If
we fail to effectively maintain and enhance our brands, our business may suffer.
We
believe that continuing to strengthen our brands will be critical to achieving widespread acceptance of our product offerings and will
require continued focus on active marketing efforts. Our brand awareness efforts will require continued investment across our business,
particularly as we introduce new solutions that we develop or acquire and as we continue to expand in new markets. Brand promotion activities
may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses incurred in building our brand.
If we fail to promote and maintain our brands, or if we incur substantial expense in an unsuccessful attempt to promote and maintain
our brand, our business could be harmed.
Any
failure to offer high-quality customer support services could adversely affect our relationships with our customers and our operating
results.
Our
customers depend on our support to assist with their needs. We may be unable to accurately predict our customers’ demand for services
or respond quickly enough to accommodate short-term increases in customer or member demand for services. Increased customer demand for
our product offerings, without a corresponding increase in productivity or revenue, could increase costs and adversely affect our operating
results. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality customer
support, could adversely affect our reputation, our ability to sell our product offerings to existing and prospective customers, our
relationships with third parties and our ability to form new partnerships, and our business and operating results.
Our
ability to use our net operating loss to offset future taxable income may be subject to certain limitations.
We
have incurred substantial losses during our history and do not expect to become profitable in the near future and may never achieve profitability.
Under current U.S. federal income tax law, unused losses for the tax year ended December 31, 2017 and prior tax years will carry forward
to offset future taxable income, if any, until such unused losses expire, and unused federal losses generated after December 31, 2017
will not expire and may be carried forward indefinitely, but will be only deductible to the extent of 80% of current year taxable income
in any given year. Many states have similar laws.
In
addition, both current and future unused net operating loss (“NOL”) carryforwards and other tax attributes may be subject
to limitation under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change,” generally defined
as a greater than 50 percentage point change (by value) in equity ownership by certain stockholders over a rolling three-year period.
Additional ownership changes in the future could result in additional limitations on our NOL carryforwards. Consequently, even if we
achieve profitability, we may not be able to utilize a material portion of our NOL carryforwards and other tax attributes, which could
have a material adverse effect on cash flow and results of operations.
We
may need to make significant investments in software development and equipment to improve our business.
To
improve the scalability, security, performance, efficiency, availability, and failover aspects of our product offerings, and to support
the expansion of our product offerings and stay competitive, we may need to make significant capital equipment expenditures and also
invest in additional software and infrastructure development. If we experience increasing demand in subscriptions, we may not be able
to augment our infrastructure quickly enough to accommodate such increasing demand. To reach the goal of supporting the increasing demand,
we will need additional capital to make the investments in software development and equipment either through operations or through financing.
Additionally, we are continually updating our software, creating expenses for us. We may also need to review or revise our software architecture
and user experience as we grow, which may require significant resources and investments. Any of these factors could negatively impact
our business and results of operations.
Adverse
litigation results could have a material adverse impact on our business.
We
are, have been, and may be involved in regulatory and government investigations and other proceedings, involving competition, intellectual
property, data security and privacy, bankruptcy, tax and related compliance, labor and employment, commercial disputes, and other matters.
Such claims, suits, actions, regulatory and government investigations, and other proceedings can impose a significant burden on management
and employees, could prevent us from offering one or more of our products, services, or features to customers, could require us to change
our technology or business practices, or could result in monetary damages, fines, civil or criminal penalties, reputational harm, or
other adverse consequences. Adverse outcomes in some or all of these claims may result in significant monetary damages or injunctive
relief that could adversely affect our ability to conduct our business. Litigation and other claims are subject to inherent uncertainties
and management’s view of the materiality or likely outcome of any such matters may change in the future. A material adverse impact
in our consolidated financial statements could occur for the period in which the effect of an unfavorable outcome becomes probable and
reasonably estimable.
Failure
to protect or enforce our intellectual property rights could harm our business and results of operations.
To
establish and protect our proprietary rights, we rely on a combination of trademarks and trade secrets, including know-how, license agreements,
confidentiality procedures, non-disclosure agreements with third parties, employee disclosure and invention assignment agreements, and
other contractual rights. As of December 31, 2023, we held two registered trademarks in the United States: Banzai and Demio. We believe
that our intellectual property is an essential asset of our business. If we do not adequately protect our intellectual property, our
brand and reputation could be harmed and competitors may be able to use our technologies and erode or negate any competitive advantage
we may have, which could harm our business, negatively affect our position in the marketplace, limit our ability to commercialize our
technology, and delay or render impossible our achievement of profitability. A failure to protect our intellectual property in a cost-effective
and meaningful manner could have a material adverse effect on our ability to compete. We regard the protection of our intellectual property
as critical to our success.
We
strive to protect our intellectual property rights by relying on federal, state, and common law rights and other rights provided under
foreign laws. These laws are subject to change at any time and could further restrict our ability to protect or enforce our intellectual
property rights. In addition, the existing laws of certain foreign countries in which we operate may not protect our intellectual property
rights to the same extent as do the laws of the United States.
We
generally enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements
with other parties, with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information.
However, we may not be successful in executing these agreements with every party who has access to our confidential information or contributes
to the development of our intellectual property.
The
agreements that we execute may be breached, and we may not have adequate remedies for any such breach. These contractual arrangements
and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our intellectual property
or deter independent development of similar intellectual property by others.
Obtaining
and maintaining effective intellectual property rights is expensive, including the costs of monitoring unauthorized use of our intellectual
property and defending our rights. We make business decisions about when to seek patent protection for a particular technology and when
to rely upon trade secret protection, and the approach we select may ultimately prove to be inadequate. We strive to protect certain
of our intellectual property rights through filing applications for trademarks, patents, and domain names in a number of jurisdictions,
a process that is expensive and may not be successful in all jurisdictions. However, there is no assurance that any resulting patents
or other intellectual property rights will adequately protect our intellectual property, or provide us with any competitive advantages.
Moreover, we cannot guarantee that any of our pending patent or trademark applications will issue or be approved. Even where we have
intellectual property rights, they may later be found to be unenforceable or have a limited scope of enforceability. In addition, we
may not seek to pursue such protection in every jurisdiction. The United States Patent and Trademark Office also requires compliance
with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process and after a
patent has issued. Noncompliance with such requirements and processes may result in abandonment or lapse of the patent or patent application,
resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able
to develop and commercialize substantially similar and competing applications, which would harm our business.
We
believe it is important to maintain, protect, and enhance our brands. Accordingly, we pursue the registration of domain names and our
trademarks and service marks in the United States. Third parties may challenge our use of our trademarks, oppose our trademark applications,
or otherwise impede our efforts to protect our intellectual property in certain jurisdictions. In the event that we are unable to register
our trademarks in certain jurisdictions, we could be forced to rebrand our solutions, which would result in loss of brand recognition
and could require us to devote resources to advertising and marketing new brands. Our competitors and others could also attempt to capitalize
on our brand recognition by using domain names or business names similar to ours. Domain names similar to ours have been registered in
the United States and elsewhere. We may be unable to prevent third parties from acquiring or using domain names and other trademarks
that infringe on, are similar to, or otherwise decrease the value of, our brands, trademarks, or service marks. We also may incur significant
costs in enforcing our trademarks against those who attempt to imitate our brand and other valuable trademarks and service marks.
In
order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights.
We may not be able to detect infringement or unauthorized use of our intellectual property rights, and defending or enforcing our intellectual
property rights, even if successfully detected, prosecuted, enjoined, or remedied, could result in the expenditure of significant financial
and managerial resources. Litigation has in the past and may be necessary in the future to enforce our intellectual property rights,
protect our proprietary rights, or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature,
regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could
harm our business. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, countersuits,
and adversarial proceedings such as oppositions, inter partes review, post-grant review, re-examination, or other post-issuance proceedings,
that attack the validity and enforceability of our intellectual property rights. An adverse determination of any litigation proceeding
could adversely affect our ability to protect the intellectual property associated with our product offerings. Further, because of the
substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential
or sensitive information could be compromised by disclosure in the event of litigation. In addition, during the course of litigation
there could be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of Class A Common
Stock. If we fail to maintain, protect, and enhance our intellectual property rights, our business may be harmed and the market price
of Class A Common Stock could decline.
Our
competitors also may independently develop similar technology that does not infringe on or misappropriate our intellectual property rights.
The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms
for enforcement of intellectual property rights may be inadequate. Effective patent, trademark, copyright, and trade secret protection
may not be available to us in every country in which our solutions or technology are developed. Further, legal standards relating to
the validity, enforceability, and scope of protection of intellectual property rights are uncertain. The laws in the United States and
elsewhere change rapidly, and any future changes could adversely affect us and our intellectual property. Our failure to meaningfully
protect our intellectual property could result in competitors offering solutions that incorporate our most technologically advanced features,
which could seriously reduce demand for existing and future offerings.
Third
parties may initiate legal proceedings alleging that we are infringing or otherwise violating their intellectual property rights, the
outcome of which would be uncertain and could harm our business.
Our
success depends in part on our ability to develop and commercialize our offerings and use our proprietary technology without infringing
the intellectual property or proprietary rights of third parties. Intellectual property disputes can be costly to defend and may cause
our business, operating results, and financial condition to suffer. As the MarTech industry in the United States expands and more patents
are issued, the risk increases that there may be patents issued to third parties that relate to our offerings and technology of which
we are not aware or that we must challenge to continue our operations as currently contemplated. Whether merited or not, we may face
allegations that we, our partners, our licensees, or parties indemnified by us have infringed or otherwise violated the patents, trademarks,
copyrights, or other intellectual property rights of third parties. Such claims may be made by competitors seeking to obtain a competitive
advantage or by other parties.
Additionally,
in recent years, individuals and groups have begun purchasing intellectual property assets for the purpose of making claims of infringement
and attempting to extract settlements from companies like ours. We may also face allegations that our employees have misappropriated
the intellectual property or proprietary rights of their former employers or other third parties. It may in the future be necessary for
us to initiate litigation to defend ourselves in order to determine the scope, enforceability, and validity of third-party intellectual
property or proprietary rights, or to establish our respective rights. Regardless of whether claims that we are infringing patents or
other intellectual property rights have merit, such claims can be time-consuming, divert management’s attention and financial resources,
and can be costly to evaluate and defend. Results of any such litigation are difficult to predict and may require us to stop commercializing
or using our solutions or technology, obtain licenses, modify our solutions and technology while we develop non-infringing substitutes,
or incur substantial damages, settlement costs, or face a temporary or permanent injunction prohibiting us from marketing or providing
the affected solutions. If we require a third-party license, it may not be available on reasonable terms or at all, and we may have to
pay substantial royalties, upfront fees, or grant cross-licenses to intellectual property rights for our solutions. We may also have
to redesign our solutions so that they do not infringe third-party intellectual property rights, which may not be possible or may require
substantial monetary expenditures and time, during which our technology and solutions may not be available for commercialization or use.
Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable to uphold its contractual obligations.
If we cannot or do not obtain a third-party license to the infringed technology, license the technology on reasonable terms, or obtain
similar technology from another source, our revenue and earnings could be adversely impacted.
From
time to time, we have been and may be subject to legal proceedings and claims in the ordinary course of business with respect to intellectual
property. Some third parties may be able to sustain the costs of complex litigation more effectively than we can because they have substantially
greater resources. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may
cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities.
In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and
if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of Class
A Common Stock. Moreover, any uncertainties resulting from the initiation and continuation of any legal proceedings could have a material
adverse effect on our ability to raise the funds necessary to continue our operations. Assertions by third parties that we violate their
intellectual property rights could therefore harm our business.
Our
use of open source software could adversely affect our ability to offer our solutions and subject us to possible litigation.
We
use open source software in connection with our existing offerings and may continue to use open source software in connection with our
future offerings. Some of these licenses contain requirements that we make available source code for modifications or derivative works
we create based upon the open source software, and that we license such modifications or derivative works under the terms of a particular
open source license or other license granting third-parties certain rights of further use. By the terms of certain open source licenses,
we could be required to release the source code of our proprietary software and to make our proprietary software available under open
source licenses, if we combine and/or distribute our proprietary software with open source software in certain manners. Although we monitor
our use of open source software, we cannot be sure that all open source software is reviewed prior to use in our proprietary software,
that our programmers have not incorporated open source software into our proprietary software, or that they will not do so in the future.
Additionally, the terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts.
There
is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on
our ability to provide our existing and future offerings to our customers and members. In addition, the terms of open source software
licenses may require us to provide software that we develop using such open source software, to others, including our competitors, on
unfavorable license terms. As a result of our current or future use of open source software, we may face claims or litigation, be required
to release our proprietary source code, pay damages for breach of contract, re-engineer our technology, discontinue sales in the event
re-engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from our development
efforts, any of which could harm our business.
Risks
Related to Ownership of Our Securities
In
order to support the growth of our business and repay our indebtedness, we will need to seek capital through new equity or debt financings
or incur additional indebtedness under our credit facilities, which sources of additional capital may not be available to us on acceptable
terms or at all.
Our
operations have consumed substantial amounts of cash since inception, and we intend to continue to make significant investments to support
our business growth, respond to business challenges or opportunities, develop new applications and solutions, enhance our existing product
offerings, enhance our operating infrastructure, and acquire complementary businesses and technologies. For the years ended December
31, 2023 and 2022, Legacy Banzai’s net cash used in operating activities was $1.6 million and $5.2 million, respectively. As of
December 31, 2023 and 2022, Legacy Banzai had $2.1 million and $1.0 million of cash, respectively, which were held for working capital
purposes. As of December 31, 2023 and 2022, Legacy Banzai had borrowings of $16.2 million and $13.7 million, respectively, outstanding
under its term loans and promissory notes.
Our
future capital requirements may be significantly different from previous estimates and will depend on many factors, including the need
to:
| ● | finance
unanticipated working capital requirements; |
| ● | develop
or enhance our technological infrastructure and our existing product offerings; |
| ● | fund
strategic relationships, including joint ventures and co-investments; |
| ● | fund
additional implementation engagements; |
| ● | respond
to competitive pressures; and |
| ● | acquire
complementary businesses, technologies, products, or services. |
Accordingly,
we may need to engage in equity or debt financings to secure additional funds. We entered into a standby equity purchase agreement (the
“SEPA”), dated December 14, 2023, with an entity managed by Yorkville Advisors Global, LP (“Yorkville”) to provide
liquidity to us after the Business Combination, but there can be no guarantee that we will be able to affect any advances under the SEPA
or to secure additional financing on favorable terms, or at all. To the extent that cash on hand and cash generated from operations are
not sufficient to fund capital requirements, or if we do not meet the conditions to sell shares to Yorkville under the SEPA, we may require
proceeds from asset sales, additional debt, equity financing, or alternative financing structures. In addition, if we do not identify
additional financing to refinance our existing Loan Agreement prior to the expiration of the forbearance granted by our Lender through
the date that is six months following the Closing, we will be in default of our obligations under the Loan Agreement. Additional financing
may not be available on favorable terms, or at all.
If
we raise additional funds through further issuances of equity or convertible debt securities, including shares of Common Stock issued
in connection with advances under the SEPA or upon exercise of the warrant issued in a private placement to GEM Global Yield LLC SCS
and GEM Yield Bahamas Limited (collectively, “GEM”) in connection with Closing (the “GEM Warrant”), our existing
stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges
superior to those of holders of shares of our Class A Common Stock. Any debt financing secured by us in the future could involve additional
restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more
difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, during
times of economic instability, it has been difficult for many companies to obtain financing in the public markets or to obtain debt financing,
and we may not be able to obtain additional financing on commercially reasonable terms, if at all. If we are unable to obtain adequate
financing or financing on terms satisfactory to us when we need or want it, it could harm our business.
Future
sales of shares of Class A Common Stock may depress their stock price.
Future
sales of shares of Class A Common Stock in the public market, including the resale of shares pursuant to our effective registration statements
or pursuant to Rule 144, could depress the stock price. See “Sales of a substantial number of shares of Class A Common Stock in
the public market pursuant to our registration statements could reduce the market price of Class A Common Stock.” Subject to certain
exceptions, the Amended and Restated Registration Rights Agreement executed at the time of the Closing provides for certain restrictions
on transfer with respect to our securities. Such restrictions began upon such closing and end the earliest of (A) 180 days after the
closing and (B) the first date on which (x) the closing price of our Class A Common Stock equals or exceeds $12.00 per share for any
20 trading days within any 30-trading day period commencing at least 150 days after the closing or (y) we complete a liquidation, merger,
capital stock exchange, reorganization or other similar transaction that results in our stockholders having the right to exchange their
shares of our Class A Common Stock for cash, securities, or other property.
In
connection with the execution of the Merger Agreement, we and certain stockholders of Legacy Banzai, including Legacy Banzai’s
officers, directors, and certain holders of 10% or more of the outstanding shares of Legacy Banzai Common Stock as of the date of the
Merger Agreement, entered into the lock-up agreements effective as of the Closing Date (the “Lock-Up Agreements”). Pursuant
to the Lock-up Agreements, such stockholders agree not to, without our prior written consent (subject to certain exceptions): (i) sell,
offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose
of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within
the meaning of Section 16 of the Securities Act of 1933, as amended (the “Securities Act”) and the rules and regulations
of the SEC promulgated thereunder, any shares of Common Stock held by him, her, or it immediately after the Closing, any shares of Common
Stock issuable upon the exercise of options to purchase shares, or any securities convertible into or exercisable or exchangeable for
Common Stock held by him, her, or it immediately after such closing, (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of any of such shares of Common Stock or securities convertible
into or exercisable or exchangeable for Common Stock, whether any such transaction is to be settled by delivery of such securities, in
cash or otherwise, or (iii) publicly announce any intention to effect any transaction specified in clause (i) or (ii) until 180 days
after the Closing.
Additionally,
Cantor is subject to a 12-month lock-up period with respect to the Class A Common Stock issued pursuant to a fee reduction agreement
relating to deferred underwriting fees that were payable to Cantor upon the Closing (the “Fee Reduction Agreement”), subject
to customary exceptions.
However,
equityholders not subject to a lock-up and, following the expiration of the applicable lock-up periods, such equityholders referred to
above will not be restricted from selling shares of our Common Stock held by them, other than by applicable securities laws, and sales
could occur at any time and such sales could depress the stock price.
Issuances
of shares of our Class A Common Stock pursuant to any Advances under the SEPA, exercise of the GEM Warrant and conversion of any amounts
under certain promissory notes would result in substantial dilution of our stockholders and may have a negative impact on the market
price of our Class A Common Stock.
At
Closing, certain convertible promissory notes dated as of February 19, 2021 and October 10, 2022, issued by Legacy Banzai to the Lender
(the “Senior Convertible Notes”), and the obligation to issue the GEM Warrant automatically became our obligation. On December
15, 2023, we issued the GEM Warrant in the amount of 828,533 shares of Class A Common Stock at an exercise price of $6.49 per share,
which will be adjusted to 105% of the then-current exercise price if, on the one-year anniversary date of the date of issuance, the GEM
Warrant has not been exercised in full and the average closing price per share of shares of Class A Common Stock for the 10 days preceding
the anniversary date is less than 90% of the initial exercise price. GEM may exercise the GEM Warrant at any time and from time to time
until December 14, 2026.
On
February 5, 2024, we issued in a private placement to GEM a promissory note (the “GEM Promissory Note”), which is convertible
upon nonpayment of and in lieu of a monthly payment in the amount of $100,000, payable for ten months on the first of the month starting
on March 1, 2024. The GEM Promissory Note provides for the issuance of shares of Class A Common Stock at a conversion price equal to
the VWAP of the trading day immediately preceding the applicable payment due date. As of the date of this Annual Report, we have issued
an aggregate of 139,470 shares of Class A Common Stock to GEM in lieu of monthly payment obligations.
The
shares of Class A Common Stock issuable pursuant to the GEM Warrant, the GEM Promissory Note, and the Senior Convertible Note (collectively,
the “Notes”), to the extent exercised, converted and issued, would impose significant dilution on our stockholders. Based
on the total number of shares outstanding as of March 22, 2024, and a stock price of $0.63, up to 828,533 and 2,456,861 additional shares
of Class A Common Stock may be issued assuming full exercise and conversion (and no adjustments to the exercise or conversion price thereof)
of each of the GEM Warrant and the Notes, respectively, which would reflect approximately 4.67% or 13.84% respectively, of the outstanding
shares of our Class A Common Stock as of the date hereof after giving effect to such issuances.
Pursuant
to the SEPA, subject to certain conditions and Yorkville’s right to require issuances while its promissory notes are outstanding,
we have the option, but not the obligation, to sell to Yorkville, and Yorkville will subscribe for, an aggregate amount of up to $100,000,000
of shares of Class A Common Stock, at our request any time during the commitment period terminating on the 36-month anniversary of the
Original SEPA; provided that any advance we request under the SEPA (notice of such request, an “Advance Notice”) may only
be made if (x) no amount remains outstanding on the Yorkville Promissory Notes (as defined below), (y) there is an effective registration
statement (any such registration statement, a “Resale Registration Statement”) filed with the SEC for the resale under the
Securities Act, of the shares of Class A Common Stock to be issued pursuant to such Advance Notice, and (z) other customary conditions
precedent. The price at which we may issue and sell shares pursuant to an Advance under the SEPA may be at either (a) 95% of the daily
volume weighted average price (“VWAP”) of the Class A Common Stock for the period commencing on the receipt of the Advance
Notice by Yorkville and ending on 4:00 p.m. Eastern Time on the applicable date of the Advance Notice (“Pricing Option 1”)
or (b) 96% of the lowest daily VWAP of the Class A Common Stock during the three consecutive trading days commencing on the date of the
Advance Notice to Yorkville (“Pricing Option 2”), provided that we are subject to certain caps on the amount of shares of
Class A Common Stock that we may sell pursuant to any advance under the SEPA. Assuming that (a) we issue and sell the full $100 million
of shares of Class A Common Stock under the SEPA to Yorkville, (b) no beneficial ownership limitations, and (c) the issue price for such
sales is $1.00 or $3.00 per share, such additional issuances would represent in the aggregate approximately 100,000,000 or 33,333,333
additional shares of Class A Common Stock, respectively, or approximately 563% or 188% of the total number of shares of Class A Common
Stock outstanding as of March 22, 2024, after giving effect to such issuance.
The
Nasdaq Stock Market LLC (“Nasdaq”) may delist our securities from trading on its exchange, which could limit investors’
ability to make transactions in our securities and subject us to additional trading restrictions.
On
February 5, 2024, we received a letter from the staff at Nasdaq notifying us that, for 30 consecutive business days prior to the date
of the letter, our Minimum Value of Listed Securities (“MVLS”) was below the minimum of $50 million required for continued
listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(b)(2)(A). The staff at Nasdaq also noted that we were not in
compliance with Nasdaq Listing Rule 5450(b)(3)(A), which requires listed companies to have total assets and total revenue of at least
$50,000,000 each for the most recently completed fiscal year or for two of the three most recently completed fiscal years. We have 180
calendar days, or until August 5, 2024, to regain compliance.
If
Nasdaq delists our securities from trading on its exchange and we are not able to list our securities on another national securities
exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material
adverse consequences, including:
| ● | a
limited availability of market quotations for our securities; |
| ● | reduced
liquidity for our securities; |
| ● | a
determination that our common stock is a “penny stock” which will require brokers
trading in our Class A Common Stock to adhere to more stringent rules and possibly result
in a reduced level of trading activity in the secondary trading market for our securities; |
| ● | a
limited amount of news and analyst coverage; |
| ● | a
decreased ability to issue additional securities or obtain additional financing in the future;
and |
| ● | being
subject to regulation in each state in which we offer our securities. |
If
our Class A Common Stock ceases to be listed on a national securities exchange it will become subject to the so-called “penny stock”
rules that impose restrictive sales practice requirements.
If
we are unable to maintain the listing of our Class A Common Stock on the Nasdaq Global Market or another national securities exchange,
our Class A Common Stock could become subject to the so-called “penny stock” rules if the shares have a market value of less
than $5.00 per share. The SEC has adopted regulations that define a penny stock to include any stock that has a market price of less
than $5.00 per share, subject to certain exceptions, including an exception for stock traded on a national securities exchange. The SEC
regulations impose restrictive sales practice requirements on broker-dealers who sell penny stocks to persons other than established
customers and accredited investors. For transactions covered by this rule, the broker-dealer must make a special suitability determination
for the purchaser and must have received the purchaser’s written consent to the transaction prior to sale. This means that if we
are unable maintain the listing of our Class A Common Stock on a national securities exchange, the ability of stockholders to sell their
common stock in the secondary market could be adversely affected. If a transaction involving a penny stock is not exempt from the SEC’s
rule, a broker-dealer must deliver a disclosure schedule relating to the penny stock market to each investor prior to a transaction.
The broker-dealer also must disclose the commissions payable to both the broker-dealer and its registered representative, current quotations
for the penny stock, and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s
presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held
in the customer’s account and information on the limited market in penny stocks.
Our
dual class common stock structure has the effect of concentrating voting power with our Chief Executive Officer and Co-Founder, Joseph
Davy, which limits an investor’s ability to influence the outcome of important transactions, including a change in control.
Shares
of our Class B Common Stock have 10 votes per share, while shares of our Class A Common Stock have one vote per share. Mr. Davy, who
is our Chief Executive Officer and is Legacy Banzai’s Co-Founder, including his affiliates and permitted transferees, will hold
all of the issued and outstanding shares of Class B Common Stock. Accordingly, Mr. Davy held, directly or indirectly, approximately 56.6%
of our outstanding voting power as of March 22, 2024 and is able to control matters submitted to our stockholders for approval, including
the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all
of our assets or other major corporate transactions. Mr. Davy may have interests that differ from yours and may vote in a way with which
you disagree and which may be adverse to your interests. This concentrated control may have the effect of delaying, preventing, or deterring
a change in control, could deprive our stockholders of an opportunity to receive a premium for their capital stock as part of a sale,
and might ultimately affect the market price of Class A Common Stock.
We
cannot predict the impact our dual class structure will have on the market price of Class A Common Stock.
We
cannot predict whether our dual class common stock structure will result in a lower or more volatile market price of Class A Common Stock
or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including
companies with multiple-class share structures in certain of their indices. Under the announced policies, our dual class capital structure
would make us ineligible for inclusion in certain indices, and as a result, mutual funds, exchange-traded funds, and other investment
vehicles that attempt to passively track those indices will not invest in Class A Common Stock. These policies are still fairly new and
it is as of yet unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices,
but it is possible that they may depress these valuations compared to those of other similar companies that are included. Because of
our dual class structure, we will likely be excluded from certain of these indices and we cannot assure you that other stock indices
will not take similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indices,
exclusion from stock indices would likely preclude investment by many of these funds and could make Class A Common Stock less attractive
to other investors. As a result, the market price of Class A Common Stock could be adversely affected.
As
a “controlled company” within the meaning of Nasdaq listing rules, we qualify for exemptions from certain corporate governance
requirements and have the opportunity to elect to avail ourselves of any of the exemptions afforded a controlled company. If we elect
to rely on some of these exemptions, our stockholders will not have the same protections afforded to stockholders of companies that are
subject to such requirements.
Because
Mr. Davy controls more than a majority of our total voting power, we are a “controlled company” within the meaning of Nasdaq
corporate governance listing rules. Under Nasdaq listing rules, a company of which more than 50% of the voting power is held by an individual,
a group or another company is a “controlled company” and may elect not to comply with certain Nasdaq rules regarding corporate
governance, including the following:
| ● | the
requirement that a majority of its board of directors consist of independent directors; |
| ● | the
requirement director nominees must be selected, or recommended for selection, by either (i)
the independent directors constituting a majority of the board of directors’ independent
directors in a vote in which only independent directors participate or (ii) a nominations
committee comprised solely of independent directors; |
| ● | the
requirement to maintain a compensation committee with prescribed duties and a written charter
comprised solely of independent directors; and |
| ● | the
requirement of an annual performance evaluation of our nominating and corporate governance
and compensation committees. |
As
a “controlled company,” we may elect to rely on some or all of these exemptions. Despite the fact that we currently do not
intend to take advantage of these exemptions, our status as a controlled company could make Common Stock less attractive to some investors
or otherwise harm the stock price of Class A Common Stock. Further, if we elect to rely on some or all of these exemptions, our stockholders
will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements
of Nasdaq.
The
market price of our Class A Common Stock is likely to be highly volatile, and you may lose some or all of your investment.
The
market price of our Class A Common Stock may fluctuate significantly due to a number of factors, some of which may be beyond our control,
including those factors discussed in this “Risk Factors” section and many others, such as:
| ● | actual
or anticipated fluctuations in our financial condition and operating results, including fluctuations
in its quarterly and annual results; |
| ● | developments
involving our competitors; |
| ● | changes
in laws and regulations affecting our business; |
| ● | variations
in our operating performance and the performance of its competitors in general; |
| ● | the
public’s reaction to our press releases, its other public announcements and its filings
with the SEC; |
| ● | additions
and departures of key personnel; |
| ● | announcements
of significant acquisitions, strategic partnerships, joint ventures or capital commitments
by us or our competitors; |
| ● | our
failure to meet the estimates and projections of the investment community or that it may
otherwise provide to the public; |
| ● | publication
of research reports about us or our industry, or positive or negative recommendations or
withdrawal of research coverage by securities analysts; |
| ● | changes
in the market valuations of similar companies; |
| ● | overall
performance of the equity markets; |
| ● | sales
of Common Stock by us or our stockholders in the future; |
| ● | trading
volume of Class A Common Stock; |
| ● | significant
lawsuits, including stockholder litigation; |
| ● | failure
to comply with the requirements of Nasdaq; |
| ● | the
impact of any natural disasters, pandemics, epidemics or other public health emergencies; |
| ● | general
economic, industry and market conditions and other events or factors, many of which are beyond
our control; and |
| ● | changes
in accounting standards, policies, guidelines, interpretations, or principles. |
Volatility
in the price of our Class A Common Stock could subject us to securities class action litigation.
In
the past, securities class action litigation has often been brought against a company following a decline in the market price of its
securities. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources,
which could harm our business.
If
securities or industry analysts do not publish research or reports about us, or publish negative reports, then our stock price and trading
volume could decline.
The
trading market for our Class A Common Stock will depend, in part, on the research and reports that securities or industry analysts publish
about us. We do not have any control over these analysts. If our financial performance fails to meet analyst estimates or one or more
of the analysts who cover us downgrade our Class A Common Stock or change their opinion, then the market price of our Class A Common
Stock would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could
lose visibility in the financial markets, which could cause the market price of our Class A Common Stock or trading volume to decline.
We
will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies,
which could adversely affect our business, results of operations, and financial condition.
As
a public company, we will be subject to the reporting requirements of the Exchange Act, the listing standards of Nasdaq, and other applicable
securities rules and regulations. We expect that the requirements of these rules and regulations will continue to increase our legal,
accounting, and financial compliance costs, make some activities more difficult, time-consuming and costly, and place significant strain
on its personnel, systems and resources. For example, the Exchange Act requires, among other things, that we file annual, quarterly,
and current reports with respect to our business and results of operations. As a result of the complexity involved in complying with
the rules and regulations applicable to public companies, our management’s attention may be diverted from other business concerns,
which could harm our business, results of operations, and financial condition. Although we have already hired additional employees and
engaged outside consultants to assist us in complying with these requirements, we will need to hire more employees in the future or may
need to engage additional outside consultants, which will increase our operating expenses.
In
addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for
public companies, increasing legal and financial compliance costs, and making some activities more time-consuming. These laws, regulations,
and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application
in practice may evolve over time as new guidance is provided by regulatory and governing bodies. These factors could result in continuing
uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We
intend to invest substantial resources to comply with evolving laws, regulations, and standards, and this investment may result in increased
general and administrative expenses and a diversion of management’s time and attention from business operations to compliance activities.
If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies
due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our
business may be harmed. We also expect that being a public company and these new rules and regulations will make it more expensive for
us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher
costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board
of directors (our “Board”), particularly to serve on our audit committee and compensation committee, and qualified executive
officers. As a result of disclosure of information in this Annual Report and in our other public filings, our business and financial
condition will become more visible, which may result in pricing pressure from customers or an increased risk of threatened or actual
litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could
be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources
necessary to resolve them, could divert the resources of its management and harm our business.
We
have identified material weaknesses in our internal control over financial reporting in the past. If we are unable to remediate these
material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system
of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely
affect our business and stock price.
Prior
to the Closing, Legacy Banzai was a private company with limited accounting personnel to adequately execute its accounting processes
and limited supervisory resources with which to address its internal control over financial reporting. In connection with the audit of
Legacy Banzai’s financial statements as of and for the year ended December 31, 2022 and continuing through year ended December
31, 2023, Legacy Banzai identified material weaknesses in its internal control over financial reporting. A material weakness is a deficiency
or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of Legacy Banzai’s annual or interim financial statements will not be prevented or detected on a timely basis.
Legacy
Banzai did not design or maintain an effective control environment under the rules and regulations of the SEC. Accordingly and specifically,
(i) management does not have appropriate IT general control in place over change management, user access, cybersecurity, and reviews
of service organizations, (ii) management does not have suitable COSO entity level controls in place, including reviews of the financial
statements, and certain entity level controls were not performed by management, and (iii) pervasive transactional and account level reconciliations
and analyses are not performed, or not performed with sufficient detail to prevent or detect a material weakness. These issues related
to managements controls over the review of complex significant transactions, complex debt and equity, income and sales taxes, & revenue
recognition.
We
have taken certain steps, such as recruiting additional personnel, in addition to utilizing third-party consultants and specialists,
to supplement our internal resources, to enhance our internal control environment and plans to take additional steps to remediate the
material weaknesses. Although we plan to complete this remediation process as quickly as possible, we cannot at this time estimate how
long it will take. We cannot assure you that the measures taken to date and to be taken in the future, will be sufficient to remediate
the control deficiencies that led to Legacy Banzai’s material weakness in internal control over financial reporting or that it
will prevent or avoid potential future material weaknesses. If the steps we take do not correct the material weakness in a timely manner,
we will be unable to conclude that we maintain effective internal control over financial reporting. Accordingly, there could continue
to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely
basis.
Any
failure to remediate existing material weaknesses, or to develop or maintain effective controls or any difficulties encountered in their
implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result
in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over
financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public
accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually
be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal
control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which
would likely have a negative effect on the trading price of our Class A Common Stock. In addition, if we are unable to continue to meet
these requirements, we may not be able to remain listed on Nasdaq. We will not be required to comply with the SEC rules that implement
Section 404 of the Sarbanes-Oxley Act and will therefore not be required to make a formal assessment of the effectiveness of control
over financial reporting for that purpose. As a public company, we will be required to provide an annual management report on the effectiveness
of our internal control over financial reporting commencing with our second annual report on Form 10-K. Our independent registered public
accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until after
we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public
accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over
financial reporting is documented, designed, or operating. Any failure to maintain effective disclosure controls and internal control
over financial reporting could have an adverse effect on our business and results of operations and could cause a decline in the price
of our Class A Common Stock.
Our
executive officers, and directors collectively beneficially own approximately 75.37% of the voting power of our outstanding Common Stock
and have substantial control over us, which will limit your ability to influence the outcome of important transactions, including a change
in control.
Our
executive officers and directors, in the aggregate, beneficially own approximately 75.37% of the voting power of our outstanding shares
of Common Stock as of the date of this Annual Report, based on the number of shares outstanding as of March 22, 2024. As a result, these
stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, including the
election of directors and the approval of mergers, acquisitions, or other extraordinary transactions. They may also have interests that
differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership
may have the effect of delaying, preventing, or deterring a change in control of the Company, could deprive our stockholders of an opportunity
to receive a premium for their Class A Common Stock as part of a sale of the Company, and might ultimately affect the market price of
our Class A Common Stock.
It
is not currently anticipated that we will pay dividends on shares of our Class A Common Stock, and, consequently, your ability to achieve
a return on your investment will depend on appreciation, if any, in the market price of the Class A Common Stock.
It
is currently anticipated that we will retain future earnings for the development, operation, and expansion of the business, and we do
not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to our stockholders will therefore be limited
to the appreciation of their shares of Class A Common Stock. There is no guarantee that shares of Class A Common Stock will appreciate
in value or even maintain the price at which stockholders have purchased their shares of Class A Common Stock.
The
DGCL and our Charter and Bylaws contain certain provisions, including anti-takeover provisions, that limit the ability of stockholders
to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.
Our
Charter, our Bylaws and the DGCL contain provisions that could have the effect of rendering more difficult, delaying, or preventing an
acquisition deemed undesirable by the Board and therefore depress the trading price of our Class A Common Stock. These provisions could
also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the current members
of the Board or taking other corporate actions, including effecting changes in our management. Among other things, our Charter and/or
Bylaws include provisions regarding:
| ● | that
shares of our Class B Common Stock are entitled to 10 votes per share; |
| ● | the
ability of our stockholders to take action by written consent in lieu of a meeting for so
long as Mr. Davy and his affiliates and permitted transferees beneficially own a majority
of the voting power of the then-outstanding shares of our capital stock; |
| ● | the
ability of the Board to issue shares of Preferred Stock, $0.0001 par value per share (“Preferred
Stock”), including “blank check” preferred stock and to determine the price
and other terms of those shares, including preferences and voting rights, without stockholder
approval, which could be used to significantly dilute the ownership of a hostile acquirer; |
| ● | the
limitation of the liability of, and the indemnification of, our directors and officers; |
| ● | the
requirement that a special meeting of stockholders may be called only by a majority of the
entire Board, the chairperson of the Board or the Chief Executive Officer which could delay
the ability of stockholders to force consideration of a proposal or to take action, including
the removal of directors; |
| ● | controlling
the procedures for the conduct and scheduling of Board and stockholder meetings; |
| ● | the
ability of the Board to amend the Bylaws, which may allow the Board to take additional actions
to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the Bylaws
to facilitate an unsolicited takeover attempt; and |
| ● | advance
notice procedures with which stockholders must comply to nominate candidates to the Board
or to propose matters to be acted upon at a stockholders’ meeting, which could preclude
stockholders from bringing matters before annual or special meetings of stockholders and
delay changes in the Board, and also may discourage or deter a potential acquirer from conducting
a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise
attempting to obtain control of us. |
Likewise,
because our principal executive offices are located in Washington, the anti-takeover provisions of the Washington Business Corporation
Act (the “WBCA”) may apply to us under certain circumstances now or in the future. These provisions prohibit a “target
corporation” from engaging in any of a broad range of business combinations with any stockholder constituting an “acquiring
person” for a period of five years following the date on which the stockholder became an “acquiring person.”
These
provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in the Board or our management.
In
addition, our Charter includes a provision substantially similar to Section 203 of the DGCL, which may prohibit certain stockholders
holding 15% or more of our outstanding capital stock from engaging in certain business combinations with us for a specified period of
time.
Our
Charter designates the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the
United States of America as the exclusive forums for substantially all disputes between us and our stockholders, which restricts our
stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.
Our
Charter provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of claims or causes
of action under Delaware statutory or common law: any derivative claims or causes of action brought on our behalf; any claims or causes
of action asserting a breach of a fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our Charter,
or our Bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. In addition, our Charter
provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting
a cause of action arising under the Securities Act. These choice of forum provisions will not apply to suits brought to enforce a duty
or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Such provisions
are intended to benefit and may be enforced by us and our officers and directors, employees and agents.
These
provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors
and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited
schedule relative to other forums and protection against the burdens of multi-forum litigation. These choice of forum provisions may
limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors,
officers, or other employees, which may discourage lawsuits with respect to such claims or make such lawsuits more costly for stockholders,
although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations
thereunder. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless
seek to bring a claim in a venue other than those designated in the exclusive forum provisions, and there can be no assurance that such
provisions will be enforced by a court in those other jurisdictions. If a court were to find either choice of forum provisions contained
in our Charter to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action
in other jurisdictions.
The
exclusive forum clause set forth in the Warrant Agreement may have the effect of limiting an investor’s rights to bring legal action
and could limit the investor’s ability to obtain a favorable judicial forum.
The
Warrant Agreement provides that (i) any action, proceeding or claim against us arising out of or relating in any way to the Warrant Agreement
will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of
New York and (ii) we irrevocably submit to such jurisdiction, which jurisdiction will be exclusive. We have waived or will waive any
objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. However, there is uncertainty as to whether
a court would enforce these provisions and investors cannot waive compliance with the federal securities laws and the rules and regulations
thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce
any duty or liability created by the Securities Act or the rules and regulations thereunder.
Notwithstanding
the foregoing, these provisions of the Warrant Agreement will not apply to suits brought to enforce any liability or duty created by
the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive
forum. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability
created by the Exchange Act or the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest
in any of the Public Warrants shall be deemed to have notice of and to have consented to the forum provisions in the Warrant Agreement.
If any action, the subject matter of which is within the scope of the forum provisions of the Warrant Agreement, is filed in a court
other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign
action”) in the name of any holder of the Public Warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction
of the state and federal courts located within the State of New York or the United States District Court for the Southern District of
New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”),
and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s
counsel in the foreign action as agent for such warrant holder.
This
choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable, which
may discourage such lawsuits. Alternatively, if a court were to find this provision of the Warrant Agreement inapplicable or unenforceable
with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving
such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations
and result in a diversion of the time and resources of our management and our Board.
We
are an emerging growth company and smaller reporting company, and we cannot be certain if the reduced reporting requirements applicable
to emerging growth companies and smaller reporting companies will make our shares less attractive to investors.
We
are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take
advantage of exemptions from various reporting requirements that are applicable to other public companies that are not “emerging
growth companies,” including exemption from compliance with the auditor attestation requirements under Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an emerging
growth company until the earlier of: (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of 7GC’s
initial public offering (December 22, 2025), (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which
we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds
$700.0 million as of the last business day of our most recently completed second fiscal quarter; and (ii) the date on which we have issued
more than $1.0 billion in non-convertible debt securities during the prior three-year period.
In
addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those
standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting
standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not
emerging growth companies.
We
are also a smaller reporting company as defined in the Exchange Act. Even after we no longer qualify as an emerging growth company, we
may still qualify as a smaller reporting company, which would allow us to take advantage of many of the same exemptions from disclosure
requirements, including exemption from compliance with the auditor attestation requirements of Section 404 and reduced disclosure obligations
regarding executive compensation in this Annual Report and our other periodic reports and proxy statements. We will be able to take advantage
of these scaled disclosures for so long as our voting and non-voting Common Stock held by non-affiliates is less than $250.0 million
measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently
completed fiscal year and our voting and non-voting Common Stock held by non-affiliates is less than $700.0 million measured on the last
business day of our second fiscal quarter.
We
cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions. If some investors find
Common Stock less attractive as a result, there may be a less active trading market for the Common Stock and its market price may be
more volatile.
If
our estimates or judgments relating to our critical accounting policies prove to be incorrect or financial reporting standards or interpretations
change, our results of operations could be adversely affected.
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. We will base our estimates on historical experience, known trends and events,
and various other factors that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates.” The results of these
estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Significant assumptions and estimates used in preparing our financial statements include, but are not limited to, estimates
of impairment on goodwill, recognition and measurement of convertible, warrants and SAFEs, including the valuation of the bifurcated
embedded derivatives liabilities, and measurement and recognition of stock-based compensation. Our results of operations may be adversely
affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of
operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class
A Common Stock.
Additionally,
we will regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof
that are relevant to us. As a result of new standards, changes to existing standards, and changes in their interpretation, we might be
required to change our accounting policies, alter our operational policies, and implement new or enhance existing systems so that they
reflect new or amended financial reporting standards, or we may be required to restate our published financial statements. Such changes
to existing standards or changes in their interpretation may have an adverse effect on our reputation, business, financial position,
and profit.
The
Warrants may never be in the money and they may expire worthless and therefore we may not receive cash proceeds from the exercise of
the Warrants. The terms of the Warrants may be amended in a manner adverse to a holder if holders of at least 50% of the then outstanding
Public Warrants approve of such amendment.
As
of the date of this Annual Report, we have outstanding 11,500,000 warrants originally issued in 7GC’s initial public offering (the
“Public Warrants”) to purchase 11,500,000 shares of our Class A Common Stock, exercisable at an exercise price of $11.50
per share, which expire on the earlier to occur of December 14, 2028 or redemption, and the GEM Warrant to purchase 828,533 shares of
our Class A Common Stock, exercisable at an exercise price of $6.49 per share, which expires on the earlier to occur of December 15,
2026 or redemption (the GEM Warrant and the Public Warrants collectively, the “Warrants”). The exercise of Warrants, and
any proceeds we may receive from their exercise, are highly dependent on the price of our Class A Common Stock and the spread between
the exercise price of the Warrant and the price of our Class A Common Stock at the time of exercise. For example, to the extent that
the price of our Class A Common Stock exceeds $11.50 per share, it is more likely that holders of our Public Warrants will exercise their
Public Warrants. If the price of our Class A Common Stock is less than $11.50 per share, it is unlikely that such holders will exercise
their Public Warrants. There can be no assurance that our Warrants will be in the money prior to their expiration. Our Public Warrants
under certain conditions, as described in the warrant agreement, are redeemable by us at a price of $0.01 per warrant. The GEM Warrant
is not redeemable and is exercisable on a cash or cashless basis; if the GEM Warrant is exercised on a “cashless basis,”
whether or not the GEM Warrant is in the money, we will not receive cash for such exercise. As such, it is possible that we may never
generate any cash proceeds from the exercise of our Warrants.
The
Warrant Agreement, dated December 22, 2020, with Continental Stock Transfer & Trust Company, as warrant agent (the “Warrant
Agreement”), provides that the terms of the Public Warrants may be amended without the consent of any holder to cure any ambiguity
or correct any defective provision, but requires the approval by the holders of at least 50% of the then outstanding Public Warrants
to make any other change that affects the interests of the registered holders of the Public Warrants. Accordingly, we may amend the terms
of the Public Warrants in a manner adverse to a holder if holders of at least 50% of the then outstanding Public Warrants approve of
such amendment.
Although
our ability to amend the terms of the Public Warrants with the consent of at least 50% of the then outstanding Public Warrants is unlimited,
examples of such amendments could be amendments to, among other things, increase the exercise price of the Public Warrants, shorten the
exercise period, or decrease the number of shares purchasable upon exercise of a Public Warrant.
We
may redeem your unexpired Public Warrants prior to their exercise at a time that is disadvantageous to you, thereby making your Public
Warrants worthless.
We
have the ability to redeem the outstanding Public Warrants at any time after they become exercisable and prior to their expiration, at
a price of $0.01 per warrant if, among other things, the last reported sale price of the underlying Class A Common Stock for any 20 trading
days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption
to the warrant holders equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, rights issuances, subdivisions,
reorganizations, recapitalizations and the like). Redemption of the outstanding Public Warrants as described above could force you to:
(i) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so; (ii) sell your
warrants at the then-current market price when you might otherwise wish to hold your warrants; or (iii) accept the nominal redemption
price which, at the time the outstanding warrants are called for redemption, the Company expects would be substantially less than the
market value of your warrants. Shares of Class A Common Stock have never traded above $18.00 per share.
We
have no obligation to notify holders of the Public Warrants that they have become eligible for redemption. However, pursuant to the Warrant
Agreement, in the event we decide to redeem the Public Warrants, we are required to mail notice of such redemption to the registered
warrant holders not less than 30 days prior to the redemption date. The warrants may be exercised any time after notice of redemption
is given and prior to the redemption date.
We
may issue additional shares of Common Stock or Preferred Stock, including under our equity incentive plan. Any such issuances would dilute
the interest of our stockholders and likely present other risks.
We
may issue a substantial number of additional shares of Common Stock or Preferred Stock, including under our 2023 equity incentive plan,
which had 572,172 unissued shares authorized as of December 31, 2023. Any such issuances of additional shares of Common Stock or Preferred
Stock:
| ● | may
significantly dilute the equity interests of our investors; |
| ● | may
subordinate the rights of holders of Common Stock if preferred stock is issued with rights
senior to those afforded our Common Stock; |
| ● | could
cause a change in control if a substantial number of shares of our Common Stock are issued,
which may affect, among other things, our ability to use our net operating loss carry forwards,
if any, and could result in the resignation or removal of our present officers and directors;
and |
| ● | may
adversely affect prevailing market prices for our Common Stock and/or Public Warrants. |
Sales
of a substantial number of shares of Class A Common Stock in the public market pursuant to our registration statements could reduce the
market price of Class A Common Stock.
Sales
of a substantial number of shares of Class A Common Stock in the public market pursuant to the registration statement on Form S-1 (File
No. 276307) (the “S-1 Registration Statement”) could occur at any time. These sales, or the perception in the market that
the holders of a large number of shares of Class A Common Stock intend to sell shares, could reduce the market price of the Class A Common
Stock. In particular, until such time as it is no longer effective, the S-1 Registration Statement will permit the resale of shares held
by 7GC & Co. Holdings LLC, a Delaware limited liability company (the “7GC Sponsor”), who has beneficial ownership of
approximately 25.2% of our outstanding shares, and Mr. Joseph Davy, who holds approximately 56.6% of our outstanding voting power, subject,
in each case, to the applicable lock-up periods. The resale, or expected or potential resale, of a substantial number of shares of our
Class A Common Stock in the public market could adversely affect the market price for the Class A Common Stock and make it more difficult
for you to sell your holdings at times and prices that you determine are appropriate. Furthermore, we expect that, because there is a
large number of shares registered pursuant to the S-1 Registration Statement, the selling securityholders will continue to offer the
securities covered thereby pursuant to the S-1 Registration Statement or pursuant to Rule 144 for a significant period of time, the precise
duration of which cannot be predicted. Accordingly, the adverse market and price pressures resulting from an offering pursuant to the
registration statement may continue for an extended period of time. We may also file additional registration statements in connection
with the possible sale of other securities.
If
certain holders of the Class A Common Stock sell a significant portion of their securities, it may negatively impact the market price
of the shares of the Class A Common Stock and such holders still may receive significant proceeds.
As
of the date of this Annual Report, the market price of our Class A Common Stock is below $10.00 per share, which was the price per unit
sold in the initial public offering, the per-share value of the consideration issued to Legacy Banzai stockholders upon consummation
of the Business Combination. However, certain of our stockholders hold shares of Class A Common Stock that were originally purchased
by the 7GC Sponsor in a private placement prior to 7GC’s initial public offering (“Founder Shares”) and may nonetheless
be inclined to sell such Founder Shares, as they were originally purchased at an effective price significantly less than $10.00 per share.
The currently outstanding 4,173,499 Founder Shares, representing 23.5% of our Class A Common Stock as of March 22, 2024, were purchased
at an effective price of $0.0050 per share. Accordingly, holders of the Founder Shares could sell their securities at a per-share price
that is less than $10.00 and still realize a significant profit from the sale of those securities that could not be realized by our other
stockholders. On March 22, 2024, the closing price of our Class A Common Stock was $0.63. Based on this closing price, the aggregate
sales price of the Founder Shares would be approximately $3.2 million.
It
is not possible to predict the actual number of shares we will sell under the SEPA, or the actual gross proceeds resulting from those
sales. Further, we may not have access to any or the full amount available under the SEPA.
On
December 14, 2023, we entered into the SEPA with Yorkville, pursuant to which Yorkville has committed to purchase up to $100 million
of Class A Common Stock, pursuant to Advance Notices delivered by the Company any time during the commitment period terminating on the
36-month anniversary of the SEPA; provided that any Advance Notice may only be made if (x) no amount remains outstanding on the Yorkville
Promissory Notes, (y) there is an effective Resale Registration Statement filed with the SEC for the resale under the Securities Act
of the shares of Class A Common Stock to be issued pursuant to such Advance Notice, and (z) other customary conditions precedent. Additionally,
at any time during the commitment period, provided there is a balance remaining outstanding under a Yorkville Promissory Note, Yorkville
may deliver an Investor Notice, causing an Advance Notice to be deemed delivered to Yorkville, subject to certain conditions.
Save
for the issuance of shares of Class A Common Stock following receipt of an Investor Notice (as defined in the SEPA) or pursuant to conversion
of a Yorkville Promissory Note, we generally have the right to control the timing and amount of any sales of shares of Class A Common
Stock to Yorkville under the SEPA. Sales of Class A Common Stock, if any, to Yorkville under the SEPA will depend upon market conditions
and other factors to be determined by us. We may ultimately decide to sell to Yorkville all, some or none of the shares of Class A Common
Stock that may be available for us to sell to Yorkville pursuant to the SEPA.
Because
the purchase price per share to be paid by Yorkville for the shares of Class A Common Stock that we may elect to sell to Yorkville under
the SEPA, if any, will fluctuate based on the market prices of Class A Common Stock prior to each sale made pursuant to the SEPA, if
any, it is not possible for us to predict, as of the date of this Annual Report and prior to any such sales, the number of shares of
Class A Common Stock that we will sell to Yorkville under the SEPA, the purchase price per share that Yorkville will pay for shares purchased
from us under the SEPA, or the aggregate gross proceeds that we will receive from those purchases by Yorkville under the SEPA, if any.
Moreover,
although the SEPA provides that we may issue up to an aggregate of $100 million of our Class A Common Stock to Yorkville, only 5,726,282
shares of Class A Common Stock (excluding 300,000 shares issued to Yorkville in lieu of a commitment fee at Closing) were registered
for resale under the S-1 Registration Statement. If we issue to Yorkville all of the 5,726,282 shares of Class A Common Stock registered
for resale under the S-1 Registration Statement, depending on the market price of our Class A Common Stock prior to each Advance made
pursuant to the SEPA, the actual gross proceeds from the sale of all such shares may be substantially less than the $100 million available
to us under the SEPA.
If
it becomes necessary for us to issue to Yorkville under the SEPA more than the 5,726,282 shares of Class A Common Stock registered for
resale under the S-1 Registration Statement in order to receive aggregate gross proceeds equal to $100 million under the SEPA, we must
file with the SEC one or more additional registration statements to register under the Securities Act the resale by Yorkville of any
such additional shares of Class A Common Stock we wish to issue from time to time under the SEPA, which the SEC must declare effective.
The
SEPA does not obligate Yorkville to subscribe for or acquire any shares of Class A Common Stock under the SEPA if those shares of Class
A Common Stock, when aggregated with all other shares of Class A Common Stock acquired by Yorkville under the SEPA, would result in Yorkville
beneficially owning more than 9.99% of the then outstanding shares of Class A Common Stock.
Item
1B. Unresolved Staff Comments.
None.
Item
1C. Cybersecurity.
We
maintain a cyber risk management program designed to identify, assess, manage, mitigate, and respond to cybersecurity threats.
The
underlying processes and controls of our cyber risk management program incorporate recognized best practices and standards for cybersecurity
and information technology, including the National Institute of Standards and Technology (NIST) Cybersecurity Framework (CSF) and processes
and controls supporting requirements with the General Data Protection Regulation (GDPR). We have an annual assessment performed by a
third-party specialist of the our cyber risk management program against the NIST CSF. The annual risk assessment identifies, quantifies,
and categorizes material cyber risks. In addition, we, in conjunction with the third-party cyber risk management specialists, develop
a Risk Mitigation Plan to mitigate such risks, and where necessary, remediate potential vulnerabilities identified through the annual
assessment process.
In
addition, we maintain policies over areas such as information security, incident management, business continuity, IT change and configuration
management, acceptable use and access on/offboarding to help govern the processes put in place by management designed to protect our
IT assets, data, and services from threats and vulnerabilities. We partner with industry recognized cybersecurity providers leveraging
third-party technology and expertise. We engage with these partners to monitor and maintain the performance and effectiveness of IT assets,
data, and services that are deployed in our IT environment.
Our
cybersecurity partners, including consultants, and other third-party service providers are a key part of our cybersecurity risk management
strategy and infrastructure. These partners provide services including, but not limited to configuration management, penetration testing,
network protection and monitoring, remote monitoring and management, user activity monitoring, data backups management, infrastructure
maintenance, cybersecurity strategy, and cyber risk advisory, assessment, and remediation.
Our
management team, in conjunction with the Chief Technology Officer and cybersecurity service providers are responsible for oversight and
administration of our cyber risk management program, and for informing senior management and other relevant stakeholders regarding the
prevention, detection, mitigation, and remediation of cybersecurity incidents. The management team has prior experience selecting, deploying,
and overseeing cybersecurity technologies, initiatives, and processes directly or via selection of strategic third-party partners. Management
relies on threat intelligence as well as other information obtained from governmental, public or private sources, including external
consultants engaged for strategic cyber risk management, advisory and decision making.
We
have implemented third-party risk management processes to manage the risks associated with reliance on vendors, critical service providers,
and other third-parties that may lead to a service disruption or an adverse cybersecurity incident. This includes vendor due diligence
prior to onboarding, a review of System and Organization Control (SOC) reports on an annual basis, regular review of vendor contracts,
and compliance with service level agreements (SLAs).
Our
Audit Committee oversees our cybersecurity risk exposures and the steps taken by management to monitor and mitigate cybersecurity risks.
The cybersecurity stakeholders, including member(s) of management assigned with cybersecurity oversight responsibility and/or third-party
consultants providing cyber risk services brief the Audit Committee on cyber vulnerabilities identified through the risk management process,
the effectiveness of our cyber risk management program, and the emerging threat landscape and new cyber risks on at least an annual basis.
This includes updates on our processes to prevent, detect, and mitigate cybersecurity incidents. In addition, cybersecurity risks are
reviewed by our Board of Directors at least annually, as part of the Company’s corporate risk oversight processes.
We
face risks from cybersecurity threats that could have a material adverse effect on our business, financial condition, results of operations,
cash flows or reputation. We acknowledge that the risk of a cyber incident is prevalent in the current threat landscape and that a future
cyber incident may occur in the normal course of its business. However, prior cybersecurity incidents have not had a material adverse
effect on our business, financial condition, results of operations, or cash flows. We proactively seek to detect and investigate unauthorized
attempts and attacks against our IT assets, data, and services, and to prevent their occurrence and recurrence where practical through
changes or updates to our internal processes and tools and changes or updates to our service delivery; however, potential vulnerabilities
to known or unknown threats will remain. Further, there is increasing regulation regarding responses to cybersecurity incidents, including
reporting to regulators, investors, and additional stakeholders, which could subject us to additional liability and reputational harm.
In response to such risks, we have implemented initiatives such as the cybersecurity risk assessment process and developed an incident
response plan. See Item 1A. “Risk Factors” for more information on our cybersecurity risks.
Item
2. Properties.
Our
principal executive office is located at 435 Ericksen Ave NE, Suite 250, Bainbridge Island, WA 98110 and, as of December 31, 2023, consists
of approximately 1,800 square feet of space under a lease that expires in September 2024. We believe this facility is adequate and suitable
for our current and anticipated future needs.
Item
3. Legal Proceedings.
From
time to time, we may be party to litigation and subject to claims incident to the ordinary course of our business. As our growth continues,
we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted
with certainty, and the resolution of these matters could materially affect our future results of operations, cash flows, or financial
position. We are not presently party to any legal proceedings that, in the opinion of management, if determined adversely to us, would
individually or taken together have a material adverse effect on our business, operating results, financial condition, or cash flows.
Item
4. Mine Safety Disclosures.
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market
Information
Our
Class A Common Stock and Public Warrants are currently listed on Nasdaq under the symbols “BNZI” and “BNZIW,”
respectively. Our Class B Common Stock is not publicly traded.
Holders
of Record
As
of March 22, 2024, there were 45 holders of record of our Class A Common Stock. one holder of our Class B Common Stock and one holder
of record of our Public Warrants. These numbers do not include beneficial owners whose securities were held in street name.
Dividend
Policy
As
of the date of this Annual Report, we have not declared or paid any cash dividends on our Common Stock. We expect to retain future earnings,
if any, for future operations, expansion and debt repayment and have no plans to declare or pay cash dividends on our Common Stock for
the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of the Board and will
depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other
factors that the Board may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future
outstanding indebtedness we or our subsidiaries incur.
Performance
Graph
This
item is not applicable as we are a smaller reporting company.
Recent
Sales of Unregistered Securities
None.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item
6. Reserved
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated
audited financial statements and related notes included in Part II, Item 8 of this Form 10-K. In addition to historical consolidated
financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute
to these differences include those discussed below and elsewhere particularly in the section titled “Risk Factors” and elsewhere
in this Form 10-K.
Certain
figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage
figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such
amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the
same calculations using the figures in our consolidated financial statements or in the associated text. Certain other amounts that appear
in this section may similarly not sum due to rounding.
Overview
Banzai
is a Marketing Technology (MarTech) company that produces data-driven marketing and sales solutions for businesses of all sizes. Our
mission is to help our customers accomplish their mission - by enabling better marketing, sales, and customer engagement outcomes. Banzai
endeavors to acquire companies strategically positioned to enhance our product and service offerings, increasing the value provided to
current and prospective customers.
Banzai
was founded in 2015. The first product Banzai launched was Reach, a SaaS and managed services offering designed to increase registration
and attendance of marketing events, followed by the acquisition of Demio, a SaaS solution for webinars designed for marketing, sales,
and customer success teams, in 2021 and the launch of Boost, a SaaS solution for social sharing designed to increase attendance for Demio-hosted
events by enabling easy social sharing by event registrants, in 2023. Our customer base included over 2,700 customers as of December
31, 2023 and comes from a variety of industries, including (among others) healthcare, financial services, e-commerce, technology and
media, operating in over 90 countries. Our customers range in size from solo entrepreneurs and small businesses to Fortune 500 companies.
No single customer represents more than 10% of our revenue. Since 2021, we have focused on increasing mid-market and enterprise customers
for Demio. Progress towards this is reflected in our increase in multi-host Demio customers from 14 on January 1, 2021 to 116 on December
31, 2023, an approximately 10-fold increase.
We
sell our products using a recurring subscription license model typical in SaaS businesses. Pricing tiers for our main product, Demio,
are based on the number of host-capable users, desired feature sets, and maximum audience size. Boost pricing tiers are based on the
Demio plan to which the customer subscribes. Reach pricing is based on the number of event campaigns a customer has access to run simultaneously
or the maximum number of registrations a customer is allowed to generate per subscription period. Banzai’s customer contracts vary
in term length from single months to multiple years.
Banzai
generated revenue of $4.6 million and $5.3 million in the years ended December 31, 2023 and 2022, respectively. Banzai has incurred significant
net losses since inception, including net losses of $14.4 million and $15.5 million in 2023 and 2022, respectively. Banzai had an accumulated
deficit of $46.8 million and of $32.4 million as of December 31, 2023 and 2022, respectively.
Summary
of our Merger
On
December 14, 2023, we consummated the Business Combination with Legacy Banzai. Pursuant to the terms of the Merger Agreement, the Business
Combination was effected through (a) the merger of First Merger Sub with and into Legacy Banzai, with Legacy Banzai surviving as a wholly-owned
subsidiary of 7GC and (b) the subsequent merger of Legacy Banzai with and into Second Merger Sub, with the Second Merger Sub being the
surviving entity of the Second Merger, which ultimately resulted in Legacy Banzai becoming a wholly-owned direct subsidiary of 7GC. Upon
closing the Business Combination, we changed our name from 7GC & Co. Holdings Inc. to Banzai International, Inc.
A
description of the Business Combination and the material terms of the Merger Agreement are included in the Proxy Statement/Prospectus,
filed by the Company with the SEC in the section entitled “Stockholder Proposal No. 1 - The Business Combination Proposal”
beginning on page 92 of the Proxy Statement/Prospectus.
Operating
Metrics
In
the management of our businesses, we identify, measure, and evaluate a variety of operating metrics, as described below. These key performance
measures and operating metrics are not prepared in accordance with GAAP and may not be comparable to or calculated in the same way as
other similarly titled measures and metrics used by other companies. Measurements are specific to the group being measured, i.e. total
customers, new customers, or other cohorts. We currently use these operating metrics with our Demio product. We do not track and use
these operating metrics with prior products.
The
following table presents the percentage of Banzai’s revenue generated from Demio for the years ended December 31, 2023 and 2022
as compared to their other SaaS products.
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | |
| Revenue % | |
2023 | | |
2022 | |
| Reach | |
| 4.5 | % | |
| 15.0 | % |
| Demio | |
| 94.9 | % | |
| 84.6 | % |
| Other | |
| 0.6 | % | |
| 0.4 | % |
| Total | |
| 100.0 | % | |
| 100.0 | % |
Net
Revenue Retention (“NRR”)
NRR
is a metric Banzai uses to measure the revenue retention of its existing customer base. NRR calculates the change in revenue from existing
customers by cohort over a period of time, after taking into account revenue lost due to customer churn and downgrades, and revenue gained
due to upgrades and reactivations.
The
formula for calculating NRR is: NRR = (Revenue at the beginning of a period - Revenue lost from churn, and downgrades + Revenue gained
from expansion and reactivation) / Revenue at the beginning of the period.
The
following table presents average monthly NRR for Demio for the years ended December 31, 2023 and 2022.
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | |
| Product: Demio | |
2023 | | |
2022 | |
| Average Monthly NRR | |
| 95.5 | % | |
| 93.7 | % |
Average
Customer Value (“ACV”)
ACV
is a metric Banzai uses to calculate the total revenue that it can expect to generate from a customer in a year. ACV is commonly used
in the SaaS industry to measure the value of a customer to a subscription-based company over a 12-month period. Banzai uses ACV to segment
its customers and to determine whether the value of new customers is growing or shrinking relative to the existing customer base. Banzai
uses this information to make strategic decisions about pricing, marketing, and customer retention.
The
formula for calculating ACV is: ACV = Total Annual Recurring Revenue (ARR) / Total Number Customers, where ARR is defined as annual run-rate
revenue of subscription agreements from all customers measured at a point in time.
The
following table presents new customer ACV and total average ACV for Demio for the years ended December 31, 2023 and 2022.
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | |
| Product: Demio | |
2023 | | |
2022 | |
| New Customer ACV | |
$ | 1,355 | | |
$ | 1,453 | |
| Total Average ACV | |
$ | 1,406 | | |
$ | 1,213 | |
Customer
Acquisition Cost (“CAC”)
CAC
is a financial metric Banzai uses to evaluate the average cost of acquiring a new customer. It includes marketing, sales, and other related
expenses incurred while attracting and converting prospects into paying customers. CAC is a critical metric for Banzai to understand
the efficiency and effectiveness of its marketing and sales efforts, as well as to ensure sustainable growth.
The
formula for calculating CAC is: CAC = Total Sales & Marketing Cost / Number of Customers Acquired.
The
following table presents CAC for Demio for the years ended December 31, 2023 and 2022.
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | |
| Product: Demio | |
2023 | | |
2022 | |
| Customer Acquisition Cost (CAC) | |
$ | 1,030 | | |
$ | 785 | |
Customer
Churn %
Customer
Churn % is the rate of customers who deactivate in a given period relative to the number of active customers at the beginning of such
period or end of the prior period. Understanding drivers of churn allows Banzai to take measures to reduce the number of customers who
deactivate and increase the overall rate of customer retention. There are two types of Churn % measured: Revenue churn and Customer (or
logo) churn.
The
formula for calculating Churn % is: Churn % = [# or $ value of] Deactivations / [# or $ value of] Active Customers (Beginning of period).
The
following table presents revenue Churn and new customer (or logo) Churn for Demio for the years ended December 31, 2023 and 2022.
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | |
| Product: Demio | |
2023 | | |
2022 | |
| Average Monthly Churn - Revenue | |
| 6.9 | % | |
| 7.1 | % |
| Average Monthly Churn - Customer (Logo) | |
| 7.9 | % | |
| 7.6 | % |
Customer
Lifetime Value (“LTV”)
LTV
is a financial metric Banzai uses to estimate the total revenue it can expect to generate from a customer throughout their entire relationship.
LTV helps Banzai understand the long-term value of each customer, enabling it to make informed decisions about marketing, sales, customer
support, and product development strategies. It also helps Banzai allocate resources more efficiently by identifying high-value customer
segments to focus on growth and retention.
The
formula for calculating LTV is comprised of two metrics: Monthly Recurring Revenue (MRR) and Customer Life represented in # of months.
Calculations for these metrics on a per-customer basis, as follows:
MRR
= ACV / 12
Customer
Life (# of months) = 1 / Churn %
LTV
= MRR * Customer Life (# of months)
MRR
is calculated by aggregating, for all customers from customer base or the group being measured during that month, monthly revenue from
committed contractual amounts. For customers on annual contracts, this represents their ACV divided by 12.
The
following table presents MRR, Customer Life, and LTV for Demio for the years ended December 31, 2023 and 2022.
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | |
| Product: Demio | |
2023 | | |
2022 | |
| MRR (New Customers) | |
$ | 117 | | |
$ | 121 | |
| Customer Life (months) | |
| 14.5 | | |
| 14.1 | |
| LTV (New Customers) | |
$ | 1,635 | | |
$ | 1,706 | |
LTV
/ CAC Ratio
LTV
/ CAC ratio is a culminating metric measuring the efficiency of Sales and Marketing activities in terms of the dollar value of new business
generated versus the amount invested in order to generate that new business. This provides a measurement of ROI for Sales and Marketing
activities. A segmented view of LTV / CAC ratio gives additional insight into the profitability of various business development activities.
The
formula for calculating LTV / CAC ratio is: LTV / CAC for the segment or activity being measured.
The
following table presents the LTV / CAC ratio for Demio for the years ended December 31, 2023 and 2022.
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | |
| Product: Demio | |
2023 | | |
2022 | |
| LTV / CAC Ratio | |
| 1.6 | | |
| 2.2 | |
Analysis
of the Impact of Key Business Drivers on Financial Performance
Banzai
strives to maximize revenue growth within a reasonable cost structure through optimizing and continuous monitoring of the key business
metrics described above relative to SaaS industry benchmarks, Banzai’s direct competition, and historical company performance.
This is accomplished through a combination of increased revenue per customer (higher ACVs and NRR) on an increasing customer base, generated
through efficient customer acquisition (LTV / CAC ratio) and improved customer retention (lower churn, higher customer life). Other business
activities contribute to improved performance and metrics, including but not limited to the following:
| ● | Customer
Success and Onboarding, leading to maximum customer satisfaction and retention. |
| ● | Product
Development and Support, maximizing customer value, supporting usage and expansion revenue. |
| ● | Company
Initiatives, designed to improve trial experience and conversion rates, on-demand adoption,
and emphasis on data to position our products as a system of automation and a system of record
for our customers, supporting growth and retention. |
Identification
of Operational Risk Factors
There
are a number of key internal and external operational risks to the successful execution of Banzai’s strategy.
Internal
risks include, among others:
| ● | Management
and leadership issues: ineffective leadership, poor decision-making, or lack of direction. |
| ● | Operational
inefficiencies: inadequate processes and poor resource allocation may lead to decreased productivity
or insufficient ROI. |
| ● | Financial
mismanagement: inadequate financial planning, improper accounting practices, or excessive
debt can lead to financial instability. |
| ● | Employee-related
challenges: high turnover, lack of skilled staff, or internal conflicts can impact morale
and productivity. |
| ● | Technological
obsolescence: failing to develop (or adapt) to new technologies in anticipation or response
to changes in market trends can lead to competitive disadvantages. |
External
risks include, among others:
| ● | Economic
factors: including economic downturns, inflation, or currency fluctuations impacting business
spending and overall market conditions. |
| ● | Competition:
from established industry players to new entrants, eroding market share and profitability. |
| ● | Legal
and regulatory: changes in laws or regulations that impact operations or increase compliance
costs. |
| ● | Technological
disruptions: from advancements in technology leading to obsolescence of existing products. |
| ● | Unforeseen
events: including natural disasters, geo-political instability, and pandemics, potentially
impacting market demand, operational or supply chain disruption. |
Analysis
of the Impact of Operational Risks on Financial Performance
The
risk factors described above could have significant impacts on Banzai’s financial performance. These or other factors, including
those risk factors summarized in the section titled “Risk Factors” could impact Banzai’s ability to generate and grow
revenue, contain costs, or inhibit profitability, cash flow, and overall financial performance:
| ● | Revenue
and Sales: Internal risks from operating inefficiency or external factors, including economic
downturns or increased competition, could lead to lower sales, impaired unit economics, and
reduced revenue. |
| ● | Costs
and Expenses: Internal operating mismanagement or external factors, including supplier issues,
may cause increased cost relative to revenue generation, resulting in insufficient return
on investment or profit margins. |
By
continuing to conduct comprehensive risk monitoring and analysis on financial performance, Banzai can optimize its ability to make informed
decisions and improve its ability to navigate internal and external challenges. Such activities include: identification and categorization
of risks, quantification and analysis of potential severity, and development of risk mitigation strategies. It is also important for
Banzai to ensure financial reports and disclosures accurately reflect the potential impact of risks on financial performance, essential
for transparent communication with investors and stakeholders.
The
Business Combination and Public Company Costs
The
Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, 7GC was treated as the acquired
company for financial statement reporting purposes. Accordingly, for accounting purposes, the financial statements of Banzai represent
a continuation of the financial statements of Legacy Banzai with the Business Combination treated as the equivalent of Legacy Banzai
issuing stock for the net assets of 7GC, accompanied by a recapitalization. The net assets of 7GC were stated at historical cost, with
no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Legacy Banzai in this and
future reports of Banzai.
As
a consequence of the Business Combination, we became the successor to an SEC-registered and Nasdaq-listed company, which required Banzai
to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.
We incurred and expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’
liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased
audit and legal fees. We are qualified as an “emerging growth company.” As a result, we have been provided certain disclosure
and regulatory relief. Our future results of operations and financial position may not be comparable to Legacy Banzai’s historical
results of operations and financial position as a result of the Business Combination.
Results
of Operations
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | | |
Year-over- | | |
Year-over- | |
| ($ in Thousands) | |
2023 | | |
2022 | | |
Year $ | | |
Year % | |
| Operating income: | |
| | | |
| | | |
| | | |
| | |
| Revenue | |
$ | 4,561 | | |
$ | 5,333 | | |
$ | (772 | ) | |
| -14.5 | % |
| Cost of revenue | |
| 1,445 | | |
| 1,957 | | |
| (512 | ) | |
| -26.2 | % |
| Gross profit | |
$ | 3,116 | | |
$ | 3,376 | | |
$ | (260 | ) | |
| -7.7 | % |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| General and administrative expenses | |
$ | 12,905 | | |
$ | 9,275 | | |
$ | 3,630 | | |
| 39.1 | % |
| Depreciation expense | |
| 7 | | |
| 10 | | |
| (3 | ) | |
| -30.0 | % |
| Impairment loss on operating lease | |
| — | | |
| 303 | | |
| (303 | ) | |
| -100.0 | % |
| Total operating expenses | |
$ | 12,912 | | |
$ | 9,588 | | |
$ | 3,324 | | |
| 34.7 | % |
| Operating loss | |
$ | (9,796 | ) | |
$ | (6,212 | ) | |
$ | (3,584 | ) | |
| 57.7 | % |
| Other expenses (income): | |
| | | |
| | | |
| | | |
| | |
| SEPA commitment fee and deferred fee expense | |
$ | 3,826 | | |
$ | - | | |
$ | 3,826 | | |
| nm | |
| GEM warrant expense | |
| 2,448 | | |
| - | | |
| 2,448 | | |
| nm | |
| GEM commitment fee expense | |
| 2,000 | | |
| - | | |
| 2,000 | | |
| nm | |
| Other income, net | |
| (63 | ) | |
| (151 | ) | |
| 88 | | |
| -58.3 | % |
| Interest income | |
| (1 | ) | |
| — | | |
| (1 | ) | |
| nm | |
| Interest expense | |
| 2,631 | | |
| 1,651 | | |
| 980 | | |
| 59.4 | % |
| Interest expense - related party | |
| 2,923 | | |
| 729 | | |
| 2,194 | | |
| 301.0 | % |
| Loss (gain) on extinguishment of debt | |
| — | | |
| 57 | | |
| (57 | ) | |
| -100.0 | % |
| Change in fair value of warrant liability | |
| (1,807 | ) | |
| — | | |
| (1,807 | ) | |
| nm | |
| Change in fair value of warrant liability - related party | |
| 115 | | |
| — | | |
| 115 | | |
| nm | |
| Loss on modification of simple agreement for future equity | |
| — | | |
| 121 | | |
| (121 | ) | |
| -100.0 | % |
| Loss on modification of simple agreement for future equity - related party | |
| — | | |
| 1,602 | | |
| (1,602 | ) | |
| -100.0 | % |
| Change in fair value of simple agreement for future equity | |
| (208 | ) | |
| 308 | | |
| (516 | ) | |
| -167.5 | % |
| Change in fair value of simple agreement for future equity - related party | |
| (2,752 | ) | |
| 4,078 | | |
| (6,830 | ) | |
| -167.5 | % |
| Change in fair value of bifurcated embedded derivative liabilities | |
| (1,405 | ) | |
| 254 | | |
| (1,659 | ) | |
| -653.1 | % |
| Change in fair value of bifurcated embedded derivative liabilities - related party | |
| (3,063 | ) | |
| 607 | | |
| (3,670 | ) | |
| -604.6 | % |
| Change in fair value of convertible promissory notes | |
| (34 | ) | |
| — | | |
| (34 | ) | |
| nm | |
| Total other (income) expenses | |
$ | 4,610 | | |
$ | 9,256 | | |
$ | (4,646 | ) | |
| -50.2 | % |
| Loss before income taxes | |
| (14,406 | ) | |
| (15,468 | ) | |
| 1,062 | | |
| -6.9 | % |
| Provision for income taxes | |
| — | | |
| — | | |
| — | | |
| nm | |
| Net loss | |
$ | (14,406 | ) | |
$ | (15,468 | ) | |
$ | 1,062 | | |
| -6.9 | % |
The
percentage changes included in the tables herein that are not considered meaningful are presented as “nm”.
Components
of Results of Operations
Revenue
Analysis
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | | |
Year-over- | | |
Year-over- | |
| ($ in Thousands) | |
2023 | | |
2022 | | |
Year $ | | |
Year % | |
| Revenue | |
$ | 4,561 | | |
$ | 5,333 | | |
$ | (772 | ) | |
| -14.5 | % |
For
the year ended December 31, 2023, Banzai reported total revenue of $4.6 million, representing a decrease of $0.8 million, or approximately
14.5%, over 2022. This decrease is primarily attributable to lower Reach revenue which declined by approximately $0.55 million due to
a shift in Banzai’s focus to its Demio product and decision, which decision was reversed in 2024, to begin phasing out the Reach
product. In 2024 Banzai is revitalizing its focus on the Reach product through re-engineering and expanded sales efforts. Demio revenue
was lower by $0.19 million in 2023 as compared to 2022 due to churn and lower new sales year-over-year.
Cost
of Revenue Analysis
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | | |
Year-over- | | |
Year-over- | |
| ($ in Thousands) | |
2023 | | |
2022 | | |
Year $ | | |
Year % | |
| Cost of revenue | |
$ | 1,445 | | |
$ | 1,957 | | |
$ | (512 | ) | |
| -26.2 | % |
For
the years ended December 31, 2023 and 2022, Banzai’s cost of revenue totaled $1.4 million and $2.0 million, respectively. This
represents a decrease of $0.5 million, or approximately 26.2%, in 2023 compared to 2022, due primarily to lower customer base and an
approximately 5% lower cost per average customer, driven by lower contracted services and data licenses costs of approximately $0.3 million
and $0.2 million, respectively.
Gross
Profit Analysis
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | | |
Year-over- | | |
Year-over- | |
| ($ in Thousands) | |
2023 | | |
2022 | | |
Year $ | | |
Year % | |
| Gross profit | |
$ | 3,116 | | |
$ | 3,376 | | |
$ | (260 | ) | |
| -7.7 | % |
| | |
| | | |
| | | |
| | | |
| | |
For
the years ended December 31, 2023 and 2022, Banzai’s gross profit was $3.1 million and $3.4 million, respectively. This represents
a year-over-year decrease of $0.3 million, or approximately 7.7% due to the decreases in revenue of $0.8 million and decreases in cost
of revenue of $0.5 million described above.
Operating
Expense Analysis
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | | |
Year-over- | | |
Year-over- | |
| ($ in Thousands) | |
2023 | | |
2022 | | |
Year $ | | |
Year % | |
| Total operating expenses | |
$ | 12,912 | | |
$ | 9,588 | | |
$ | 3,324 | | |
| 34.7 | % |
Total
operating expenses for the years ended December 31, 2023 and 2022, were $12.9 million and $9.6 million, respectively, signifying a year-over-year
increase of approximately $3.3 million, or 34.7%. This increase was due primarily to fees associated with the Business Combination and
the initial public offering of our predecessor, 7GC, including the cost associated with audit, technical accounting, legal and other
professional services of approximately $3.7 million, primarily offset by the loss on impairment of lease of $0.3 million.
Other
Expense Analysis
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | | |
Year-over- | | |
Year-over- | |
| ($ in Thousands) | |
2023 | | |
2022 | | |
Year $ | | |
Year % | |
| Total other (income) expenses | |
$ | 4,610 | | |
$ | 9,256 | | |
$ | (4,646 | ) | |
| -50.2 | % |
For
the year ended December 31, 2023, Banzai reported total other expenses of $4.6 million. This represents a decrease of $4.6 million from
the year ended December 31, 2022, when the Company reported total other expenses of $9.3 million. The change in other expenses (income),
net was primarily driven by the following:
| ● | The
cost associated with the Yorkville SEPA, of $3.8 million. |
| ● | GEM
warrants issued as a financing expense of approximately $2.4 million. |
| ● | GEM
commitment fee expense of $2.0 million. |
| ● | Changes
in fair value of the simple agreement for future equity (“SAFEs”) was a gain
of $3.0 million in 2023, of which $2.8 million pertained to related party SAFEs. This represents
a net change of $7.3 million from the 2022 loss of $4.4 million, $4.1 million of which related
to related party SAFEs. |
| ● | Loss
on modification of SAFEs was $1.7 million in 2022, $1.6 million of which was related to related
party SAFEs, with no equivalent modification or resulting gain or loss in 2023. |
| ● | Changes
in fair value of warrant liability was a gain of $1.7 million in 2023, with a loss of $0.1
million related to related party warrant liabilities. These warrants, both third party and
related party, were issued and assumed in 2023, and as such, there was no equivalent gain
or loss on warrant liabilities in 2022. |
| ● | Interest
expense increased by $3.2 million ($2.2 million due to related party) year-over-year to $5.6
million for the year ended December 31, 2023 ($2.9 million for related party) due to the
company raising additional interest bearing debt during 2023. |
| ● | Changes
in fair value of bifurcated embedded derivative liabilities was a gain of $4.5 million ($3.1
million for related party) as of December 31, 2023, relative to a loss of $0.9 million in
2022. |
Provision
for Income Taxes
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | | |
Year-over- | | |
Year-over- | |
| ($ in Thousands) | |
2023 | | |
2022 | | |
Year $ | | |
Year % | |
| Provision for income taxes | |
$ | — | | |
$ | — | | |
$ | — | | |
| nm | |
For
the years ended December 31, 2023 and 2022, Banzai’s reported provision for income tax expense was $0.0 million and $0.0 million,
respectively. There was no year-over-year increase or decrease to income tax expense.
As
of December 31, 2023, the Company had federal and state net operating loss carryforwards of approximately $26,705,200 and $13,043,900,
respectively. As of December 31, 2022, the Company had federal and state net operating loss carryforwards of approximately $15,325,300
and $9,175,400, respectively. Federal losses of $124,500 begin to expire in 2036 and $26,580,700 of the federal losses carryforward indefinitely.
State losses of $10,666,100 begin to expire in 2031 and $2,377,800 of the state losses carryforward indefinitely. Utilization of the
net operating loss carryforwards may be subject to an annual limitation according to Section 382 of the Internal Revenue Code of 1986
as amended, and similar provisions.
Banzai
has determined, based upon available evidence, that it is more likely than not that all of the net deferred tax assets will not be realized
and, accordingly, has provided a full valuation allowance against its net deferred tax asset. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income, net operating loss carryback potential, and tax planning strategies in
making these assessments. Banzai has determined that it had no material uncertain tax benefits for the years ended December 31, 2023
and 2022.
Banzai
recognizes interest accrued for unrecognized tax benefits and penalties in interest expense and penalties in operating expense. No amounts
were accrued for the payment of interest and penalties at December 31, 2023, and 2022. Banzai files tax returns as prescribed by the
tax laws of the jurisdictions in which it operates. In the normal course of business, Banzai is subject to examination by federal and
state jurisdictions where applicable based on the statute of limitations that apply in each jurisdiction. Our 2016 and subsequent tax
years remain open to examination by the IRS. Banzai had no open tax audits with any taxing authority as of December 31, 2023.
Net
Loss Analysis
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | | |
Year-over- | | |
Year-over- | |
| ($ in Thousands) | |
2023 | | |
2022 | | |
Year $ | | |
Year % | |
| Net loss | |
$ | (14,406 | ) | |
$ | (15,468 | ) | |
$ | 1,062 | | |
| -6.9 | % |
For
the years ended December 31, 2023 and 2022, Banzai reported net losses of $14.4 million and $15.5 million, respectively. This improvement
is primarily due to a reduction in total other expenses of $4.6 million in 2023 compared to 2022, offset by an increase in operating
expenses of $3.3 million and a decrease in gross profit of $0.3 million.
Critical
Accounting Estimates
Our
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States.
The preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts
of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We
base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
On a recurring basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects
of material revisions in an estimate, if any, will be reflected in the consolidated financial statements prospectively from the date
of the change in the estimate.
We
believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our
financial statements.
Impairment
of goodwill
Goodwill
represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill
is reviewed for impairment at least annually, in December, or more frequently if a triggering event occurs between impairment testing
dates. As of December 31, 2023, the Company had one operating segment, which was deemed to be its reporting unit, for the purpose of
evaluating goodwill impairment.
The
Company’s impairment assessment begins with a qualitative assessment to determine whether it is more likely than not that the fair
value of the reporting unit is less than its carrying value. Qualitative factors may include, macroeconomic conditions, industry and
market considerations, cost factors, and other relevant entity and Company specific events. If, based on the qualitative test, the Company
determines that it is “more likely than not” that the fair value of a reporting unit is less than its carrying value, then
we evaluate goodwill for impairment by comparing the fair value of our reporting unit to its respective carrying value, including its
goodwill. If it is determined that it is not likely that the fair value of the reporting unit is less than its carrying value, then no
further testing is required.
The
selection and assessment of qualitative factors used to determine whether it is more likely than not that the fair value of a reporting
unit exceeds the carrying value involves significant judgment and estimates. Fair values may be determined using a combination of both
income and market-based approaches.
Recognition
and measurement of convertible and Simple Agreement for Future Equity (SAFE) notes, including the associated embedded derivatives
The
Company accounts for Simple Agreements for Future Equity (“SAFE”) at fair value in accordance with ASC 480 Distinguishing
Liabilities from Equity. The SAFEs are subject to revaluation at the end of each reporting period, with changes in fair value recognized
in the accompanying Consolidated Statement of Operations.
The
Company evaluates all its financial instruments to determine if such instruments contain features that qualify as embedded derivatives.
Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment
of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded
derivatives are recognized at fair value, with changes in fair value recognized in the statement of operations each period. Bifurcated
embedded derivatives are classified with the related host contract in the Company’s balance sheet.
Determination
of the fair value of the warrant liabilities
The
Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates
all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain
features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC
815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as
equity, is re-assessed at the end of each reporting period.
Public
Warrants
The
Public Warrants are recognized as derivative liabilities in accordance with ASC 815. Accordingly, the Company recognizes the warrant
instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are subject
to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s consolidated
statements of operations.
The
Public Warrants were initially measured at fair value using a Monte Carlo simulation model and have subsequently been measured based
on the listed market price of such warrants. The determination of the fair value of the warrant liabilities may be subject to change
as more current information becomes available and accordingly the actual results could differ significantly. Warrant liabilities are
classified as current liabilities on the Company’s consolidated balance sheets.
GEM
Warrants
The
GEM Warrants were not considered indexed to the issuer’s stock as the holder’s ability to receive one percent of the total
consideration received by the Company’s stockholders in connection with a Change of Control in lieu of the Warrant, where the surviving
corporation is not publicly traded, adjusts the settlement value based on items outside the Company’s control in violation of the
fixed-for-fixed option pricing model. As such, the Company recorded the Warrants as liabilities initially measured at fair value with
subsequent changes in fair value recognized in earnings each reporting period.
The
measurement of fair value was determined utilizing a Monte Carlo simulation considering all relevant assumptions current at the date
of issuance (i.e., share price, exercise price, term, volatility, risk-free rate, probability of dilutive term of three years, and expected
time to conversion). The Company determined the Warrants were share issuance costs associated with an aborted offering. Aborted offering
costs may not be deferred and charged against proceeds of a subsequent offering. As such, the Company recorded an expense for the corresponding
fair value.
Recognition
and measurement of stock compensation
The
Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date
fair value of the awards in accordance with ASC 718, Stock Compensation. The Company accounts for forfeitures as they occur. The Company
estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating
the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application
of management’s judgment.
Non-GAAP
Financial Measures
Adjusted
EBITDA
In
addition to our results determined in accordance with U.S. GAAP, we believe that Adjusted EBITDA, a non-GAAP measure as defined below,
is useful in evaluating our operational performance distinct and apart from certain irregular, non-cash, and non-operational expenses.
We use this information for ongoing evaluation of operations and for internal planning purposes. We believe that non- GAAP financial
information, when taken collectively with results under GAAP, may be helpful to investors in assessing our operating performance and
comparing our performance with competitors and other comparable companies.
Non-GAAP
measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. We endeavor to
compensate for the limitation of Adjusted EBITDA, by also providing the most directly comparable GAAP measure, which is net loss, and
a description of the reconciling items and adjustments to derive the non-GAAP measure. Some of these limitations are:
| ● | Adjusted
EBITDA does not consider the potentially dilutive impact of stock-based compensation; |
| ● | Although
depreciation and amortization are non-cash charges, the assets being depreciated and amortized
may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital
expenditure requirements for such replacements or for new capital expenditures or contractual
commitments; |
| ● | Adjusted
EBITDA does not reflect impairment and restructuring costs; |
| ● | Adjusted
EBITDA does not reflect interest expense or other income; |
| ● | Adjusted
EBITDA does not reflect income taxes; |
| ● | Adjusted
EBITDA does not reflect audit, legal, incremental accounting and other expenses tied to M&A
or the Business Combination; and |
| ● | Other
companies, including companies in our own industry, may calculate Adjusted EBITDA differently
from the way we do, limiting its usefulness as a comparative measure. |
Because
of these limitations, Adjusted EBITDA should only be considered alongside results prepared in accordance with GAAP, including various
cash-flow metrics, net income (loss) and our other GAAP results and financial performance measures.
Adjusted
EBITDA Analysis
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | | |
Year-over- | | |
Year-over- | |
| ($ in Thousands) | |
2023 | | |
2022 | | |
Year $ | | |
Year % | |
| Adjusted EBITDA (Loss) | |
$ | (10,218 | ) | |
$ | (4,826 | ) | |
$ | (5,392 | ) | |
| 111.7 | % |
For
the year ended December 31, 2023, Banzai’s Adjusted EBITDA (loss) was $10.2 million, reflecting an increase in the loss of $5.4
million from $4.8 million for the year ended December 31, 2022. This year-over-year increase in loss is primarily attributable to increased
general and administrative expenses.
Net
Income/(Loss) to Adjusted EBITDA Reconciliation
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | | |
Year-over- | | |
Year-over- | |
| ($ in Thousands) | |
2023 | | |
2022 | | |
Year $ | | |
Year % | |
| Net loss | |
$ | (14,406 | ) | |
$ | (15,468 | ) | |
$ | 1,062 | | |
| -6.9 | % |
| Other income, net | |
| (63 | ) | |
| (151 | ) | |
| 88 | | |
| -58.3 | % |
| Depreciation expense | |
| 7 | | |
| 10 | | |
| (3 | ) | |
| -30.0 | % |
| Stock based compensation | |
| 1,246 | | |
| 770 | | |
| 476 | | |
| 61.8 | % |
| Interest expense | |
| 2,631 | | |
| 1,651 | | |
| 980 | | |
| 59.4 | % |
| Interest expense - related party | |
| 2,923 | | |
| 729 | | |
| 2,194 | | |
| 301.0 | % |
| Provision for income taxes | |
| - | | |
| - | | |
| - | | |
| nm | |
| Loss (gain) on extinguishment of debt | |
| - | | |
| 57 | | |
| (57 | ) | |
| -100.0 | % |
| Loss on modification of simple agreement for future equity | |
| - | | |
| 121 | | |
| (121 | ) | |
| -100.0 | % |
| Loss on modification of simple agreement for future equity - related party | |
| - | | |
| 1,602 | | |
| (1,602 | ) | |
| -100.0 | % |
| Change in fair value of simple agreement for future equity | |
| (208 | ) | |
| 308 | | |
| (516 | ) | |
| -167.5 | % |
| Change in fair value of simple agreement for future equity - related party | |
| (2,752 | ) | |
| 4,078 | | |
| (6,830 | ) | |
| -167.5 | % |
| Change in fair value of bifurcated embedded derivative liabilities | |
| (1,405 | ) | |
| 254 | | |
| (1,659 | ) | |
| -653.1 | % |
| Change in fair value of bifurcated embedded derivative liabilities - related party | |
| (3,063 | ) | |
| 607 | | |
| (3,670 | ) | |
| -604.6 | % |
| Transaction related expenses* | |
| 4,746 | | |
| 304 | | |
| 4,442 | | |
| 1461.2 | % |
| Adjusted EBITDA | |
$ | (10,218 | ) | |
$ | (4,826 | ) | |
$ | (5,392 | ) | |
| 111.7 | % |
*
Transaction related expenses include
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | | |
Year-over- | | |
Year-over- | |
| ($ in Thousands) | |
2023 | | |
2022 | | |
Year $ | | |
Year % | |
| Professional fees - audit | |
$ | 560 | | |
$ | - | | |
$ | 560 | | |
| nm | |
| Professional fees - legal | |
| 254 | | |
| 102 | | |
| 152 | | |
| 149.0 | % |
| Incremental accounting | |
| 2,731 | | |
| 202 | | |
| 2,529 | | |
| 1252.0 | % |
| Market study, M&A support | |
| 1,201 | | |
| - | | |
| 1,201 | | |
| nm | |
| Transaction related expenses | |
$ | 4,746 | | |
$ | 304 | | |
$ | 4,442 | | |
| 1461.2 | % |
Liquidity
and Capital Resources
Going
Concern
Since
inception, Banzai has financed its operations primarily from the sales of redeemable convertible preferred stock and convertible promissory
notes, and proceeds from senior secured loans. As of December 31, 2023, Banzai had cash and cash equivalents of $2.1 million.
Banzai
has incurred losses since its inception, had a working capital deficit of $34.1 million as of December 31, 2023, and had an accumulated
deficit at December 31, 2023 totaling $46.8 million. As of December 31, 2023, Banzai had $9.2 million and $7.0 million aggregate principal
amount outstanding on term/ promissory notes and convertible notes, respectively. Since December 31, 2023, Banzai has raised additional
capital under the SEPA through the issuance of additional convertible notes for a total of $2.5 million and issued a non-cash share payment
of a total of $1.5 million in partial settlement of the Yorkville Promissory Note financing; a $0.5 million non-cash share payment to
settle the deferred fee liability recognized as of December 31, 2023, and payable to Yorkville in terms of the SEPA. Banzai has historically
used debt financing proceeds principally to fund operations.
Banzai’s
intends to seek additional funding through the SEPA arrangement and other equity financings in 2024. If Banzai is unable to raise such
funding, Banzai will have to pursue an alternative course of action to seek additional capital through other debt and equity financing.
If
Banzai is unable to raise sufficient additional capital, through future debt or equity financings or through strategic and collaborative
ventures with third parties, Banzai will not have sufficient cash flows and liquidity to fund its planned business for 12 months from
the issuance of these financial statements. There can be no assurances that Banzai will be able to secure alternate forms of financing
at terms that are acceptable to management. In that event, Banzai might be forced to limit many of its business plans and consider other
means of creating value for its stockholders. Based on the factors described above, and after considering management’s plans, there
is substantial doubt about Banzai’s ability to continue as a going concern within one year from the date the financial statements
were available to be issued. The accompanying consolidated financial statements have been prepared assuming Banzai will continue as a
going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
Cash
Flows
The
following table sets forth Banzai’s cash flows for the years ended December 31, 2023 and 2022:
| | |
Year Ended
December 31, | | |
Year Ended
December 31, | | |
Year-over- | | |
Year-over- | |
| ($ in Thousands) | |
2023 | | |
2022 | | |
Year $ | | |
Year % | |
| Net loss | |
$ | (14,406 | ) | |
$ | (15,469 | ) | |
$ | 1,063 | | |
| -6.9 | % |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| 12,855 | | |
| 10,300 | | |
| 2,555 | | |
| 24.8 | % |
| Net cash used in operating activities | |
| (1,551 | ) | |
| (5,168 | ) | |
| 3,617 | | |
| -70.0 | % |
| Net cash used in investing activities | |
| - | | |
| (11 | ) | |
| 11 | | |
| -100.0 | % |
| Net cash provided by financing activities | |
| 2,621 | | |
| 4,416 | | |
| (1,795 | ) | |
| -40.6 | % |
| Net increase / (decrease) in cash | |
| 1,070 | | |
| (763 | ) | |
| 1,833 | | |
| -240.2 | % |
Cash
Flows for the Year Ended December 31, 2023
Net
cash used in operating activities was $1.6 million for the year ended December 31, 2023. Net cash used in operating activities consists
of net loss of $14.4 million, offset by total adjustments of $12.9 million for non-cash items and the effect of changes in working capital.
Non-cash adjustments included non-cash issuance of shares to Yorkville in terms of the aggregate commitment fee of $3.3 million, non-cash
issuance of warrants accounted for as liabilities of $2.4 million, non-cash GEM commitment fee of $2.0 million, stock-based compensation
expense of $1.2 million, non-cash interest expense of $1.2 million ($0.5 million for related party), amortization of debt discount and
issuance costs of $3.4 million ($2.4 million for related party), amortization of operating lease ROU assets of $0.2 million, fair value
adjustments to simple agreement for future equity gain of $3.0 million (gain of $2.8 million for related party), fair value adjustments
to bifurcated embedded derivative liabilities gain of $4.5 million (gain of $3.1 million for related party), fair value adjustment for
warrant liabilities gain of $1.7 million (loss of $0.1 million for related party), and net of change in operating assets and liabilities
of $8.1 million.
There
were no net cash investing activities for the year ended December 31, 2023.
Net
cash provided by financing activities was $2.6 million for the year ended December 31, 2023, and was primarily related to proceeds from
convertible debt financing of $5.8 million ($2.6 million for related party), related party note payable financing of $4.4 million, offset
by the effect of the Business Combination, net of transaction costs of $7.6 million.
Cash
Flows for the Year Ended December 31, 2022
Net
cash used in operating activities was $5.2 million for the year ended December 31, 2022. Net cash used in operating activities consists
of net loss of $15.5 million, total adjustments of $10.3 million for non-cash items and the effect of changes in working capital. Non-cash
adjustments include stock-based compensation expense of $0.8 million, non-cash interest expense of $0.9 million ($0.1 million for related
party), bad debt expense of $(0.1 million), amortization of debt discount and issuance costs of $0.7 million ($0.5 million for related
party), amortization of operating lease ROU assets of $0.2 million, impairment of operating lease ROU assets of $0.3 million, loss on
extinguishment of debt of $0.1 million, loss on modification of SAFE $1.7 million ($1.6 million for related party), fair value adjustments
to simple agreement for future equity of $4.4 million ($4.0 million for related party), fair value adjustments to bifurcated embedded
derivative liabilities of $0.9 million ($0.6 million for related party), and net of change in operating assets and liabilities of $0.5
million.
Net
cash used in investing activities was $(0.01) million for the year ended December 31, 2022, and was primarily related to the purchase
of equipment.
Net
cash provided by financing activities was $4.4 million for the year ended December 31, 2022, and was primarily related to convertible
debt financing of $5.9 million ($4.2 million for related party), net of deferred offering cost payment of $1.5 million.
Capital
Expenditure Commitments and Financing Requirements
| ($ in Thousands) | |
Total | | |
Less than 1 year | | |
1 - 3 Years | |
| Debt principal - 14% CB PF convertible notes | |
$ | 1,821 | | |
$ | 1,821 | | |
$ | - | |
| Debt principal - 14% CB PF term notes | |
| 6,500 | | |
| 6,500 | | |
| - | |
| Debt principal - 8% Alco promissory notes | |
| 4,400 | | |
| 4,400 | | |
| - | |
| Debt principal - 7GC Convertible promissory note | |
| 2,550 | | |
| 2,550 | | |
| - | |
| Debt principal - Yorkville Convertible promissory note | |
| 2,000 | | |
| 2,000 | | |
| - | |
| Interest on debt | |
| 3,364 | | |
| 1,375 | | |
| 1,989 | |
| Operating leases | |
| 241 | | |
| 241 | | |
| - | |
| Total capital expenditure commitments and financing requirements at December 31, 2023 | |
$ | 20,876 | | |
$ | 18,887 | | |
$ | 1,989 | |
Debt
principal - 14% CB PF convertible and term notes
On
February 19, 2021, the Company entered into a loan agreement with CP BF Lending, LLC (“CP BF”) for $8,000,000 (the “Loan
Agreement”). The Loan Agreement was comprised of a Term Note for $6,500,000 and a Convertible Note for $1,500,000, with the option
upon the request of the Company for Additional Loan (“Additional Loan”) principal amount of up to $7,000,000, evidenced by
additional notes with 81.25% of the principal amount of such Additional Loan being evidenced by a Term Note, and 18.75% of the principal
amount of such an Additional Loan being evidenced by a Convertible Note. The Term Note bears cash interest at a rate of 14% per annum
paid monthly and accrued interest payable-in-kind (“PIK”) cumulatively at 1.5% per annum. The outstanding principal balance
of the Term Note together with accrued and unpaid interest thereon, unpaid fees and expenses and any other Obligations then due, shall
be paid on February 19, 2025 (“Loan Maturity Date”). The Convertible Note accrues PIK interest cumulatively at a rate of
15.5% per annum, and is convertible into Class A Common Stock upon Qualified Financing (as defined in the agreement), upon a Change of
Control (as defined in the agreement), upon Prepayment, or at Maturity at a fixed conversion price. If not sooner converted or prepaid,
the Convertible Note principal together with accrued and unpaid interest thereon, unpaid fees and expenses and any other Obligations
then due, shall be paid on the Loan Maturity Date. Upon the occurrence, and during the continuance, of an Event of Default (as defined
in the agreement), interest on the Term Note will bear cash interest at a per annum rate of 20% (“Default Rate”) and no PIK
interest shall accrue at any time during an Event of Default and the Convertible Note will bear PIK Interest at a per annum at the Default
Rate.
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% of the outstanding principal balance of the Loans, with only the portion of the principal balance
so converted counted for purposes of determining the applicable Exit Fee; and provided further, that, in the event of a partial prepayment
of the Loans, the Exit Fee shall be calculated on the principal amount so repaid and not on the entire outstanding principal balance
thereof, and (iv) all other Obligations, if any, that shall have become due and payable hereunder with respect to the principal amount
so prepaid.
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. The Loan Agreement is secured
by a first-priority Lien (subject to Permitted Liens) on and security interest in the Collateral pursuant to the terms of the Collateral
Documents. The Loan Agreement named Joseph Davy, CEO, as Guarantor, and per the term of the Loan Agreement, he is willing to guarantee
the full payment, performance and collection of all of the Credit Parties’ obligations thereunder and under the Loan Agreement,
all as further set forth therein.
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
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,
which is not considered an Additional Loan as defined above. The First Amendment Convertible Note has the same features as the Convertible
Note described above.
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 “Amendment Fee”) on the execution date to extend the forbearance
period from the four-month anniversary of the closing of the Merger to the six-month anniversary of the closing of the Merger. This amendment
was deemed to be a debt modification in accordance with ASC 470, Debt, which will be accounted for prospectively. Modification does not
result in recognition of a gain or loss in the consolidated statement of operations but does impact interest expense recognized in the
future.
Debt
principal - 8% Alco promissory notes
On
August 30, 2023, the Company issued a subordinate promissory note (“Alco August Promissory Note”) in the aggregate principal
amount of $150,000 to Alco Investment Company, a related party. Alco held its ownership of over 10% of the issued equity of the Company,
through its ownership of Series A preferred stock. The Alco August Promissory Note bears interest at a rate of 8% per annum. The outstanding
principal and accrued interest are due and payable on April 29, 2024. The Company recorded a $3,711 debt discount upon issuance of the
Alco August Promissory Note. For the year ended December 31, 2023, interest expense on the Alco August Promissory Note totaled $4,494,
comprised of $4,044 of contractual accrued interest and $450 for the amortization of the discount. As of December 31, 2023, $150,000
of principal and $4,044 of accrued interest is outstanding under the Alco August Promissory Note.
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 to Alco Investment Company, a related party. The Alco September Promissory Note bears interest at
a rate of 8% per annum. The outstanding principal and accrued interest are due and payable on January 10, 2024. The Company recorded
$8,588 of debt issuance costs and a $638,808 debt discount upon issuance of the Alco September Promissory Note, relating to the share
transfer agreements. For the year ended December 31, 2023, interest expense on the Alco September Promissory Note totaled $478,815, comprised
of $30,575 of contractual accrued interest and $448,240 for the amortization of the discount. As of December 31, 2023, $1,500,000 of
principal and $30,575 of accrued interest is outstanding under the Alco September Promissory Note.
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 to Alco Investment Company, a related party. The Alco November Promissory Note bears interest at a rate of 8%
per annum. The outstanding principal and accrued interest are due and payable on April 13, 2024. The Company recorded a $363,905 debt
discount upon issuance of the Alco November Promissory Note relating to the share transfer agreements. For the year ended December 31,
2023, interest expense on the Alco November Promissory Note totaled $94,005, comprised of $7,397 of contractual accrued interest and
$86,608 for the amortization of the discount. As of December 31, 2023, $750,000 of principal and $7,397 of accrued interest is outstanding
under the Alco November Promissory Note.
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 to Alco Investment Company, a related party. The Alco December Promissory Note bears interest at a rate of
8% per annum. The outstanding principal and accrued interest are due and payable on December 31, 2024. The Company recorded a $1,496,252
debt discount upon issuance of the Alco December Promissory Note, relating to the share transfer agreements. For the year ended December
31, 2023, interest expense on the Alco December Promissory Note totaled $39,087, comprised of $7,890 of contractual accrued interest
and $31,197 for the amortization of the discount. As of December 31, 2023, $2,000,000 of principal and $7,890 of accrued interest is
outstanding under the Alco December Promissory Note.
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. Alco is a related
party to the Company due to its ownership of over 10% of the issued equity of the Company. The Company evaluated the terms of the 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 resulting from the First
Amendment. Accordingly, the Company accounted for the 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 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 to be recognized in future periods.
Debt
principal - 7GC Convertible promissory note
The
Company assumed two promissory notes in connection with the Merger which remained outstanding as of December 31, 2023. The promissory
notes were issued on December 21, 2022 for a principal amount of $2,300,000 (“December 2022 7GC Note”) and on October 3,
2023 for a principal amount of $250,000 (“October 2023 7G Note, together with the December 2022 7GC Note, the “7GC Promissory
Notes”). The 7GC Promissory Notes were issued to the Sponsor, 7GC & Co. Holdings LLC. The 7GC Promissory Notes do not bear
interest and were repayable in full upon the earlier of the consummation of a business combination or the date the Company liquidates
the trust account (the “Trust Account”) established in connection with the Company’s initial public offering (the “IPO”)
upon the failure of the Company to consummate a business combination within the requisite time period. Under the original terms of the
7GC Promissory Notes, the Sponsor has the option, but not the obligation, to convert the principal balance of the Note, in whole or in
part, into that number of shares of Class A common stock, $0.0001 par value per share, of the Company equal to the principal
amount of the Note so converted divided by $10.00. As of December 31, 2023 and the Merger date, $2,550,000 was outstanding under the
7GC Promissory Notes.
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 days after
the closing of the Merger (the “Closing”) at a conversion price equal to the average daily VWAP of the Class A Common Stock
for the 30 trading days following the Closing. This amendment was deemed to be a debt modification in accordance with ASC 470, Debt,
which will be accounted for prospectively. Modification does not result in recognition of a gain or loss in the consolidated statement
of operations but does impact interest expense recognized in the future. Pursuant to ASC 470, if the modification or exchange of a convertible
debt instrument is not accounted for as an extinguishment, the accounting for the change in the fair value of the embedded conversion
option which increases the value of the embedded conversion option (calculated as the difference between the fair value of the embedded
conversion option immediately before and after the modification or exchange) is recorded as a reduction to the carrying amount of the
7GC Promissory Notes with a corresponding increase to additional paid in capital. The 7GC Promissory Notes were converted in full and
subsequently cancelled on March 6, 2024.
Debt
principal - Yorkville Convertible promissory note
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”), Yorkville
agreed to advance to the Company, in exchange for convertible promissory notes, an aggregate principal amount of up to $3,500,000, $2,000,000
of which was funded at the Closing in exchange for the issuance by the Company of a Convertible Promissory Note (the “Yorkville
Convertible Note”).
The
Company received net proceeds of $1.8 million after a non-cash original issue discount of $0.2 million.
The
Yorkville Convertible Note has a maturity date of June 14, 2024, and accrues interest at 0% per annum, subject to an increase to 18%
per annum upon events of default as defined in the agreement. No default on this convertible note has occurred, as of the date of this
annual report.
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% of the
total number of shares of Class A common stock outstanding after giving effect to such conversion.
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% prepayment
premium, plus all accrued and unpaid interest; provided that (i) the Company provides Yorkville with no less than ten trading days’
prior written notice thereof and (ii) on the date such notice is issued, the VWAP of the Class A common stock is less than the Fixed
Price.
Upon
the occurrence of certain triggering events, as defined in the Yorkville Convertible Note agreement, 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, plus (y) 10% in respect of such amount, and (z) all outstanding accrued and unpaid interest as of each
payment date.
As
of December 31, 2023, the principal amount outstanding under the Yorkville Convertible Note is $2 million.
The
foregoing description of the Yorkville Convertible Note does not purport to be complete and is subject to, and qualified in its entirety
by, the full text of the Yorkville Convertible Note, a copy of which is attached hereto as Exhibit 4.8, and incorporated herein by reference.
Interest
on Debt
Interest
on debt totals $3.4 million, representing the aggregate interest expenses / payments obligation to be paid and to be recognized during
the rest of the terms of the Loan Agreements and Senior Convertible Notes, described above.
Operating
Leases
Banzai
has an operating lease for its real estate for office use. The lease term expires in October 2024. Banzai adopted ASC 842 Leases by applying
the guidance at adoption date, January 1, 2022. The $234,043 balance recognized as of December 31, 2023 represents the future minimum
lease payments under non-cancellable leases as liabilities.
Debt
Structure and Maturity Profile
| ($ in Thousands) | |
Principal | | |
Debt
Discount /
Issuance
Cost | | |
Carrying
Value | | |
Accrued
Interest | | |
Carrying
Value and
Accrued
Interest | |
| As of December 31, 2023 | |
| | | |
| | | |
| | | |
| | | |
| | |
| Debt principal - 14% CB PF term notes | |
$ | 6,500 | | |
$ | (130 | ) | |
$ | 6,370 | | |
$ | 289 | | |
$ | 6,659 | |
| Debt principal - 8% Alco promissory notes | |
| 4,400 | | |
| (1,945 | ) | |
| 2,455 | | |
| 50 | | |
| 2,505 | |
| Debt principal - 7GC Convertible promissory note | |
| 2,550 | | |
| (10 | ) | |
| 2,540 | | |
| - | | |
| 2,540 | |
| Debt principal - Yorkville Convertible promissory note | |
| 2,000 | | |
| (234 | ) | |
| 1,766 | | |
| - | | |
| 1,766 | |
| Debt principal - 14% CB PF convertible notes | |
| 1,821 | | |
| (42 | ) | |
| 1,779 | | |
| 914 | | |
| 2,693 | |
| Total debt carrying values at December 31, 2023 | |
$ | 17,271 | | |
$ | (2,361 | ) | |
$ | 14,910 | | |
$ | 1,253 | | |
$ | 16,163 | |
Contractual
Obligations and Commitments
Revenue
Under
ASC 606, revenue is recognized throughout the life of the executed aeagreement. Banzai measures revenue based on considerations specified
in terms and conditions agreed to by a customer. Furthermore, Banzai recognizes revenue in an amount that reflects the consideration
we expect to be entitled to in exchange for those services. The performance obligation is satisfied by transferring control of the service
to the customer, which occurs over time.
Leases
Banzai’s
existing leases contain escalation clauses and renewal options. Banzai is not reasonably certain that renewal options will be exercised
upon expiration of the initial terms of its existing leases. Prior to adoption of ASU 2016-02 effective January 1, 2022, Banzai accounted
for operating lease transactions by recording lease expense on a straight-line basis over the expected term of the lease.
Banzai
entered into a sublease which it had identified as an operating lease prior to the adoption of ASC 842 Leases. Banzai remains the primary
obligor to the head lease lessor, making rental payments directly to the lessor and separately billing the sublessee. The sublease is
subordinated to the master lease, and the sublessee must comply with all applicable terms of the master lease. Banzai subleased the real
estate to a third-party at a monthly rental payment amount that was less than the monthly cost that it pays on the headlease with the
lessor.
In
evaluating long-lived assets for recoverability, Banzai calculated the fair value of the sublease using its best estimate of future cash
flows expected to result from the use of the asset. When undiscounted cash flows to be generated through the sublease is less than the
carrying value of the underlying asset, the asset is deemed impaired. If it is determined that assets are impaired, an impairment loss
is recognized for the amount that the asset’s book value exceeds its fair value. Based on the expected future cash flows, Banzai
recognized an impairment loss upon adoption of ASC 842 Leases of $303,327. The impairment loss was recorded to impairment loss on lease
on the consolidated statement of operations for the year ended December 31, 2022.
Deferred
underwriting fees
On
December 28, 2023, the Company and Cantor amended the Fee Reduction Agreement to provide that the Reduced Deferred Fee was payable in
the form of 1,113,927 shares of Class A Common Stock and to provide that Cantor is subject to a 12-month lock-up with respect to the
Cantor Fee Shares. On December 28, 2023, the Company issued the Cantor Fee Shares to Cantor, covering the Reduced Deferred Fee in accordance
with the Fee Reduction Agreement. The fair value of the 1,113,927 shares of Class A Common Stock was determined to be $2,450,639 on December
28, 2023 based on the Company’s opening stock price of $2.20. Although the Company issued the Cantor Fee Shares, as of December
31, 2023, the Company has not satisfied its Cantor Registration Rights Obligations. As such, the Company cannot conclude that it has
settled its outstanding obligations to Cantor. Therefore, neither criteria under ASC 405 for extinguishment and derecognition of the
liability were satisfied and the $4,000,000 Reduced Deferred Fee remained outstanding as a current liability on the Company’s December
31, 2023 balance sheet.
GEM
commitment fee liability
In
May 2022, the Company entered into a Share Purchase Agreement with GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (collectively,
“GEM”) (the “GEM Agreement”) pursuant to which, among other things, upon the terms and subject to the conditions
of the GEM Agreement, GEM is to purchase from the Company (or its successor following a Reverse Merger Transaction (as defined in the
GEM Agreement)) up to the number of duly authorized, validly issued, fully paid and non-assessable shares of common stock having an aggregate
value of $100,000,000 (the “GEM Financing”). Further, in terms of the GEM Agreement, on the Public Listing Date, the Company
was required to make and execute a warrant (“GEM Warrant”) granting GEM the right to purchase up to the number of common
shares of the Company that would be equal to 3% of the total equity interests, calculated on a fully diluted basis, and at an exercise
price per share equal to the lesser of (i) the public offering price or closing bid price on the date of public listing or (ii) the quotient
obtained by dividing $650 million by the total number of equity interests.
On
December 13, 2023, the Company and GEM entered into a binding term sheet (the “GEM Term Sheet”) and, on December 14, 2023,
a letter agreement (the “GEM Letter”), agreeing to terminate in its entirety the GEM Agreement by and between the Company
and GEM, other than with respect to the Company’s obligation (as the post-combination company in the Merger) to issue the GEM Warrant
granting the right to purchase Class A Common Stock in an amount equal to 3% of the total number of equity interests outstanding as of
the Closing, calculated on a fully diluted basis, at an exercise price on the terms and conditions set forth therein, in exchange for
issuance of a $2.0 million convertible debenture with a five-year maturity and 0% coupon. Due to the determination of the final terms
of the planned $2.0 million convertible debenture having not been finalized, nor the final agreement related to the convertible debenture
having been executed, as of December 31, 2023, the Company recognized, concurrent with the close of the merger, a liability for the GEM
commitment fee, along with a corresponding GEM commitment fee expense, in the amount of $2.0 million.
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 million in cash within three business days of the GEM Settlement
Agreement and (ii) issued to GEM, on February 5, 2024, an unsecured promissory note in the amount of $1.0 million, payable in monthly
installments of $100,000 beginning on March 1, 2024, with the final payment to be made on December 1, 2024 (the “GEM Promissory
Note”).
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 shares of Class A Common Stock that may be issuable under the terms of the GEM Promissory Note. The GEM Promissory
Note contains customary events of default. If an event of default occurs, GEM may, at its option, demand from the Company immediate payment
of any outstanding balance under the GEM Promissory Note. As of the date of this Annual Report, we have issued an aggregate of 139,470
shares of Class A Common Stock to GEM in lieu of monthly payment obligations.
Off-Balance
Sheet Arrangements
Banzai
had no off-balance sheet arrangements as of December 31, 2023.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
This
item is not applicable as we are a smaller reporting company.
Item
8. Financial Statements and Supplementary Data.
The
information required by this Item 8 is included at the end of this Annual Report beginning on page F-1 and is incorporated herein by
reference.
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item
9A. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Based
on an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934, as amended) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of December 31, 2023, our Principal Executive Officer
and Principal Financial Officer have concluded that, due to the material weaknesses in our internal control over financial reporting
noted below, our disclosure controls and procedures were not effective.
Management’s
Annual Report on Internal Controls over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over our financial reporting. As defined by the
Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of our
principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with
accounting principles generally accepted in the United States of America.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Our
management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control —
Integrated Framework (2013). Based on that evaluation, as of December 31, 2023, our principal executive officer and principal financial
officer concluded that our internal controls and procedures are not effective, and that we have material weaknesses in our IT General
Controls, adherence to the COSO Integrated Framework, and period end financial close and reporting process as described below.
(1)
IT General Controls - We did not maintain an effective IT control environment because we did not maintain a formal cybersecurity
governance program, sufficient provisioning, deprovisioning, user access reviews, and reviews of service organizations.
(2)
COSO Entity Level Controls - We did not maintain effective controls over the identification and monitoring of related party relationships
and transactions and have not yet implemented a formal delegation of authority process.
(3)
Period end financial close and reporting - Our assessment of internal controls has identified a material weakness whereby the
CFO has unrestricted administrative access to the General Ledger (GL) system. Given the concentration of responsibility includes approval
of key transactions, bank account reconciliations, and journal entries, administrative access to the G/L system should be restricted
to personnel outside of Accounting and Finance function.
Remediation
of Material Weaknesses
We
are committed to the remediation of the material weaknesses described above, as well as the continued improvement of our internal control
over financial reporting. We are in the process of taking steps to remediate the identified material weaknesses and continue to evaluate
our internal controls over financial reporting, including the following:
IT
General Controls:
| ● | We
have implemented enhanced segregation of duties and workflow approvals to prevent unauthorized
changes in our systems. |
| ● | Beginning
in Q1 2024, we began utilizing the services of external consultants to review our internal
controls environment and make recommendations to remediate the material weaknesses in our
financial reporting. |
| ● | Beginning
in Q1 2024, we began utilizing the services of external consultants to complete a formal
cybersecurity assessment and subsequently identified remediation plans to address any gaps
and weaknesses. |
| ● | We
utilized the services of external consultants to assist in the development of an incident
response plan that will be formalized in 2024. |
COSO
Entity Level Controls:
| ● | We
utilized the services of external consultants to assist in the identification and documentation
of entity level controls as of December 31, 2023. Additionally, in Q1 2024 we have completed
a formal COSO mapping document and remediation plans have been drafted where gaps were identified. |
| ● | We
implemented an Audit Committee, Compensation Committee, Nominating and Governance Committee
and Board of Directors immediately post-merger. |
Period
End Financial Close and Reporting:
| ● | We
will assess our overall security role design and privileged user access for each of our in-scope
applications, including our general ledger system. |
As
we continue our evaluation and improve our internal control over financial reporting, management may identify and take additional measures
to address control deficiencies. We cannot assure you that we will be successful in remediating the material weaknesses in a timely manner.
This
Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control
over financial reporting. The management’s report was not subject to attestation by our independent registered public accounting
firm pursuant to exemptions provided to issuers that are non-accelerated filers as defined in Section 2(a) of the Securities Act of 1933.
Changes
in Internal Control over Financial Reporting
As
required by Rule 13a-15(d) of the Exchange Act, our management, including our principal executive officer and our principal financial
officer, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the
quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting. Based on that evaluation, our principal executive officer and principal financial officer concluded that the merger
transaction with 7GC & Holdings Inc., is considered a significant corporate event during the quarter ended December 31, 2023.
On
December 14th, 2023, our company completed a merger transaction with 7GC & Co. Holdings Inc. As a result, there have been material
changes to our internal control environment. Our management has diligently assessed and adjusted our internal control processes to accommodate
the integration of systems, personnel, and financial reporting functions. We have implemented additional controls to address the combined
entity’s financial reporting requirements, ensuring accuracy, reliability, and compliance. While we believe these adjustments enhance
our overall control framework, we continue to monitor and evaluate their effectiveness to maintain the highest standards of financial
reporting integrity.
Item
9B. Other Information.
None.
Item
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not
applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
Directors
and Executive Officers
| Name |
|
Age |
|
Position |
| Joseph
P. Davy |
|
34 |
|
Chief
Executive Officer, Chairman and Director |
| Mark
Musburger |
|
60 |
|
Chief
Financial Officer |
| Simon
Baumer |
|
38 |
|
Chief
Technology Officer |
| Ashley
Levesque |
|
37 |
|
Vice
President of Marketing |
| Rachel
Stanley |
|
41 |
|
Vice
President of Customer Experience |
| Jack
Leeney (3) |
|
38 |
|
Director |
| Mason
Ward (1)(2)(3) |
|
42 |
|
Director |
| Paula
Boggs (1)(2)(3) |
|
64 |
|
Director |
| William
Bryant (1)(2) |
|
66 |
|
Director |
| (1) |
Member
of the audit committee. |
| (2) |
Member
of the compensation committee. |
| (3) |
Member
of the nominating and corporate governance committee. |
Executive
Officer Biographies
Joseph
P. Davy serves as our Chief Executive Officer and a member of our Board and prior to the Business Combination, served as Chief
Executive Officer and as a member the Board of Legacy Banzai since co-founding Legacy Banzai in 2015. Prior to co-founding Legacy Banzai,
Mr. Davy served as the General Manager at Avalara from 2013 to 2016. From 2012 to 2013, he served as Chief Executive Officer of Buystand.
From 2012 to 2013, he also served as Customer Advisory Board Member at Microsoft Corp. Mr. Davy founded EvoApp in 2009 and served as
its Chief Executive Officer and Chief Product Officer from 2009 to 2012. Prior to his service at EvoApp, Mr. Davy was a software engineer
at International Business Machines Corp (IBM). Mr. Davy also served as a member of the board of directors of Legalpad Inc. from 2019
to 2022. Prior to joining IBM, Mr. Davy attended the University of North Carolina at Chapel Hill from 2007 to 2010. We believe Mr. Davy
is qualified to serve on the Board due to his extensive venture capital experience and experience as founder and chief executive officer
of Legacy Banzai.
Mark
Musburger serves as our Chief Financial Officer and prior to this, served as Legacy Banzai’s Vice President of Finance
since 2022. Mr. Musburger previously served as the Chief Financial Officer of Corvee from 2021 to 2022, as the Senior Director of Finance
at Identity Digital from 2016 to 2021, as a Director, Finance at Avalara from 2014 to 2016 and as a Director, FP&A at Solavei from
2013 to 2014. Mr. Musburger holds a bachelor’s degree in finance and economics and a masters in business administration from Seattle
University.
Simon
Baumer serves as our Chief Technology Officer and prior to this, served as Legacy Banzai’s Chief Technology Officer since
2021. Prior to that, Mr. Baumer worked at Verivox GmbH as Vice President of Engineering from 2018 to 2021, as Head of Software Development
from 2016 to 2021, and as Teamlead for Software Development from 2015 to 2021.
Ashley
Levesque serves as our Vice President of Marketing and prior to this, served as Legacy Banzai’s Vice President of Marketing
since 2021 and Director of Marketing from 2020 to 2021. Ms. Levesque previously served as Marketing host at RevGenius and as a Marketing
Host for The Revenue Podcast in 2020. Ms. Levesque worked at Soft Robotics as Senior Marketing Manager from 2019 to 2020, as Manager
of Marketing from 2018 to 2019, and as Commercial Operations Manager from 2017 to 2018, and as Executive Assistant to the Chief Executive
Officer from 2016 to 2017. Ms. Levesque began her career in numerous roles at Bad Habit Productions, Inc. and Great Hill Partners. Ms.
Levesque holds a master’s degree from the Boston Conservatory at Berklee and a bachelor’s degree from Lawrence University.
Rachel
Stanley serves as our Vice President of Customer Experience and prior to this, served as Legacy Banzai’s Vice President
of Revenue since 2022 and previously served as Legacy Banzai’s Vice President of Customer Experience from 2021 to 2022, as Senior
Director of Customer Adoption and Support in 2021, as Director of Customer Adoption from 2020 to 2021, and as Enterprise Customer Success
Manager from 2019 to 2020. In 2018, she served as Marketing Manager at Amazon. Prior to that, she worked at ACS Technologies as Team
Leader from 2014 to 2018, as Implementation Consultant from 2012 to 2014, and as Launch and Onboarding Coordinator in 2012. Ms. Stanley
worked at CRISTA Ministries as Administrative Assistant in the President’s Office from 2011 to 2012. Ms. Stanley holds a degree
from Palm Beach Atlantic University.
Non-Executive
Director Biographies
Jack
Leeney has served as a member of the Board since December 2023, and prior to this, served as 7GC’s Chairman and Chief Executive
Officer since its inception. Since September 2016, Mr. Leeney has served as a Founding Partner of 7GC & Co Sarl and is responsible
for running the firm’s operations. Mr. Leeney led the firm’s investments in Cheddar TV, Capsule Pharmacy, hims & hers,
Jyve, Roofstock, The Mom Project, and Reliance Jio. Since 2020, he has served as a director for The Mom Project. From December 2020 to
November 2022, he served as a director of PTIC, a SPAC that closed an initial business combination with RW National Holdings, LLC (d/b/a
Appreciate), the parent holding company of Renters Warehouse, in November 2022. Between April 2011 and December 2016, Mr. Leeney served
on the boards of directors of Quantenna Communications, Inc. (Nasdaq: QTNA), DoAt Media Ltd. (Private), CinePapaya (acquired by Comcast),
Joyent (acquired by Samsung), BOKU, Inc. (AIM: BOKU), Eventful (acquired by CBS) and Blueliv (Private). Previously, Mr. Leeney served
as the Head of U.S. Investing for Telefonica Ventures, the investment arm of Telefonica (NYSE: TEF), between June 2012 and September
2016 and as an investor at Hercules Capital (NYSE: HTGC) between May 2011 and June 2012. He began his career as a technology-focused
investment banker at Morgan Stanley in 2007, where he worked on the initial public offerings for Tesla Motors, LinkedIn, and Pandora.
Mr. Leeney holds a B.S. from Syracuse University. We believe Mr. Leeney is qualified to serve on the Board due to his extensive venture
capital experience.
Mason
Ward has served as a member of the Board since December 2023, and prior to this, has served as the Chief Financial Officer of
Alco Investment Company since 2018, and served as its Controller and Finance Director from 2015 to 2018. Prior to joining Alco, Mr. Ward
served as an Infantry Officer in multiple operations, logistics, risk management and fiscal operations roles during two deployments to
Afghanistan with the United States Army. Mr. Ward holds a B.S. in Civil Engineering from the University of Cincinnati and a Certificate
in Accounting and a Masters in Business Administration from the University of Washington, and he is also a certified public accountant
(inactive). We believe Mr. Ward is qualified to serve on the Board due to his extensive finance and accounting expertise and experience.
Paula
Boggs has served as a member of the Board since December 2023, and prior to this, is the founder and owner of Boggs Media, LLC,
which manages Ms. Boggs’ musical, public speaking, and other creative business endeavors. A former executive at the Starbucks Coffee
Company, she led the global law department of Starbucks from 2002 to 2012 and was Corporate Secretary of the Starbucks Foundation. Prior
to that, Ms. Boggs was a Vice President of Legal for products, operations and information technology at Dell Computer Corporation from
1997 to 2002 and also held the role of Senior Deputy General Counsel starting in June 1997. Before joining Dell, Ms. Boggs was a partner
with the law firm of Preston Gates & Ellis LLP from 1995 to 1997. Ms. Boggs is also a voting member and Pacific Northwest Chapter
Governor of the Recording Academy, and serves on the Newport Festivals Foundation board, overseeing both the Newport Jazz Festival and
Newport Folk Festival. She was previously on the board of Fender; a member of the Board of Premera Blue Cross and chair of its compensation
and investments committees; a member of the Nominating/Trusteeship, Audit/Compliance (including six years as the chair of the audit committee)
and Executive Committees of Johns Hopkins University’s board of trustees; a member of the Executive Committee of KEXP Radio, an
affiliate of National Public Radio and the University of Washington; a member of the audit committee for School of Rock LLC; a member
of the American Bar Association board of governors, chairing its investments committee; a member of the President’s Committee for
the Arts and the Humanities from 2013 through 2017; a member of the White House Council for Community Solutions from 2010 to 2012; a
member of the audit and nominating committee of the American Red Cross; and a member of the board of Sterling Financial Inc. Ms. Boggs
holds a B.A. from Johns Hopkins University and a J.D. from the University of California at Berkeley. We believe Ms. Boggs is qualified
to serve on the Board due to her extensive governance and Fortune 500 experience with high-growth companies.
William
Bryant has served as a member of the Board since December 2023, and prior to this, has served as the general partner of Threshold
Ventures, a venture capital firm, since 2007 and has been a founder, board member, advisor and investor in over twenty venture backed
startups. Prior joining Threshold Ventures, Mr. Bryant served as the Chief Executive Officer of Mixxer Inc. from 2005 to 2006, as a Venture
Partner with Atlas Venture from 2001 to 2002 and as Chief Executive Officer and Chairman of Qpass Inc. from 1997 until its acquisition
in 2001 by Amdocs. Mr. Bryant has also served as a director for multiple public and private companies, including, recently, Remitly Global
(REMY) from 2015 to 2022. Mr. Bryant holds a Ph.D. in Business Strategy and a Masters in Business Administration in Business Strategy
and Entrepreneurship from the University of Washington. We believe Mr. Bryant is qualified to serve on the Board due to his extensive
experience in venture capital and as a public company board member.
Director
Independence
The
Board has determined that each of our directors other than Mr. Davy qualify as independent directors, as defined under the listing rules
of The Nasdaq Global Market (the “Nasdaq listing rules”), and that the Board consists of a majority of “independent
directors,” as defined under the rules of the SEC and Nasdaq listing rules relating to director independence requirements.
Delinquent
Section 16(a) Reports
Section
16(a) of the Exchange Act requires our directors, executive officers, and beneficial owners of more than 10% of our common stock to file
reports with the SEC indicating their holdings of, and transactions in, Banzai’s equity securities. Based solely on a review of
copies of these reports, we believe that all of our executive officers, directors, and 10% owners timely complied with all Section 16(a)
filing requirements in 2023, except for one late Form 4 for each of Rachel Stanley, Mark Musburger, Simon Baumer, Joseph Davy and Jack
Leeney, in each case, filed on December 19, 2023.
Code
of Business Conduct and Ethics
We
have a code of business conduct and ethics (the “Code of Conduct”) that applies to our directors, officers, and employees,
including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing
similar functions. We will provide, without charge, a copy of our Code of Conduct upon written request mailed to the attention of our
Investor Relations Department at 435 Ericksen Ave NE, Suite 250, Bainbridge Island, WA 98110. Our Code of Conduct is available under
the Corporate Governance section of our website at https://ir.banzai.io/corporate-governance/governance-overview.We will post
on our website all disclosures that are required by law or the listing standards of Nasdaq concerning any amendments to, or waivers from,
any provision of the Code of Conduct. The reference to our website address does not constitute incorporation by reference of the information
contained at or available through our website, and you should not consider it to be a part of this Annual Report.
Board
Committees and Committee Composition
The
Board has three standing committees: the audit committee, the compensation committee and the nominating and corporate governance committee.
Each committee operates under a written charter that has been approved by the Board and satisfies the applicable listing standards of
Nasdaq. Written copies of these committee charters may be obtained by contacting our Investor Relations Department at 435 Ericksen Ave
NE, Suite 250, Bainbridge Island, WA 98110. These documents are also available on the Corporate Governance section of our website at
https://ir.banzai.io/corporate-governance/governance-overview.
The
Chair of each committee reviews and discusses the agendas and materials for meetings with senior management in advance of distribution
to the other committee members, and reports to the Board on actions taken at each committee meeting. The following table sets forth the
current membership of each committee.
| Name |
|
Audit
Committee |
|
Compensation
Committee |
|
Nominating
and
Corporate
Governance
Committee |
| Joseph
P. Davy |
|
— |
|
— |
|
— |
| Jack
Leeney |
|
— |
|
— |
|
✔ |
| Mason
Ward |
|
✔ |
|
Chair |
|
✔ |
| Paula
Boggs |
|
✔ |
|
✔ |
|
Chair |
| William
Bryant |
|
Chair |
|
✔ |
|
— |
Audit
Committee
The
Audit Committee consists of William Bryant, who serves as the chairperson, Mason Ward, and Paula Boggs. Each member qualifies as an independent
director under the Nasdaq corporate governance standards, and that each of Ms. Boggs and Mr. Bryant qualifies as independent under the
independence requirements of Rule 10A-3 of the Exchange Act. In arriving at this determination, the Board examined each audit committee
member’s scope of experience and the nature of their prior and/or current employment.
The
Board determined that Mr. Bryant qualifies as an “audit committee financial expert” as such term is defined in Item 407(d)(5)
of Regulation S-K and possesses financial sophistication, as defined under the rules of Nasdaq. In making this determination, the Board
considered Mr. Bryant’s: understanding of generally accepted accounting principles and financial statements, ability to assess
the general application of such principles in connection with the accounting for estimates, accruals and reserves; experience in actively
supervising one or more persons engaged in preparing, auditing, analyzing or evaluating financial statements that present a breadth and
level of complexity of accounting issues generally comparable to the breadth and complexity of issues that can reasonably be expected
to be raised by the Company’s financial statements; understanding of internal control over financial reporting; and understanding
of audit committee functions. We are relying on the phase-in exemption provided under Rule 10A-3 of the Exchange Act and the Nasdaq rules.
While we believe Mr. Ward may be deemed to own in excess of 10% of our Class A Common Stock, a class of voting securities, as of the
date of this Annual Report, which would leave him outside the safe harbor provision of SEC Rule 10A-3, Mr. Ward will serve on the Audit
Committee under the phase-in exemption referenced above. In accordance with the phase-in exemption, we expect that a majority of the
members of our Audit Committee will satisfy the independence standards under the Exchange Act and Nasdaq listing rules within 90 days
of the closing of the Business Combination and all members of our Audit Committee will satisfy the independence standards under the Exchange
Act and Nasdaq listing rules within 12 months of the Closing of the Business Combination.
The
primary purpose of the Audit Committee is to discharge the oversight responsibilities of the Board with respect to our corporate accounting
and financial reporting processes, systems of internal control over financial reporting, and financial statement audits, as well as the
quality and integrity of the financial statements and reports and to oversee the qualifications, independence, and performance of our
independent registered public accounting firm. The Audit Committee also provides oversight assistance in connection with legal, risk,
regulatory, and ethical compliance programs established by management and the Board. Specific responsibilities of the Audit Committee
include:
| ● | helping
the Board oversee its corporate accounting and financial reporting processes; |
| ● | reviewing
and discussing with management the adequacy and effectiveness of our disclosure controls
and procedures; |
| ● | assisting
with design and implementation of our risk assessment functions; |
| ● | managing
the selection, engagement, qualifications, independence and performance of a qualified firm
to serve as the independent registered public accounting firm to audit our financial statements; |
| ● | discussing
the scope and results of the audit with the independent registered public accounting firm,
and reviewing, with management and the independent accountants, our interim and year-end
operating results; |
| ● | developing
procedures for employees to submit concerns anonymously about questionable accounting or
audit matters; |
| ● | reviewing
related person transactions; |
| ● | obtaining
and reviewing a report by the independent registered public accounting firm at least annually
that describes our internal quality control procedures, any material issues with such procedures
and any steps taken to deal with such issues when required by applicable law; and |
| ● | approving
or, as permitted, pre-approving, audit and permissible non-audit services to be performed
by the independent registered public accounting firm. |
Compensation
Committee
The
Compensation Committee consists of Mason Ward, who serves as the chairperson, Paula Boggs and William Bryant. Each member is independent
under the listing standards of Nasdaq, including Nasdaq’s controlled company exemption which is discussed below, and a “non-employee
director” as defined in Rule 16b-3 promulgated under the Exchange Act.
The
primary purpose of the Compensation Committee will be to discharge the responsibilities of the Board in overseeing the Company’s
compensation policies, plans, and programs and to review, approve, and/or recommend the compensation to be paid to its executive officers,
directors, and other senior management, as appropriate. Specific responsibilities of the Compensation Committee include:
| ● | reviewing
and recommending to the Company’s Board the compensation of the Chief Executive Officer
and other executive officers; |
| ● | reviewing
and recommending to the Board the compensation of the Company’s directors; |
| ● | administering
the Company’s equity incentive plans and other benefit programs; |
| ● | reviewing,
adopting, amending and terminating incentive compensation and equity plans, severance agreements,
profit sharing plans, bonus plans, change-of-control protections and any other compensatory
arrangements for the Company’s executive officers and other senior management; |
| ● | reviewing
and establishing general policies relating to compensation and benefits of the Company’s
employees, including the Company’s overall compensation philosophy; and |
| ● | reviewing
and evaluating with the Chief Executive Officer the succession plans for the Company’s
executive officers. |
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee consists of Paula Boggs, who serves as the chairperson, Jack Leeney and Mason Ward. Each
member is independent under the listing standards of Nasdaq, including Nasdaq’s controlled company exemption which is discussed
below.
Specific
responsibilities of the Nominating and Corporate Governance Committee include:
| ● | identifying,
reviewing, and evaluating candidates, including the nomination of incumbent directors for
reelection and nominees recommended by stockholders, to serve on the Board; |
| ● | considering
and making recommendations to the Board regarding the composition and chairmanship of the
committees of the Board; |
| ● | reviewing
with the Chief Executive Officer the plans for succession to the offices of the Company’s
executive officers and make recommendations to the Board with respect to the selection of
appropriate individuals to succeed to these positions; |
| ● | developing
and making recommendations to the Board regarding corporate governance guidelines and matters;
and |
| ● | overseeing
periodic evaluations of the Board’s performance, including committees of the Board. |
Controlled
Company Exemption
Mr.
Davy controls more than a majority of the total voting power of stockholders of the Company. As a result, the Company is a “controlled
company” within the meaning of Nasdaq corporate listing rules. Under Nasdaq listing rules, a company of which more than 50% of
the voting power is held by an individual, a group or another company is a “controlled company” and may elect not to comply
with certain Nasdaq rules regarding corporate governance, including the following:
| ● | the
requirement that a majority of its board of directors consist of independent directors; |
| ● | the
requirement that director nominees must be selected, or recommended for selection, by either
(i) the independent directors constituting a majority of the board of directors’ independent
directors in a vote in which only independent directors participate or (ii) a nominations
committee comprised solely of independent directors; |
| ● | the
requirement to maintain a compensation committee with prescribed duties and a written charter
comprised solely of independent directors; and |
| ● | the
requirement of an annual performance evaluation of our nominating and corporate governance
and compensation committees. |
As
a “controlled company,” the Company may elect to rely on some or all of these exemptions. However, the Company does not currently
intend to take advantage of any of these exemptions.
Item
11. Executive Compensation.
Executive
Officer Compensation
Our
named executive officers for the fiscal year ended December 31, 2023, consisting of our principal executive officer and the next two
most highly compensated executive officers, were:
Joseph
P. Davy, our Chief Executive Officer;
Mark
Musburger, our Chief Financial Officer;
Simon
Baumer, our Chief Technology Officer; and
Ashley
Levesque, our Vice President of Marketing.
2023
Summary Compensation Table
The
following table presents the compensation paid or awarded to our named executive officers with respect to the fiscal years ended December
31, 2023 and, to the extent required by SEC disclosure rules, December 31, 2022.
| Name and Principal Position | |
Year | | |
Salary
($) | | |
Option
Awards
($) | | |
Non-Equity
Incentive
Plan
Compensation
($) | | |
All Other
Compensation
($)(3) | | |
Total
($) | |
| Joseph P. Davy | |
2023 | | |
$ | 300,000 | | |
$ | — | | |
$ | — | | |
$ | 18,216 | | |
$ | 318,216 | |
| Chief Executive Officer | |
2022 | | |
| 237,500 | | |
| — | | |
| — | | |
| 5,500 | | |
| 243,000 | |
| Mark Musburger | |
2023 | | |
| 216,000 | | |
| 1,133,105 | (1) | |
| — | | |
| — | | |
| 1,349,105 | |
| Chief Financial Officer | |
2022 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Simon Baumer | |
2023 | | |
| 250,000 | | |
| 289,559 | (1) | |
| — | | |
| — | | |
| 539,559 | |
| Chief Technology Officer | |
2022 | | |
| 250,000 | | |
| 38,210 | | |
| — | | |
| — | | |
| 288,210 | |
| Ashley Levesque | |
2023 | | |
| 180,000 | | |
| 621,296 | (1) | |
| — | | |
| 11,594 | | |
| 812,890 | |
| Vice President of Marketing | |
2022 | | |
| 151,818 | | |
| 7,642 | (2) | |
| — | | |
| 3,000 | | |
| 162,460 | |
| (1) |
The
amounts disclosed represent the (i) aggregate grant date fair value of the stock options granted to our named executive officers
during the fiscal year ended December 31, 2023 under the 2016 Plan Equity Incentive Plan (the “2016 Plan”) (Mr. Musburger,
$1,104,209; Mr. Baumer $262,289; Ms. Levesque, $595,294) and (ii) the incremental cost under Financial Accounting Standards Board
Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“ASC Topic 718”) associated with
a reduction in the exercise price of certain outstanding options that occurred in December 2023 (Mr. Musburger, $28,896; Mr Baumer,
$27,270; Ms. Levesque, $26,002), each computed in accordance ASC Topic 718. The assumptions used in calculating the grant date fair
value of the stock options are set forth in Note 19 to our audited consolidated financial statements included elsewhere in this Annual
Report. This amount does not reflect the actual economic value that may be realized by the named executive officer. |
| (2) |
The
amounts disclosed represent the aggregate grant date fair value of the stock options granted to our named executive officers during
the fiscal year ended December 31, 2022 under the 2016 Plan computed in accordance with ASC Topic 718. The assumptions used in calculating
the grant date fair value of the stock options are set forth in Note 19 to our audited consolidated financial statements included
elsewhere in this Annual Report. This amount does not reflect the actual economic value that may be realized by the named executive
officer. |
| (3) |
Consists
of Company contributions to the Company’s 401(k) plan. |
Narrative
Disclosure to Summary Compensation Table
Non-Equity
Incentive Plan Compensation
In
addition to base salaries, our named executive officers are eligible to receive annual performance-based cash bonuses, which are designed
to provide appropriate incentives to our employees to achieve defined performance goals. None of our named executive officers received
or will receive annual performance-based cash bonuses with respect to the fiscal years ended December 31, 2022 or December 31, 2023.
Equity
Grants
To
further align the interests of our executive officers with the interests of our stockholders and to further focus our executive officers
on our long-term performance, Legacy Banzai historically granted equity compensation in the form of stock options. Stock options allow
the holder to exercise the stock option and receive shares upon exercise, with the exercise price determined based on the fair market
value of a share of common stock at the time of grant.
The
stock options granted to our named executive officers vested or will vest in a 25% increment on the one-year anniversary of the vesting
commencement date and thereafter 1/48th of the total shares underlying the option award vests in 36 equal monthly installments, subject
to the named executive officer’s continued service at each vesting date.
During
2023, Ms. Levesque received option grants with respect to 115,000 shares with an original exercise price of $7.36 per share. On December
6, 2023, the Board approved a repricing of the 2023 option awards granted to Ms. Levesque, reducing the exercise price to $5.15 per share,
which, upon the closing of the Business Combination, then increased to $8.38 and at the same time the original option grants reduced
to 70,685 shares.
During
2023, Mr Baumer received option grants with respect to 50,000 shares with an original exercise price of $7.36 per share. On December
6, 2023, the Board approved a repricing of the 2023 option awards granted to Mr. Baumer, reducing the exercise price to $5.15 per share,
which, upon the closing of the Business Combination, then increased to $8.38 and at the same time the original option grants reduced
to 30,732 shares.
During
2023, Mr. Musburger received option grants with respect to 150,000 shares with an original exercise price of $7.36 per share. On December
6, 2023, the Board approved a repricing of the 2023 option awards granted to Mr. Musburger, reducing the exercise price to $5.15 per
share, which, upon the closing of the Business Combination, then increased to $8.38 and at the same time the original option grants reduced
to 92,199 shares.
Outstanding
Equity Awards as of December 31, 2023
The
following table presents the outstanding equity incentive plan awards held by each named executive officer as of December 31, 2023.
| | |
| |
| |
Option Awards (1) | |
| Name | |
Grant Date | |
Vesting
Commencement
Date | |
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#) | | |
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) (2) | | |
Option
Exercise
Price
Per
Share
($) | | |
Option
Expiration
Date |
| Joseph P. Davy | |
— | |
— | |
| — | | |
| — | | |
| — | | |
— |
| Mark Musburger | |
12/3/2023 | |
10/1/2023 | |
| — | | |
| 46,099 | | |
$ | 8.38 | | |
12/2/2033 |
| | |
12/3/2023 | |
12/9/2022 | |
| 9,219 | | |
| 27,660 | | |
$ | 8.38 | | |
3/1/2033 |
| | |
12/3/2023 | |
12/9/2022 | |
| 13,829 | | |
| 41,490 | | |
$ | 8.38 | | |
3/1/2033 |
| Simon Baumer | |
12/3/2023 | |
12/9/2022 | |
| 7,683 | | |
| 23,049 | | |
$ | 8.38 | | |
3/1/2033 |
| | |
2/16/2022 | |
1/31/2022 | |
| 14,725 | | |
| 16,007 | | |
$ | 2.77 | | |
2/15/2032 |
| | |
7/14/2021 | |
7/1/2021 | |
| 18,567 | | |
| 12,165 | | |
$ | 2.82 | | |
7/14/2031 |
| Ashley Levesque | |
12/3/2023 | |
6/1/2022 | |
| 26,507 | | |
| 44,179 | | |
$ | 8.38 | | |
3/1/2033 |
| | |
2/16/2022 | |
1/31/2022 | |
| 255 | | |
| 3,202 | | |
$ | 2.77 | | |
2/15/2032 |
| | |
7/14/2021 | |
2/21/2021 | |
| 153 | | |
| 2,152 | | |
$ | 2.82 | | |
7/14/2031 |
| | |
7/14/2021 | |
7/1/2021 | |
| 1,882 | | |
| 3,163 | | |
$ | 2.82 | | |
7/14/2031 |
| (1) |
Each
of the equity awards was granted under the 2016 Plan. |
| (2) |
25%
of the total shares underlying the option award vest on the one-year anniversary of the vesting commencement date, thereafter 1/48th
of the total shares underlying the option award vest in 36 equal monthly installments, subject to the named executive officer’s
continued service at each vesting date. |
Additional
Narrative Disclosure
401(k)
Plan
We
maintain a 401(k) plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax advantaged basis. Eligible
employees are able to defer eligible compensation up to certain Code limits, which are updated annually. We make employer contributions
under the 401(k) plan and also have the ability to make employer profit sharing contributions to the 401(k) plan. The 401(k) plan is
intended to be qualified under Section 401(a) of the Code, with the related trust intended to be tax exempt under Section 501(a) of the
Code. As a tax-qualified retirement plan, contributions to the 401(k) plan are deductible by us when made, and contributions and earnings
on those amounts are not generally taxable to the employees until withdrawn or distributed from the 401(k) plan.
Director
Compensation
The
Board reviews director compensation periodically to ensure that director compensation remains competitive such that the Company is able
to recruit and retain qualified directors. While none of the non-employee directors received compensation during the fiscal years ended
December 31, 2023 or December 31, 2022 for services rendered to the Company, in December 2023, the Company adopted a board of directors’
compensation program that is designed to align compensation with the Company’s business objectives and the creation of stockholder
value, while enabling the Company to attract, retain, incentivize, and reward directors who contribute to the long-term success of the
Company. Under that program, our non-employee directors are eligible to receive the following:
| ● | Annual
base retainer of $100,000, to be paid as determined by the compensation committee; |
| ● | Committee
Chair Retainers: Audit Committee, $10,000; Compensation Committee, $5,000; and Nominating
and Corporate Governance Committee, $5,000. |
| ● | Committee
Member Retainers: Audit Committee, $5,000; Compensation Committee, $2,500; and Nominating
and Corporate Governance Committee, $2,500. |
Our
non-employee directors are also reimbursed for their reasonable out-of-pocket travel expenses to cover in-person attendance at and participation
in Board and committee meetings.
Disclosure
of Policies and Practices Related to the Grant of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information.
Rule
10b5-1 Sales Plans
Our
directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy
or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established
by the director or executive officer when entering into the plan, without further direction from them. The director or executive officer
may amend a Rule 10b5-1 plan in some circumstances and may terminate a plan at any time. Our directors and executive officers also may
buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material nonpublic information, subject
to compliance with the terms of our insider trading policy. The sale of any shares under such a plan will be subject to the Lock-Up Agreements,
to the extent that the selling director or executive officer is a party thereto.
Emerging
Growth Company Status
We
are an “emerging growth company,” as defined in the JOBS Act. As an emerging growth company, we are exempt from certain requirements
related to executive compensation, including the requirements to hold a nonbinding advisory vote on executive compensation and to provide
information relating to the ratio of total compensation of our chief executive officer to the median of the annual total compensation
of all of our employees, each as required by the Investor Protection and Securities Reform Act of 2010, which is part of the Dodd-Frank
Wall Street Reform and Consumer Protection Act.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table summarizes our equity securities authorized for issuance as of December 31, 2023.
| Plan Category | |
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | |
Weighted average exercise price of outstanding options, warrants and rights (b) | | |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) (1) | |
| Equity compensation plans approved by shareholders | |
| 748,087 | | |
$ | 5.87 | | |
| 4,148,248 | |
| Equity compensation plans not approved by shareholders | |
| — | | |
| — | | |
| — | |
| Total | |
| 748,087 | | |
$ | 5.87 | | |
| 4,148,248 | |
| (1) |
Includes
3,576,076 shares available pursuant to our 2023 Equity Incentive Plan and 572,172 shares available pursuant to our Employee Stock
Purchase Plan. |
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information regarding the beneficial ownership of shares of our Class A Common Stock and Class B Common Stock
as of March 22, 2024 for:
| ● | each
person known to us to be the beneficial owner of more than 5% of our outstanding shares of
Common Stock; |
| ● | each
of our named executive officers; |
| ● | each
of our directors; and |
| ● | all
directors and named executive officers as a group. |
Beneficial
ownership of our Common Stock is determined in accordance with the rules of the SEC and generally includes voting and investment power
with respect to the securities. Except as otherwise provided by footnote, and subject to applicable community property laws, the persons
named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them.
The number of shares of Common Stock used to calculate the percentage ownership of each listed person includes the shares of Common Stock
underlying options or warrants or convertible securities held by such persons that are currently exercisable or convertible within 60
days of March 22, 2024, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
Beneficial
ownership as set forth below is based on our review of our record stockholders list and public ownership reports filed by certain stockholders
of the Company and may not include certain securities held in brokerage accounts or beneficially owned by the stockholders described
below.
Percentage
of beneficial ownership is based on 17,756,963 shares of Class A Common Stock and 2,311,134 shares of Class B Common Stock outstanding
as of March 22, 2024.
| Name and Address of Beneficial Owner† | |
Number of Shares
of Common
Stock
Beneficially
Owned | | |
Percentage of
Outstanding
Common
Stock
% | |
| Directors and Named Executive Officers: | |
| | | |
| | |
| Jack Leeney (1) | |
| 5,064,110 | | |
| 25.2 | % |
| Joseph Davy (2) | |
| 2,315,532 | | |
| 11.5 | % |
| Simon Baumer (3) | |
| 49,938 | | |
| * | % |
| Ashley Levesque (4) | |
| 48,976 | | |
| * | % |
| Rachel Stanley (5) | |
| 48,376 | | |
| * | % |
| Mason Ward (6) | |
| 2,421,431 | | |
| 12.1 | % |
| Paula Boggs | |
| — | | |
| — | |
| Mark Musburger (7) | |
| 32,651 | | |
| * | % |
| William Bryant | |
| 26,228 | | |
| * | % |
| All Directors and Executive Officers of the Company as a Group (9 Individuals) | |
| 10,007,242 | | |
| 49.9 | % |
| Five Percent or Greater Holders: | |
| | | |
| | |
| 7GC & Co. Holdings LLC (1) | |
| 5,064,110 | | |
| 25.2 | % |
| Mason Ward / ALCO Investment Company (6) | |
| 2,421,431 | | |
| 12.1 | % |
| Estate of Roland A. Linteau, III (8) | |
| 1,573,538 | | |
| 7.8 | % |
| Entities Affiliated with DNX Partners (9) | |
| 1,251,786 | | |
| 6.2 | % |
| Cantor Fitzgerald & Co. (10) | |
| 1,113,927 | | |
| 5.6 | % |
| * |
Less
than 1%. |
| † |
Unless
otherwise noted, the business address of each of the following persons is c/o Banzai International, Inc., 435 Ericksen Ave NE, Suite
250, Bainbridge Island, WA 98110. |
| (1) |
7GC
Sponsor is the record holder of such shares. VII Co-Invest Sponsor LLC and HC 7GC Partners I LLC are the managing members of 7GC
Sponsor. VII Co-Invest Sponsor LLC is managed by SP Global Advisors LLC, which is managed by Jack Leeney. Each of Tom Hennessy and
Joseph Beck are the managing members of HC 7GC Partners I LLC. As such, each of the foregoing individuals have voting and investment
discretion with respect to and may be deemed to have shared beneficial ownership of the Class A Common Stock held of record by 7GC
Sponsor. Each such entity or person disclaims any beneficial ownership of the reported shares other than to the extent of any pecuniary
interest they may have therein, directly or indirectly. The address of 7GC Sponsor is 388 Market Street, Suite 1300, San Francisco,
CA 94111. |
|
|
| (2) |
Consists
of 4,398 shares of Class B Common Stock and 2,311,134 shares of Class B Common Stock. Each share of Class B Common Stock entitles
its holder to ten votes on all matters presented to our stockholders generally, which has the effect of concentrating the majority
of the aggregate voting power of our Common Stock with Mr. Davy (approximately 56.6% of the aggregate voting power as of March 22,
2024). |
| (3) |
Consists
of options to purchase 49,938 shares of Class A Common Stock exercisable within 60 days of March 22, 2024. |
| (4) |
Consists
of 10,705 shares of Class A Common Stock and options to purchase 38,271 shares of Class A Common Stock exercisable within 60 days
of March 22, 2024. |
| (5) |
Consists
of 5,992 shares of Class A Common Stock and options to purchase 42,384 shares of Class A Common Stock exercisable within 60 days
of March 22, 2024. |
| (6) |
Consists
of 25,170 shares of Class A Common Stock held directly by Mason Ward and 2,396,261 shares of Class A Common Stock held directly by
Alco Investment Company (“Alco”). Mr. Ward is the Chief Financial Officer of Alco and, in such capacity, has voting and
investment control over the shares held by Alco such that Mason Ward may be deemed to indirectly beneficially own the shares owned
directly by Alco. The address of Alco is 33930 Weyerhaeuser Way S., Suite 150, Federal Way, Washington 98001. |
| (7) |
Consists
of options to purchase 32,651 shares of Class A Common Stock exercisable within 60 days of March 22, 2024. |
| (8) |
The
address of Estate of Roland A. Linteau III is c/o Justin D. Williams, 7320 Six Forks Road, Suite 100, Raleigh, North Carolina 27615. |
| (9) |
Consists
of (i) 916,289 shares of Class A Common Stock held by DNX Partners III, LP (“DNX III”), (ii) 320,645 shares of Class
A Common Stock held by DNX Partners Japan III, LP (“DNX Japan III”) and (iii) 14,852 shares of Class A Common Stock held
by DNX Partners S-III, LP (“DNX S-III”). DNX, LLC (“DNX III LLC”) is the general partner of DNX III and DNX
Japan III, and DNX Partners S3, LLC (“DNX S3”) is the general partner of DNX S-III. Mitch Kitamura is the Managing Partner
of DNX Partners and a Manager of each of DNX III LLC and DNX S3 and, in such capacity, has voting and investment control over the
shares held by DNX III, DNX Japan III and DNX S-III such that Mr. Kitamura may be deemed to indirectly beneficially own the shares
owned directly by DNX III, DNX Japan III and DNX S-III. The address of DNX III, DNX Japan III and DNX S-III is 55 East 3rd Avenue,
San Mateo, California 94401. |
| (10) |
Based
upon a Schedule 13G filed with the SEC on February 12, 2024 by Cantor Fitzgerald & Co. (“CF&CO”), Cantor Fitzgerald
Securities, Cantor Fitzgerald, L.P., CF Group Management, Inc. and Howard W. Lutnick reporting shared voting and dispositive power
with respect to and beneficial ownership of 1,113,927 shares of Class A Common Stock. Cantor Fitzgerald Securities (“CFS”)
controls the managing general partner of CF&CO. Cantor Fitzgerald, L.P. (“CFLP”) indirectly controls each of CFS
and CF&CO. CFLP is controlled by CF Group Management, Inc. (“CFGM”), its managing general partner. Mr. Howard Lutnick
is the Chairman and Chief Executive Officer of CFGM and also the trustee of CFGM’s sole stockholder and therefore controls
CFGM. As such, each of CFS, CFLP, CFGM and Mr. Lutnick may be deemed to have beneficial ownership of the securities directly held
by CF&CO. Each such entity or person disclaims any beneficial ownership of the reported shares other than to the extent of any
pecuniary interest they may have therein, directly or indirectly. The address of each of the reporting persons is 110 East 59th Street,
New York, New York 10022. |
Item
13. Certain Relationships and Related Transactions, and Director Independence.
Related
Party Transactions
Banzai
International, Inc. Related Party Transactions
Amended
& Restated Registration Rights Agreement
In
connection with the Business Combination, on the Closing Date, the Company, the 7GC Sponsor and certain securityholders of 7GC and Legacy
Banzai entered into the Amended and Restated Registration Rights Agreement (the “A&R Registration Rights Agreement”),
which amended and restated that certain Registration Rights Agreement, dated December 22, 2020. The A&R Registration Rights Agreements
provides these holders (and their permitted transactions) with the right to require the Company, at the Company’s expense, to register
shares of Class A Common Stock that they hold on customary terms for such a Business Combination, including customary demand and piggyback
registration rights. The A&R Registration Rights Agreement also provides that the Company pay certain expenses of the electing holders
relating to such registrations and indemnify them against certain liabilities that may arise under the Securities Act.
In
addition, subject to certain exceptions, the A&R Registration Rights Agreement provides for certain restrictions on transfer with
respect to the securities of the Company. Such restrictions began upon Closing and end at the earliest of (A) 180 days after the Closing
and (B) the first date on which (x) the closing price of Class A Common Stock equals or exceeds $12.00 per share for any 20 trading days
within any 30-trading day period commencing at least 150 days after the Closing or (y) the Company completes a liquidation, merger, capital
stock exchange, reorganization or other similar transaction that results in the Company’s stockholders having the right to exchange
their shares of Class A Common Stock for cash, securities, or other property.
Lock-up
Agreements
In
connection with the Business Combination, on the Closing Date, the Company and certain stockholders and executives of Legacy Banzai,
including Legacy Banzai’s officers, directors, and certain holders of 10% or more of the outstanding shares of Legacy Banzai Common
Stock as of the date of the Merger Agreement, entered into Lock-Up Agreements effective as of the Closing Date (each, a “Lock-Up
Agreement”). The terms of the Lock-Up Agreements provide that such signatory stockholders agree not to, without the prior written
consent of the Company (subject to certain exceptions): (i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant
any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Act and the rules and
regulations of the SEC promulgated thereunder, any shares of Common Stock held by him, her, or it immediately after the Closing, any
shares of Common Stock issuable upon the exercise of options to purchase shares, or any securities convertible into or exercisable or
exchangeable for Common Stock held by him, her, or it immediately after the Closing, (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of ownership of any of such shares of Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock, whether any such transaction is to be settled by delivery of such securities,
in cash or otherwise, or (iii) publicly announce any intention to effect any transaction specified in clause (i) or (ii) until 180 days
after the Closing Date.
Share
Transfer Agreements
On
December 13, 2023, in connection with the Business Combination, 7GC and the 7GC Sponsor entered into a share transfer agreement (the
“December Share Transfer Agreement”) with Alco, pursuant to which for each $10.00 in principal borrowed under the New Alco
Note, the 7GC Sponsor agreed to forfeit three shares of 7GC Class B Common Stock held by the 7GC Sponsor, in exchange for the right of
Alco to receive three shares of Class A Common Stock, in each case, at (and contingent upon) the Closing, with such forfeited and issued
shares capped at an amount equal to 600,000. On October 3, 2023 and November 16, 2023, 7GC, the 7GC Sponsor, and Alco also entered into
share transfer agreements, pursuant to which the 7GC Sponsor agreed to forfeit an aggregate of 225,000 shares of 7GC Class B Common Stock
held by the 7GC Sponsor, in exchange for the right of Alco to receive 225,000 shares of Class A Common Stock at (and contingent upon)
the Closing (such share transfer agreements together with the December Share Transfer Agreement, the “Share Transfer Agreements”).
Alco is subject to a 180-day lock-up period with respect to such shares of Class A Common Stock pursuant to the Share Transfer Agreements,
subject to customary exceptions. Additionally, in connection with the December Share Transfer Agreement, (a) Legacy Banzai issued the
New Alco Note to Alco in the aggregate principal amount of $2.0 million, which bears interest at a rate of 8% per annum and will be due
and payable on December 31, 2024, and (b) Legacy Banzai, Alco, and the Lender agreed to amend that certain Subordinated Promissory Note
issued by Legacy Banzai to Alco on September 13, 2023 in the aggregate principal amount of $1.5 million to extend the maturity date from
January 10, 2024 to September 30, 2024. Immediately prior to, and substantially concurrently with, the Closing, (i) the 7GC Sponsor surrendered
and forfeited to 7GC for no consideration an aggregate of 825,000 shares of the class B common stock of 7GC and (ii) the Company issued
to Alco 825,000 shares of Class A Common Stock pursuant to the Share Transfer Agreements.
7GC
Related Party Transactions
Related
Party Loans
In
connection with the extension of 7GC’s deadline to consummate an initial business combination, on December 21, 2022, 7GC issued
to the 7GC Sponsor an unsecured promissory note, dated as of December 21, 2022 (the “2022 Promissory Note”), which provided
for borrowings from time to time of up to an aggregate of $2.3 million. On October 3, 2023, 7GC also issued to the 7GC Sponsor an unsecured
promissory note, dated as of October 3, 2023 (the “2023 Promissory Note,” and together with the 2022 Promissory Note, the
“7GC Promissory Notes”), which provided for borrowings from time to time of up to an aggregate of $500,000.
Upon
the Closing of the Business Combination, the 7GC Promissory Notes became payable, and the 7GC Sponsor gained the option, but not the
obligation, to convert the principal balance of the 7GC Promissory Notes, in whole or in part, into shares of Class A Common Stock (the
“Converted Shares”) equal to the principal amount of the 7GC Promissory Notes so converted divided by $10.00. On December
12, 2023, in connection with the Business Combination, the 7GC Sponsor and 7GC amended the optional conversion provision of the 7GC Promissory
Notes to provide that the 7GC Sponsor 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 days after the Closing at a conversion price equal to the average daily VWAP of the Class A Common Stock
for the 30 trading days following the Closing. Pursuant to these amended terms, each of the 7GC Promissory Notes was converted in full
on February 2, 2024, resulting in the issuance to the 7GC Sponsor of an aggregate of 890,611 shares of our Class A Common Stock.
Administrative
Support Agreement
As
of December 31, 2023, the Company had accrued a total of approximately $40,000 related to office space, utilities, and secretarial and
administrative support services, incurred by our predecessor, 7GC.
Legacy
Banzai Related Party Transactions
Convertible
Note Financing
Beginning
in July 2022, Legacy Banzai issued convertible promissory notes (the “2022 Notes”) to certain accredited investors in an
aggregate principal amount of approximately $6.0 million (of which $4.2 million was issued to related parties). The 2022 Notes accrued
interest at a rate of 8% per annum. During the year ended December 31, 2023, Legacy Banzai issued additional convertible promissory notes
to certain accredited investors in an aggregate principle amount of approximately $4.0 million (of which $2.6 million was issued to related
parties) under the same terms of the 2022 Notes (together with the 2022 Notes, the “Legacy Banzai Notes”). The Legacy Banzai
Notes, including principal and interest, converted into shares of our Class A Common Stock in connection with the Closing of the Business
Combination.
The
table below sets forth the aggregate principal amount of Legacy Banzai Notes issued to Legacy Banzai’s related parties:
| Stockholder | |
Aggregate
Principal
Amount | |
| Entities Affiliated with DNX Partners (1) | |
$ | 1,500,000 | |
| ALCO (2) | |
$ | 5,100,538 | |
| William Bryant (3) | |
$ | 33,000 | |
| Mason Ward (4) | |
$ | 150,000 | |
| (1) |
Consists
of (i) a 2022 Note issued to DNX III in the principal amount of $717,000 (ii) a 2022 Note issued to DNX Japan III in the principal
amount of $258,000, (iii) a 2022 Note issued to DNX S-III in the principal amount of $25,000, (iv) a 2022 Note issued to DNX III
in the principal amount of $358,500, (v) a 2022 Note issued to DNX Japan III in the principal amount of $129,000, (vi) a 2022 Note
issued to DNX S-III in the principal amount of $12,500 ((i)-(iii) together, the “2022 DNX Notes”, (iv)-(vi) together,
the “2023 DNX Notes” and, the 2022 DNX Notes and the 2023 DNX Notes, together, the “DNX Notes”). The 2022
DNX Notes were issued in on July 1,2022 and the 2023 DNX Notes were issued on May 11, 2023. |
| (2) |
Consists
of (i) a 2022 Note issued to ALCO in the principal amount of $1,000,000 on July 1, 2022, (ii) a 2022 Note issued to ALCO in the principal
amount of $2,100,538.22 on July 19, 2022, (iii) a 2023 Note issued to ALCO in the principal amount of $1,500,000 on March 8, 2023
and (iv) a 2023 Note issued to ALCO in the principal amount of $500,000 on May 10, 2023. |
| (3) |
Consists
of (i) a 2023 Note issued to William Bryant in the principal amount of $33,000 on June 6, 2023. |
| (4) |
Consists
of (i) a 2022 Note issued to Mason Ward in the principal amount of $50,000 on July 28, 2022, (ii) a 2022 Note issued to Mason Ward
in the principal amount of $50,000 on September 2, 2022, and (iii) a 2023 Note issued to Mason Ward in the principal amount of $50,000
on June 14, 2023. |
Promissory
Notes
On
August 30, 2023, the Company issued a subordinate promissory note (“Alco August Promissory Note”) in the aggregate principal
amount of $150,000 to Alco. Alco held approximately 5% of the issued equity of the Company, through its ownership of Series A Preferred
Stock, for all periods presented. The Alco August Promissory Note bears interest at a rate of 8% per annum. The outstanding principal
and accrued interest are due and payable on April 29, 2024 as amended on December 4, 2023.
On
September 13, 2023, the Company issued a subordinate promissory note (“Alco September Promissory Note” and together with
the Alco August Promissory Note, the “Alco Notes”) in the aggregate principal amount of up to $1,500,000 to Alco. The Alco
September Promissory Note bears interest at a rate of 8% per annum. The outstanding principal and accrued interest are due and payable
on September 30, 2024 as amended on December 14, 2023. The Alco Notes, including principal and interest, converted into shares of our
Class A Common Stock in connection with the Closing of the Business Combination.
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 to Alco. The Alco November Promissory Note bears interest at a rate of 8% per annum. The outstanding principal
and accrued interest are due and payable on April 13, 2024. As of December 31, 2023, $750,000 of principal and $7,397 of accrued interest
is outstanding under the Alco November Promissory Note recorded in note payable - related party on the consolidated balance sheets.
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 to Alco. The Alco December Promissory Note bears interest at a rate of 8% per annum. The outstanding principal
and accrued interest are due and payable on December 31, 2024. As of December 31, 2023, $2,000,000 of principal and $7,890 of accrued
interest is outstanding under the Alco December Promissory Note recorded in note payable - related party on the consolidated balance
sheets.
Series
A Preferred Stock Financing
In
February 2020, Legacy Banzai issued and sold an aggregate of 2,129,476 shares of its Series A-1 Preferred Stock at a purchase price of
$2.9155 per share, for an aggregate purchase price of approximately $6.2 million, and issued an aggregate of 199,347 shares of its Series
A-2 Preferred Stock upon conversion of an aggregate of $100,000 in SAFE Agreements.
The
table below sets forth the number of shares of Legacy Banzai Series A Preferred Stock purchased by Legacy Banzai’s related parties,
which were converted into shares of our Class A Common Stock in connection with the Closing of the Business Combination:
| Stockholder | |
Shares of
Series A-1
and
Series A-2
Preferred Stock | | |
Total Cash
Purchase
Price | | |
Conversion of
SAFE | |
| Entities affiliated with DNX Partners (1) | |
| 1,371,977 | | |
$ | 3,999,999 | | |
| $- | |
| ALCO (2) | |
| 524,219 | | |
$ | 999,999 | | |
$ | 100,000 | |
| William Bryant (3) | |
| 17,149 | | |
$ | 49,998 | | |
| $- | |
| (1) |
Consists
of (i) 1,104,166 shares of Series A-1 Preferred Stock purchased by DNX III, (ii) 350,266 shares of Series A-1 Preferred Stock purchased
by DNX Japan III, and (iii) 7,545 shares of Series A-1 Preferred Stock purchased by DNX S-III. DNX III LLC is the general partner
of DNX III and DNX Japan III, and DNX S3 is the general partner of DNX S-III. Mitch Kitamura, a member of Banzai’s board of
directors, is the manager of each of DNX III LLC and DNX S3. |
| (2) |
Consists
of (i) 342,994 shares of Series A-1 Preferred Stock purchased by ALCO and (ii) 181,225 shares of Series A-2 Preferred Stock purchased
by ALCO in consideration of the conversion of a SAFE Agreement issued to ALCO in 2016. |
| (3) |
Consists
of 17,149 shares of Series A-1 Preferred Stock purchased by William Bryant. |
SAFE
Financing
In
September 2021, Legacy Banzai entered into SAFE Agreements (the “2021 SAFEs”) with accredited investors in an aggregate principal
amount of approximately $3.8 million.
The
table below sets forth the aggregate principal amount of 2021 SAFEs issued to Legacy Banzai’s related parties, which was converted
into shares of our Class A Common Stock in connection with the Closing of the Business Combination:
| Stockholder (3)(4) | |
Aggregate
Principal
Amount | |
| Entities Affiliated with DNX Partners (1) | |
$ | 1,000,000 | |
| ALCO (2) | |
$ | 2,500,000 | |
| William Bryan (3) | |
$ | 67,000 | |
| (1) |
Consists
of (i) a 2021 SAFE entered into with DNX III in the principal amount of $717,000, (ii) a 2021 SAFE entered into with DNX Japan III
in the principal amount of $258,000, and (iii) a 2021 SAFE entered into with DNX S-III in the principal amount of $25,000 (together,
the “DNX SAFEs”). Each of the DNX SAFEs were issued on September 17, 2021. DNX III LLC is the general partner of DNX
III and DNX Japan III, and DNX S3 is the general partner of DNX S-III. Mitch Kitamura, a member of Banzai’s board of directors,
is the manager of each of DNX III LLC and DNX S3. |
| (2) |
Consists
of a 2021 SAFE in the principal amount of $2,500,000 issued to ALCO on September 17, 2021. |
| (3) |
Consists
of a 2021 SAFE in the principal amount of $67,000 issued to William Bryant on September 17, 2021. |
Related
Person Transactions Policy
The
Company is in the process of formally adopting a written related person transactions policy. The Board has historically identified, reviewed
and approved any transactions, arrangements or relationships (or any series of similar transactions, arrangements or relationships) in
Banzai or any of its subsidiaries and related persons are, were or would be participants, including the transactions described above.
Prior to approving such a transaction, the material facts as to a director or officer’s relationship or interest in the agreement
or transaction were disclosed to the Board.
Under
the policy, a related person is any executive officer, director, nominee to become a director or a security holder known by us to beneficially
own more than 5% of any class of our voting securities (a “significant stockholder”), including any of their immediate family
members and affiliates, including entities controlled by such persons or such person has a 5% or greater beneficial ownership interest.
Each
director and executive officer shall identify, and we shall request each significant stockholder to identify, any related person transaction
involving such director, executive officer or significant stockholder or his, her or its immediate family members and inform the Chair
of our Audit Committee pursuant to this policy before such related person may engage in the transaction. Each related person transaction
must be reviewed and approved in accordance with our related party transactions policy either by the Audit Committee or, if the Audit
Committee determines that the approval of such related party transaction should be considered by all of the disinterested, independent
members of the Board, by the disinterested, independent members of the Board by the vote of a majority thereof.
In
considering related person transactions, our Audit Committee or the disinterested, independent members of the Board, as the case may
be, take into account the relevant available facts and circumstances, which may include, but are not limited to:
| |
● |
the
size of the transaction and the amount payable to a related party; |
| |
|
|
| |
● |
the
nature of the interest of the related party in the transaction; |
| |
|
|
| |
● |
whether
the transaction may involve a conflict of interest; |
| |
|
|
| |
● |
whether
the transaction involves the provision of goods or services to the Company that are available from unaffiliated third parties and,
if so, whether the transaction is on terms and made under circumstances that are at least as favorable to the Company as would be
available in comparable transactions with or involving unaffiliated third parties; and |
| |
|
|
| |
● |
any
other information regarding the related party transaction or related party that would be material to investors in light of the circumstances
of the transaction. |
Our
Audit Committee or the disinterested, independent members of the Board, as the case may be, shall approve only those related party transactions
that they determine in good faith, based on all of the relevant information available to them, are in the best interests of the Company
and our stockholders.
Item
14. Principal Accounting Fees and Services.
Fees
for professional services provided by our independent registered public accounting firm, Marcum LLP, for the last two fiscal years include:
| | |
For the Year Ended
December 31,
2023 | | |
For the Year Ended
December 31,
2022 | |
| Audit Fees(1) | |
$ | 560,000 | | |
$ | — | |
| Audit-Related Fees(2) | |
| 40,500 | | |
| — | |
| Total | |
$ | 600,500 | | |
$ | — | |
(1)
Audit Fees. Audit fees consist of fees for professional services rendered for the audit of our year-end financial statements
and services rendered in connection with our statutory and regulatory filings.
(2)Audit-Related
Fees. Audit-related services consist of fees for assurance and related services that are reasonably related to performance of
the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services
that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.
Pre-Approval
Policy
Except
as permitted under federal law and SEC rules, all audit and non-audit services performed by our auditors must be pre-approved by the
Audit Committee, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange
Act which are approved by the audit committee prior to the completion of the audit). All services reflected in the foregoing table were
pre-approved by the Audit Committee in 2023 and 2022.
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
(1)
Financial Statements:
Report
of Independent Registered Public Accounting Firm (PCAOB ID: 688)
Consolidated
Balance Sheets as of December 31, 2023 and 2022
Consolidated
Statements of Operations for the Years ended December 31, 2023 and 2022
Consolidated
Statements of Stockholders’ Deficit for the Years ended December 31, 2023 and 2022
Consolidated
Statements of Cash Flows for the Years ended December 31, 2023 and 2022
Notes
to the Consolidated Financial Statements
(2)
Financial Statements Schedules:
(3)
All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown
in the financial statements or the notes thereto.
(4)
Exhibits: The following is a list of exhibits filed as part of this Annual Report on Form 10-K.
Exhibit
Index
Exhibit
Number |
|
Description |
|
2.1+ |
|
Agreement and Plan of Merger, dated December 8, 2022, by and among Banzai, 7GC, First Merger Sub and Second Merger Sub (incorporated by reference to Annex A-1 to the Registration Statement on Form S-4 filed on August 31, 2023). |
| 2.2 |
|
Amendment to Agreement and Plan of Merger, dated August 4, 2023, by and among the Company and 7GC (incorporated by reference to Annex A-2 to the Registration Statement on Form S-4 filed on August 31, 2023). |
| 3.1 |
|
Second Amended and Restated Certificate of Incorporation of the Company, dated December 14, 2023. (incorporated by reference to the Exhibit 3.1 to the Current Report on Form 8-K filed on December 20, 2023). |
| 3.2 |
|
Second Amended and Restated Bylaws of the Company, dated December 14, 2023 (incorporated by reference to the Exhibit 3.2 to the Current Report on Form 8-K filed on December 20, 2023). |
| 4.1 |
|
Specimen Class A Common Stock Certificate of the Company (incorporated by reference to the Exhibit 4.1 to the Current Report on Form 8-K filed on December 20, 2023). |
| 4.2 |
|
Specimen Class B Common Stock Certificate of the Company (incorporated by reference to the Exhibit 4.2 to the Current Report on Form 8-K filed on December 20, 2023). |
| 4.3 |
|
Specimen Warrant Certificate of the Company (incorporated by reference to the Exhibit 4.3 to the Current Report on Form 8-K filed on December 20, 2023). |
| 4.4 |
|
Warrant Agreement, dated December 22, 2020, by and between 7GC and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by 7GC on December 28, 2020). |
| 4.5 |
|
Amended and Restated Convertible Promissory Note, by and among Banzai and CP BF Lending, LLC (incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-4 filed by 7GC on August 30, 2023). |
| 4.6 |
|
Subordinated Promissory Note, dated December 13, 2023, issued by the Company to Alco Investment Company (incorporated by reference to the Exhibit 4.5 to the Current Report on Form 8-K filed on December 20, 2023). |
| 4.7 |
|
Warrant to Purchase Shares of Common Stock of Banzai International, Inc., dated December 15, 2023, issued by the Company to GEM Yield Bahamas Limited (incorporated by reference to the Exhibit 4.7 to the Current Report on Form 8-K filed on December 20, 2023). |
| 4.8 |
|
Promissory Note, dated as of December 14, 2023, issued by Banzai International, Inc. to YA II PN, LTD (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on December 18, 2023) |
| 4.9 |
|
Promissory Note, dated as of February 5, 2024, issued by Banzai International, Inc. to YA II PN, LTD (incorporated by reference to the Exhibit 4.11 to the Registration Statement on Form S-1 filed on February 5, 2024). |
| 4.10* |
|
Promissory
Note Agreement, dated as of March 26, 2024, issued by Banzai International, Inc. to YA II PN, LTD. |
| 4.11* |
|
Description
of Securities |
| 10.1 |
|
Letter Agreement, dated December 22, 2020, by and among 7GC, its officers, its directors and the 7GC Sponsor (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by 7GC on December 28, 2020). |
| 10.2 |
|
Private Placement Warrants Purchase Agreement, dated December 22, 2020, by and between 7GC and the 7GC Sponsor (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed by 7GC on December 15, 2020). |
| 10.3 |
|
Amended and Restated Registration Rights Agreement, dated December 14, 2023, by and among the Company, the 7GC Sponsor, certain stockholders of the Company (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed on December 20, 2023). |
| 10.4 |
|
Form of Lock-Up Agreement, by and between the Company and certain stockholders and executives of Legacy Banzai (incorporated by reference to Annex D to the Registration Statement on Form S-4 filed on August 31, 2023). |
| 10.5# |
|
Banzai International, Inc. 2023 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed on March 25, 2024). |
| 10.6# |
|
Banzai International, Inc. 2023 Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed on March 25, 2024). |
| 10.7 |
|
Loan Agreement, dated February 19, 2021, by and among the Company, Joseph P. Davy as an Individual Guarantor, Demio, Inc., as an Individual Guarantor and CP BF Lending, LLC, as Lender (incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-4 filed by 7GC on August 30, 2023). |
| 10.8 |
|
Forbearance Agreement, dated August 24, 2023, by and among the Company, the guarantors party to the Loan Agreement (as defined therein), and CP BF Lending, LLC (incorporated by reference to Exhibit 10.18 to the Registration Statement on Form S-4 filed by 7GC on August 30, 2023). |
| 10.9 |
|
Promissory Note, dated October 3, 2023, issued by 7GC to the 7GC Sponsor (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by 7GC on October 4, 2023). |
| 10.10 |
|
Standby Equity Purchase Agreement, dated as of December 14, 2023, by and among the Company, YA II PN, LTD., and Banzai Operating Co LLC (f/k/a Banzai International, Inc.). (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 18, 2023). |
| 10.11 |
|
Registration Rights Agreement, dated as of December 14, 2023, by and between the Company and YA II PN, LTD. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on December 18, 2023). |
| 10.12 |
|
Share Transfer Agreement, dated December 13, 2023, by and among the Company, the 7GC Sponsor and Alco Investment Company (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on December 20, 2023). |
| 10.13# |
|
Form of Indemnification Agreement by and between the Company and its directors and officers (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed on December 20, 2023). |
| 10.14 |
|
Amendment to Fee Reduction Agreement, dated December 28, 2023, by and between the Company and Cantor Fitzgerald (incorporated by reference to the Exhibit 10.26 to the Registration Statement on Form S-1 filed on February 5, 2024). |
| 10.15 |
|
Settlement Agreement, dated February 5, 2024, by and between the Company, GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to the Exhibit 10.27 of Amendment No. 1 to the Registration Statement on Form S-1 filed on February 5, 2024). |
| 10.16 |
|
Unsecured Promissory Note, dated February 5, 2024, issued by the Company to GEM Global Yield LLC SCS (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on February 8 ,2024). |
| 10.17 |
|
Supplemental Agreement, dated February 5, 2024, by and between the Company and YA II PN, LTD (incorporated by reference to Exhibit 10.29 of Amendment No. 1 to the Registration Statement on Form S-1 filed on February 5, 2024). |
| 10.18 |
|
Addendum to Letter Agreements, dated February 5, 2024, by and between the Company and Roth Capital Partners, LLC (incorporated by reference to the Exhibit 10.30 of Amendment No. 1 to the Registration Statement on Form S-1 filed on February 5, 2024). |
| 19.1* |
|
Banzai
International, Inc. Insider Trading Policy. |
| 21.1* |
|
List
of Subsidiaries. |
| 23.1* |
|
Consent
of Marcum, LLP. |
| 31.1* |
|
Certification
of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2* |
|
Certification
of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1** |
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
| 32.2** |
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
| 97.1* |
|
Banzai
International, Inc. Policy on Recoupment of Incentive Compensation. |
| 101.INS |
|
Inline
XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded
within the Inline XBRL document. |
| 101.SCH |
|
Inline
XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
| 104 |
|
Cover
Page Interactive Data File (embedded within the Inline XBRL document) |
| * |
Filed
herewith. |
| ** |
Furnished
herewith. |
| + |
The
schedules and exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule
and/or exhibit will be furnished to the SEC upon request. |
| # |
Indicates
management contract or compensatory plan or arrangement. |
Item
16. Form 10-K Summary
Not
applicable.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
BANZAI
INTERNATIONAL, INC. |
| |
|
|
| Date:
April 1, 2024 |
By: |
/s/
Joseph Davy |
| |
|
Joseph
Davy |
| |
|
Chief
Executive Officer |
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
| Name |
|
Title |
|
Date |
| |
|
|
|
|
| /s/
Joseph Davy |
|
Chief
Executive Officer and Director |
|
April
1, 2024 |
| Joseph
Davy |
|
(Principle
Executive Officer) |
|
|
| |
|
|
|
|
| /s/
Mark Musburger |
|
Chief
Financial Officer |
|
April
1, 2024 |
| Mark
Musburger |
|
(Principal
Financial Officer and Principal Accounting Officer) |
|
|
| |
|
|
|
|
| /s/
Paula Boggs |
|
Director |
|
April
1, 2024 |
| Paula
Boggs |
|
|
|
|
| |
|
|
|
|
| /s/
William Bryant |
|
Director |
|
April
1, 2024 |
| William
Bryant |
|
|
|
|
| |
|
|
|
|
| /s/
Jack Leeney |
|
Director |
|
April
1, 2024 |
| Jack
Leeney |
|
|
|
|
| |
|
|
|
|
| /s/
Mason Ward |
|
Director |
|
April
1, 2024 |
| Mason
Ward |
|
|
|
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
To
the Shareholders and Board of Directors of
Banzai
International Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Banzai International, Inc. (the “Company”) as of December 31,
2023 and 2022, the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the two years
in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In
our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity
with accounting principles generally accepted in the United States of America.
Explanatory
Paragraph - Going Concern
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more
fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise
additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides
a reasonable basis for our opinion.
/s/
Marcum LLP
Marcum
LLP
We
have served as the Company’s auditor since 2023.
Marlton,
New Jersey
April
1, 2024
BANZAI
INTERNATIONAL, INC.
Consolidated
Balance Sheets
as
of December 31, 2023 and 2022
| | |
December 31, 2023 | | |
December 31, 2022 | |
| ASSETS | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash | |
$ | 2,093,718 | | |
$ | 1,023,499 | |
| Accounts receivable | |
| 110,797 | | |
| 176,276 | |
| Less: Allowance for credit losses | |
| (5,748 | ) | |
| (107,860 | ) |
| Accounts receivable, net | |
| 105,049 | | |
| 68,416 | |
| Prepaid expenses and other current assets | |
| 741,155 | | |
| 333,507 | |
| Total current assets | |
| 2,939,922 | | |
| 1,425,422 | |
| | |
| | | |
| | |
| Property and equipment, net | |
| 4,644 | | |
| 11,803 | |
| Goodwill | |
| 2,171,526 | | |
| 2,171,526 | |
| Operating lease right-of-use assets | |
| 134,013 | | |
| 307,258 | |
| Deferred offering costs | |
| — | | |
| 1,524,934 | |
| Other assets | |
| 38,381 | | |
| 38,381 | |
| Total assets | |
| 5,288,486 | | |
| 5,479,324 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable | |
| 6,439,863 | | |
| 1,100,249 | |
| Simple agreement for future equity | |
| — | | |
| 663,804 | |
| Simple agreement for future equity - related party | |
| — | | |
| 8,802,196 | |
| Convertible notes | |
| 1,766,000 | | |
| 1,408,826 | |
| Convertible notes - related party | |
| 2,540,091 | | |
| 3,506,508 | |
| Convertible notes (CP BF) | |
| 2,693,841 | | |
| 2,276,534 | |
| Bifurcated embedded derivative liabilities | |
| — | | |
| 845,473 | |
| Bifurcated embedded derivative liabilities - related party | |
| — | | |
| 1,936,827 | |
| Notes payable | |
| 6,659,787 | | |
| 6,494,051 | |
| Notes payable - related party | |
| 2,505,137 | | |
| — | |
| Deferred underwriting fees | |
| 4,000,000 | | |
| — | |
| Deferred fee | |
| 500,000 | | |
| — | |
| Warrant liability | |
| 641,000 | | |
| — | |
| Warrant liability - related party | |
| 575,000 | | |
| — | |
| Earnout liability | |
| 59,399 | | |
| 289,099 | |
| Due to related party | |
| 67,118 | | |
| — | |
| GEM commitment fee liability | |
| 2,000,000 | | |
| — | |
| Deferred revenue | |
| 1,214,096 | | |
| 930,436 | |
| Operating lease liabilities, current | |
| 234,043 | | |
| 284,963 | |
| Accrued expenses and other current liabilities | |
| 5,194,240 | | |
| 745,373 | |
| Total current liabilities | |
| 37,089,615 | | |
| 29,284,339 | |
| | |
| | | |
| | |
| Operating lease liabilities, non-current | |
| — | | |
| 234,043 | |
| Other long-term liabilities | |
| 75,000 | | |
| 75,000 | |
| Total liabilities | |
| 37,164,615 | | |
| 29,593,382 | |
| | |
| | | |
| | |
| Commitments and contingencies (Note 17) | |
| | | |
| | |
| | |
| | | |
| | |
| Stockholders’ deficit: | |
| | | |
| | |
| Common stock, $0.0001 par value, 275,000,000 shares (250,000,000 Class A common stock and 25,000,000 Class B common stock) authorized and 16,019,256 shares (13,708,122 Class A common stock and 2,311,134 Class B common stock) and 6,445,599 shares (2,560,926 Class A common stock and 3,884,673 Class B common stock) issued and outstanding at December 31, 2023 and December 31, 2022, respectively | |
| 1,602 | | |
| 645 | |
| Preferred stock, $0.0001 par value, 75,000,000 shares authorized, 0 shares issued and outstanding at December 31, 2023 and December 31, 2022 | |
| — | | |
| — | |
| Additional paid-in capital | |
| 14,888,593 | | |
| 8,245,359 | |
| Accumulated deficit | |
| (46,766,324 | ) | |
| (32,360,062 | ) |
| Total stockholders’ deficit | |
| (31,876,129 | ) | |
| (24,114,058 | ) |
| Total liabilities and stockholders’ deficit | |
$ | 5,288,486 | | |
$ | 5,479,324 | |
The
accompanying notes are an integral part of these consolidated financial statements.
BANZAI
INTERNATIONAL, INC.
Consolidated
Statements of Operations
for
the Years ended December 31, 2023 and 2022
| | |
For the Years Ended December 31, | |
| | |
2023 | | |
2022 | |
| Operating income: | |
| | | |
| | |
| Revenue | |
$ | 4,561,300 | | |
$ | 5,332,979 | |
| Cost of revenue | |
| 1,444,618 | | |
| 1,956,964 | |
| Gross profit | |
| 3,116,682 | | |
| 3,376,015 | |
| | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| General and administrative expenses | |
| 12,905,073 | | |
| 9,275,251 | |
| Depreciation expense | |
| 7,160 | | |
| 9,588 | |
| Impairment loss on operating lease | |
| — | | |
| 303,327 | |
| Total operating expenses | |
| 12,912,233 | | |
| 9,588,166 | |
| | |
| | | |
| | |
| Operating loss | |
| (9,795,551 | ) | |
| (6,212,151 | ) |
| | |
| | | |
| | |
| Other expenses (income): | |
| | | |
| | |
| SEPA commitment fee and deferred fee expense | |
| 3,826,176 | | |
| — | |
| GEM warrant expense | |
| 2,448,000 | | |
| — | |
| GEM commitment fee expense | |
| 2,000,000 | | |
| — | |
| Other income, net | |
| (62,985 | ) | |
| (150,692 | ) |
| Interest income | |
| (813 | ) | |
| — | |
| Interest expense | |
| 2,631,060 | | |
| 1,651,141 | |
| Interest expense - related party | |
| 2,923,414 | | |
| 728,949 | |
| Loss on extinguishment of debt | |
| — | | |
| 56,653 | |
| Change in fair value of warrant liability | |
| (1,807,000 | ) | |
| — | |
| Change in fair value of warrant liability - related party | |
| 115,000 | | |
| — | |
| Loss on modification of simple agreement for future equity | |
| — | | |
| 120,826 | |
| Loss on modification of simple agreement for future equity - related party | |
| — | | |
| 1,602,174 | |
| Change in fair value of simple agreement for future equity | |
| (207,570 | ) | |
| 307,569 | |
| Change in fair value of simple agreement for future equity - related party | |
| (2,752,430 | ) | |
| 4,078,431 | |
| Change in fair value of bifurcated embedded derivative liabilities | |
| (1,404,863 | ) | |
| 254,443 | |
| Change in fair value of bifurcated embedded derivative liabilities - related party | |
| (3,063,278 | ) | |
| 606,857 | |
| Change in fair value of convertible promissory notes | |
| (34,000 | ) | |
| — | |
| Total other expenses (income), net | |
| 4,610,711 | | |
| 9,256,351 | |
| Loss before income taxes | |
| (14,406,262 | ) | |
| (15,468,502 | ) |
| Provision for income taxes | |
| — | | |
| — | |
| Net loss | |
$ | (14,406,262 | ) | |
$ | (15,468,502 | ) |
| | |
| | | |
| | |
| Net loss per share | |
| | | |
| | |
| Basic and diluted | |
$ | (2.10 | ) | |
$ | (2.40 | ) |
| | |
| | | |
| | |
| Weighted average common shares outstanding | |
| | | |
| | |
| Basic and diluted | |
| 6,853,733 | | |
| 6,441,116 | |
The
accompanying notes are an integral part of these consolidated financial statements.
BANZAI
INTERNATIONAL, INC.
Consolidated
Statements of Stockholders’ Deficit
for
the Years ended December 31, 2023 and 2022
| | |
Series A Preferred Stock | | |
Common Stock | | |
Additional
Paid-in- | | |
Accumulated | | |
Total
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| Balance December 31, 2021 | |
| 2,328,823 | | |
$ | 6,318,491 | | |
| 8,276,972 | | |
$ | 828 | | |
$ | 1,151,333 | | |
$ | (16,891,560 | ) | |
$ | (15,739,399 | ) |
| Retroactive application of recapitalization | |
| (2,328,823 | ) | |
| (6,318,491 | ) | |
| (1,758,003 | ) | |
| (176 | ) | |
| 6,318,667 | | |
| — | | |
| 6,318,491 | |
| Adjusted balance, beginning of period | |
| — | | |
| — | | |
| 6,518,969 | | |
| 652 | | |
| 7,470,000 | | |
| (16,891,560 | ) | |
| (9,420,908 | ) |
| Exercise of stock options | |
| — | | |
| — | | |
| 8,538 | | |
| 1 | | |
| 5,015 | | |
| — | | |
| 5,016 | |
| Repurchase of shares in High Attendance sale | |
| — | | |
| — | | |
| (81,908 | ) | |
| (8 | ) | |
| 8 | | |
| — | | |
| — | |
| Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 770,336 | | |
| — | | |
| 770,336 | |
| Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (15,468,502 | ) | |
| (15,468,502 | ) |
| Balance December 31, 2022, after giving effect to the recapitalization | |
| — | | |
$ | — | | |
| 6,445,599 | | |
$ | 645 | | |
$ | 8,245,359 | | |
$ | (32,360,062 | ) | |
$ | (24,114,058 | ) |
| Reverse recapitalization (Note 4) | |
| — | | |
| — | | |
| 5,872,210 | | |
| 587 | | |
| (17,859,146 | ) | |
| — | | |
| (17,858,559 | ) |
| Conversion of simple agreement for future equity | |
| — | | |
| — | | |
| 41,626 | | |
| 4 | | |
| 456,230 | | |
| — | | |
| 456,234 | |
| Conversion of simple agreement for future equity - related party | |
| — | | |
| — | | |
| 551,949 | | |
| 55 | | |
| 6,049,711 | | |
| — | | |
| 6,049,766 | |
| Conversion of convertible notes | |
| — | | |
| — | | |
| 529,867 | | |
| 53 | | |
| 3,346,179 | | |
| — | | |
| 3,346,232 | |
| Conversion of convertible notes - related party | |
| — | | |
| — | | |
| 1,146,435 | | |
| 115 | | |
| 7,271,253 | | |
| — | | |
| 7,271,368 | |
| Modification of convertible notes payable - related party | |
| — | | |
| — | | |
| — | | |
| — | | |
| 9,909 | | |
| — | | |
| 9,909 | |
| Shares issued to Yorkville for aggregate commitment fee | |
| — | | |
| — | | |
| 300,000 | | |
| 30 | | |
| 3,287,970 | | |
| — | | |
| 3,288,000 | |
| Shares issued under share transfer agreement - related party | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,498,965 | | |
| — | | |
| 2,498,965 | |
| Issuance of Cantor fee shares | |
| — | | |
| — | | |
| 1,113,927 | | |
| 111 | | |
| (111 | ) | |
| — | | |
| — | |
| Exercise of stock options | |
| — | | |
| — | | |
| 17,643 | | |
| 2 | | |
| 30,759 | | |
| — | | |
| 30,761 | |
| Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,245,796 | | |
| — | | |
| 1,245,796 | |
| Excise tax | |
| — | | |
| — | | |
| — | | |
| — | | |
| 305,719 | | |
| — | | |
| 305,719 | |
| Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (14,406,262 | ) | |
| (14,406,262 | ) |
| Balance December 31, 2023 | |
| — | | |
$ | — | | |
| 16,019,256 | | |
$ | 1,602 | | |
$ | 14,888,593 | | |
$ | (46,766,324 | ) | |
$ | (31,876,129 | ) |
The
accompanying notes are an integral part of these consolidated financial statements.
BANZAI
INTERNATIONAL, INC.
Consolidated
Statements of Cash Flows
for
the Years ended December 31, 2023 and 2022
| | |
For the Years Ended December 31, | |
| | |
2023 | | |
2022 | |
| Cash flows from operating activities: | |
| | | |
| | |
| Net loss | |
$ | (14,406,262 | ) | |
$ | (15,468,502 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Depreciation expense | |
| 7,160 | | |
| 9,588 | |
| Provision for credit losses on accounts receivable | |
| (102,112 | ) | |
| 92,619 | |
| Non-cash shares issued to Yorkville for aggregate commitment fee | |
| 3,288,000 | | |
| — | |
| Non-cash issuance of warrants accounted for as liabilities | |
| 2,448,000 | | |
| — | |
| Non-cash GEM commitment fee expense | |
| 2,000,000 | | |
| — | |
| Non-cash interest expense | |
| 686,016 | | |
| 854,379 | |
| Non-cash interest expense - related party | |
| 513,977 | | |
| 55,086 | |
| Amortization of debt discount and issuance costs | |
| 958,822 | | |
| 235,463 | |
| Amortization of debt discount and issuance costs - related party | |
| 2,410,735 | | |
| 485,717 | |
| Amortization of operating lease right-of-use assets | |
| 173,245 | | |
| 152,018 | |
| Impairment of operating lease right-of-use assets | |
| — | | |
| 303,327 | |
| Stock based compensation expense | |
| 1,245,796 | | |
| 770,336 | |
| Loss on extinguishment of debt | |
| — | | |
| 56,653 | |
| Excise tax | |
| 305,719 | | |
| — | |
| Change in fair value of warrant liability | |
| (1,807,000 | ) | |
| — | |
| Change in fair value of warrant liability - related party | |
| 115,000 | | |
| — | |
| Loss on modification of simple agreement for future equity | |
| — | | |
| 120,826 | |
| Loss on modification of simple agreement for future equity - related party | |
| — | | |
| 1,602,174 | |
| Change in fair value of simple agreement for future equity | |
| (207,570 | ) | |
| 307,569 | |
| Change in fair value of simple agreement for future equity - related party | |
| (2,752,430 | ) | |
| 4,078,431 | |
| Change in fair value of bifurcated embedded derivative liabilities | |
| (1,404,863 | ) | |
| 254,443 | |
| Change in fair value of bifurcated embedded derivative liabilities - related party | |
| (3,063,278 | ) | |
| 606,857 | |
| Change in fair value of convertible promissory notes | |
| (34,000 | ) | |
| — | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| 65,479 | | |
| (86,308 | ) |
| Prepaid expenses and other current assets | |
| (407,648 | ) | |
| 425,011 | |
| Deferred offering costs | |
| (1,708,163 | ) | |
| — | |
| Other assets | |
| — | | |
| 52,591 | |
| Accounts payable | |
| 5,339,614 | | |
| 660,844 | |
| Due to related party | |
| 67,118 | | |
| — | |
| Deferred revenue | |
| 283,660 | | |
| (129,604 | ) |
| Accrued expenses and other current liabilities | |
| 4,448,867 | | |
| 384,641 | |
| Operating lease liabilities | |
| (284,963 | ) | |
| (243,596 | ) |
| Earnout liability | |
| (229,700 | ) | |
| (710,901 | ) |
| Deferred fees | |
| 500,000 | | |
| — | |
| Other liabilities | |
| — | | |
| (37,837 | ) |
| Net cash used in operating activities | |
| (1,550,781 | ) | |
| (5,168,175 | ) |
| Cash flows from investing activities: | |
| | | |
| | |
| Purchase of property and equipment | |
| — | | |
| (10,806 | ) |
| Net cash used in investing activities | |
| — | | |
| (10,806 | ) |
| Cash flows from financing activities: | |
| | | |
| | |
| Effect of Merger, net of transaction costs (Note 4) | |
| (7,615,462 | ) | |
| — | |
| Deferred offering costs | |
| — | | |
| (1,524,934 | ) |
| Proceeds from issuance of notes payable, net of issuance costs - related party | |
| 4,387,701 | | |
| — | |
| Proceeds from issuance of convertible notes, net of issuance costs | |
| 3,235,000 | | |
| 1,753,558 | |
| Proceeds from issuance of convertible notes, net of issuance costs - related party | |
| 2,583,000 | | |
| 4,182,290 | |
| Proceeds from issuance of common stock | |
| 30,761 | | |
| 5,016 | |
| Net cash provided by financing activities | |
| 2,621,000 | | |
| 4,415,930 | |
| Net increase / (decrease) in cash | |
| 1,070,219 | | |
| (763,051 | ) |
| Cash at beginning of period | |
| 1,023,499 | | |
| 1,786,550 | |
| Cash at end of period | |
$ | 2,093,718 | | |
$ | 1,023,499 | |
| Supplemental disclosure of cash flow information: | |
| | | |
| | |
| Cash paid for interest | |
| 955,848 | | |
| 630,454 | |
| Cash paid (refund) for taxes | |
| 9,862 | | |
| (4,875 | ) |
| Non-cash investing and financing activities | |
| | | |
| | |
| Issuance of Cantor Fee Shares | |
| (111 | ) | |
| — | |
| Modification of convertible notes payable - related party | |
| 9,909 | | |
| — | |
| Shares issued to Yorkville for aggregate commitment fee | |
| 3,288,000 | | |
| — | |
| Shares issued under share transfer agreement - related party | |
| 2,498,965 | | |
| — | |
| Issuance of warrants accounted for as a liability | |
| 2,448,000 | | |
| — | |
| GEM commitment fee | |
| 2,000,000 | | |
| — | |
| Deferred offering costs | |
| (3,233,097 | ) | |
| | |
| Conversion of simple agreement for future equity | |
| 456,234 | | |
| — | |
| Conversion of simple agreement for future equity - related party | |
| 6,049,766 | | |
| — | |
| Conversion of convertible notes | |
| 3,346,232 | | |
| — | |
| Conversion of convertible notes - related party | |
| 7,271,368 | | |
| — | |
| Convertible note issued in settlement of accrued interest | |
| — | | |
| 321,345 | |
| Convertible note issued in settlement of accrued interest - related party | |
| — | | |
| 100,538 | |
| Debt issuance costs | |
| — | | |
| 25,896 | |
| Bifurcated embedded derivative liabilities at issuance | |
| — | | |
| 541,223 | |
| Bifurcated embedded derivative liabilities at issuance - related party | |
| — | | |
| 1,292,777 | |
| Right-of-use assets obtained in exchange for lease obligations | |
| — | | |
| 762,603 | |
The
accompanying notes are an integral part of these consolidated financial statements.
BANZAI
INTERNATIONAL, INC.
Notes
to Consolidated Financial Statements
1.
Organization
The
Business
Banzai
International, Inc. (the “Company” or “Banzai”) was incorporated in Delaware on September 30, 2015. Banzai is
a leading enterprise SaaS Video Engagement platform used by marketers to power webinars, trainings, virtual events, and on-demand video
content.
Close
of the Merger
On
December 14, 2023 (the “Closing Date”), 7GC & Co. Holdings Inc. (“7GC”), our predecessor company, consummated
the business combination pursuant to the Agreement and Plan of Merger and Reorganization, dated as of December 8, 2022 (the “Original
Merger Agreement”), by and among 7GC, Banzai International, Inc. (“Legacy Banzai”), 7GC Merger Sub I, Inc., an indirect
wholly owned subsidiary of 7GC (“First Merger Sub”), and 7GC Merger Sub II, LLC, a direct wholly owned subsidiary of 7GC
(“Second Merger Sub”), as amended by the Amendment to Agreement and Plan of Merger, dated as of August 4, 2023 (the “Merger
Agreement Amendment” and, together with the Original Merger Agreement, the “Merger Agreement”), by and between 7GC
and Legacy Banzai.
Pursuant
to the terms of the Merger Agreement, a business combination between 7GC and Legacy Banzai was effected through (a) the merger of First
Merger Sub with and into Legacy Banzai, with Legacy Banzai surviving as a wholly-owned subsidiary of 7GC (Legacy Banzai, in its capacity
as the surviving corporation of the merger, the “Surviving Corporation”) (the “First Merger”) and (b) the subsequent
merger of the Surviving Corporation with and into Second Merger Sub, with Second Merger Sub being the surviving entity of the Second
Merger, which ultimately resulted in Legacy Banzai becoming a wholly-owned direct subsidiary of 7GC (the “Second Merger”
and, together with the First Merger, the “Mergers” and, collectively with the other transactions described in the Merger
Agreement, the “Merger”). On the Closing Date, and in connection with the closing of the Merger (the “Closing”),
7GC changed its name to Banzai International, Inc.
Although
7GC was the legal acquirer of Legacy Banzai in the merger, Legacy Banzai is deemed to be the accounting acquirer, and the historical
financial statements of Legacy Banzai became the basis for the historical financial statements of the Company upon the closing of the
merger.
Furthermore,
the historical financial statements of Legacy Banzai became the historical financial statements of the Company upon the consummation
of the merger. As a result, the financial statements included in this Annual Report reflect (i) the historical operating results of Legacy
Banzai prior to the merger; (ii) the combined results of 7GC and Legacy Banzai following the close of the merger; (iii) the assets and
liabilities of Legacy Banzai at their historical cost and (iv) the Legacy Banzai’s equity structure for all periods presented,
as affected by the recapitalization presentation after completion of the merger.
The
aggregate consideration payable to securityholders of Legacy Banzai at the Closing consisted of a number of shares of Class A Common
Stock or shares of Class B Common Stock, and cash in lieu of any fractional shares of Class A Common Stock or shares of Class B Common
Stock that would otherwise have been payable to any Legacy Banzai securityholders, equal to $100,000,000. See Note 4 - Reverse Merger
Capitalization with 7GC & Co. Holdings Inc. for further details of the merger.
Termination
of Hyros Acquisition and Amended Merger Agreement with 7GC
In
December 2022, the Company entered into an Agreement and Plan of Merger with Hyros, Inc., (“Hyros”) (the “Hyros Purchase
Agreement”) whereby Banzai would acquire 100% of the issued share capital of Hyros for approximately $110 million in a primarily
stock transaction. The acquisition was expected to enhance Banzai’s role as a full-stack marketing technology platform, expand
its total addressable market, to significantly enhance the Banzai platform and accelerate its long-term revenue growth and operational
efficiency.
Concurrently,
in December 2022, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Original Merger Agreement”)
with 7GC & Co. Holdings Inc. (“7GC”), a blank check company formed for the purpose of effecting a merger, share exchange,
asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses or entities, pending the
close of the Hyros Purchase Agreement. On July 31, 2023, Banzai sent a notice of termination to Hyros. On August 1, 2023, Banzai and
Hyros terminated the Hyros Purchase Agreement and the Hyros Side Letter (the “Hyros Transaction Termination”), with immediate
effect, in connection with the inability to procure the Hyros audited financial statements on the timeline contemplated by the Hyros
Purchase Agreement.
On
August 4, 2023, the Company entered into an Amendment to the Agreement and Plan of Merger and Reorganization (the “Amended Merger
Agreement” and together with the Original Merger Agreement, the “Merger Agreement”) with 7GC (the “Merger”).
As a result of the Merger Agreement, all outstanding shares of capital stock of Banzai will be canceled and converted into the right
to receive newly issued shares of common stock, par value $0.0001 per share, 7GC Common Stock determined based on a pre-money enterprise
valuation of Banzai of $100 million and a $10.00 price per share of 7GC Common Stock.
Emerging
Growth Company
Upon
closure of the Merger, the Company became an “emerging growth company,” as defined in Section 2(a) of the Securities Act
of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS
Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic
reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not previously approved.
Further,
Section 102(b) (1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies are required to comply with the new or revised financial accounting standards. Private companies are
those companies that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Exchange Act. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the
requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not
to opt out of such extended transition period, which means that when a standard is issued or revised, it adopts the new or revised standard
at the time private companies adopt the new or revised standard. Therefore, the Company’s financial statements may not be comparable
to certain public companies.
2.
Going Concern
As
of December 31, 2023 the Company had cash of approximately $2.1 million. For the year ended December 31, 2023, the Company used approximately
$1.6 million in cash for operating activities. The Company has incurred recurring net losses from operations and negative cash flows
from operating activities since inception. As of December 31, 2023, the Company had an accumulated deficit of approximately $46.8 million.
These factors raise substantial doubt regarding the Company’s ability to continue as a going concern within one year of the date
these financial statements were issued.
The
continuation of the Company as a going concern is dependent upon the continued financial support from its stockholders and debt holders.
Specifically, continuation is contingent on the Company’s ability to obtain necessary equity or debt financing to continue operations,
and ultimately the Company’s ability to generate profit from sales and positive operating cash flows, which is not assured.
The
Company’s plans include obtaining future debt and equity financings associated with the close of the Merger described in Note
4 - Reverse Merger Capitalization with 7GC & Co. Holdings Inc.. If the Company is unsuccessful in completing these planned transactions,
it may be required to reduce its spending rate to align with expected revenue levels and cash reserves, although there can be no guarantee
that it will be successful in doing so. Accordingly, the Company may be required to raise additional cash through debt or equity transactions.
It may not be able to secure financing in a timely manner or on favorable terms, if at all. As a result, management’s plans cannot
be considered probable and thus do not alleviate substantial doubt about the Company’s ability to continue as a going concern.
These
accompanying audited consolidated financial statements have been prepared assuming that the Company will continue as a going concern
and do not include any adjustments that might result from the outcome of this uncertainty.
3.
Summary of Significant Accounting Policies
Basis
of Presentation
The
Company’s audited consolidated financial statements have been prepared in conformity with accounting principles generally accepted
in the United States of America (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) and applicable regulations of the Securities and Exchange Commission (“SEC”) regarding
annual financial reporting.
Principles
of Consolidation
The
accompanying audited consolidated financial statements include the accounts of Banzai and its subsidiaries. The Company consolidates
all entities over which the Company has the power to govern the financial and operating policies and therefore exercises control, and
upon which the Company has a controlling financial interest. The existence and effect of both current voting rights and potential voting
rights that are currently exercisable or convertible are considered when assessing whether control of an entity is exercised. The subsidiary
is consolidated from the date at which the Company obtains control and is de-consolidated from the date at which control ceases. All
intercompany balances and transactions have been eliminated. The accounting policies of the subsidiary has been changed where necessary
to ensure consistency with the policies adopted by the Company.
In
the opinion of management, all necessary adjustments (consisting of normal recurring adjustments, intercompany adjustments, reclassifications
and non-recurring adjustments) have been recorded to present fairly our financial position as of December 31, 2023 and 2022, and the
results of operations and cash flows for the years ended December 31, 2023 and 2022.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the audited consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that estimates made as of the date
of the financial statements could change in the near term due to one or more future events. Actual results could differ significantly
from these estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include estimates
of impairment of goodwill, recognition and measurement of convertible and Simple Agreement for Future Equity (SAFE) notes, including
the associated embedded derivatives, determination of the fair value of the warrant liabilities, and recognition and measurement of stock
compensation.
Certain
Risks and Uncertainties
The
Company’s business and operations are sensitive to general business and economic conditions. These conditions include short-term
and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the world economy.
A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse developments in these general
business and economic conditions could have a material adverse effect on the Company’s financial condition and the results of its
operations. In addition, the Company will compete with many companies that currently have extensive and well-funded products, marketing
and sales operations. The Company may be unable to compete successfully against these companies. The Company’s industry is characterized
by rapid changes in technology and market demands. As a result, the Company’s products, services, or expertise may become obsolete
or unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer
and market demands, and enhance its current technology. The Company is also subject to risks which include, but are not limited to, dependence
on key personnel, reliance on third parties, successful integration of business acquisitions, protection of proprietary technology, and
compliance with regulatory requirements.
Cash
The
Company considers all highly liquid investments purchased with original maturities of 90 days or less to be cash equivalents. As of December
31, 2023 and 2022, the Company does not have any cash equivalents.
The
Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other
hedging arrangements. The Company holds cash in banks in excess of federally insured limits. However, the Company believes risk of loss
is minimal as the cash is held by large highly rated financial institutions. To reduce its risk associated with the failure of such financial
institutions, the Company evaluates at least annually the rating of the financial institutions in which it holds cash. Any material loss
that the Company may experience in the future could have an adverse effect on its ability to pay its operational expenses or make other
payments and may require the Company to move its cash to other high quality financial institutions. Currently, the Company is reviewing
its bank relationships in order to mitigate its risk to ensure that its exposure is limited or reduced to the FDIC protection limits.
Accounts
Receivable and Allowance for Credit Losses
Accounts
receivable consist of balances due from customers as well as from payment service providers. Payment terms range from due upon receipt,
to net 30 days. Accounts receivable are stated net of an allowance for credit losses.
The
allowance for expected credit losses is based on the probability of future collection under the current expected credited loss (“CECL”)
impairment model which was adopted by the Company on January 1, 2023, as discussed below within Recent Accounting Pronouncements. The
adoption of ASU No. 2016-13, Financial Instruments: Credit Losses (Topic 326) (“ASU 2016-13”) did not have a material impact
on these consolidated financial statements. Account balances are written off after all means of collection are exhausted and the balance
is deemed uncollectible. Subsequent recoveries are credited to the allowance. Changes in the allowance are recorded as adjustments to
credit losses in the period incurred.
As
of December 31, 2023 and 2022, the Company determined an allowance for credit losses of $5,748 and $107,860 was required, respectively.
Further, for the years ended December 31, 2023 and 2022, the Company recognized bad debt expenses for accounts receivable balances of
$65,013 and $142,162, respectively.
The
following table presents changes in the allowance for credit losses for the year ended December 31, 2023:
| Balance - January 1, 2023 | |
$ | 107,860 | |
| Change in provision for credit losses | |
| (102,112 | ) |
| Balance - December 31, 2023 | |
$ | 5,748 | |
Property
and Equipment
Property
and equipment are recorded at cost and presented net of accumulated depreciation. Major additions and betterments are capitalized while
maintenance and repairs, which do not improve or extend the life of the respective assets, are expensed. Property and equipment are depreciated
on the straight-line basis over their estimated useful lives (3 years for computer equipment).
Goodwill
Goodwill
represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill
is reviewed for impairment at least annually, in December, or more frequently if a triggering event occurs between impairment testing
dates. As of December 31, 2023, the Company had one operating segment, which was deemed to be its reporting unit, for the purpose of
evaluating goodwill impairment.
The
Company’s impairment assessment begins with a qualitative assessment to determine whether it is more likely than not that the fair
value of the reporting unit is less than its carrying value. Qualitative factors may include, macroeconomic conditions, industry and
market considerations, cost factors, and other relevant entity and Company specific events. If, based on the qualitative test, the Company
determines that it is “more likely than not” that the fair value of a reporting unit is less than its carrying value, then
we evaluate goodwill for impairment by comparing the fair value of our reporting unit to its respective carrying value, including its
goodwill. If it is determined that it is not likely that the fair value of the reporting unit is less than its carrying value, then no
further testing is required.
The
selection and assessment of qualitative factors used to determine whether it is more likely than not that the fair value of a reporting
unit exceeds the carrying value involves significant judgment and estimates. Fair values may be determined using a combination of both
income and market-based approaches. There were no impairments of goodwill recorded for the years ended December 31, 2023 and 2022.
Deferred
Offering Costs
In
2022 and 2023, the Company capitalized fees related to the Merger Agreement (see Note 1 - Organization and Note 4 - Merger)
as an asset. These fees were recognized as a reduction of equity, upon Closing of the Merger on December 14, 2023.
Capitalized
deferred offering costs consisted of the following, as of December 14, 2023 and December 31, 2022:
| | |
December 14, 2023 | | |
December 31, 2022 | |
| SPAC-related legal fees | |
$ | 2,973,077 | | |
$ | 1,264,914 | |
| Investment bank advisory services | |
| 135,000 | | |
| 135,000 | |
| Federal Trade Commission filing fees | |
| 125,020 | | |
| 125,020 | |
| Total deferred offering costs capitalized | |
$ | 3,233,097 | | |
$ | 1,524,934 | |
The
entire balance of Deferred Offering Costs capitalized as of December 14, 2023, was reclassified to Additional Paid-in- Capital, on December
14, 2023, in connection with the closing of the Merger. As a result, there was no Deferred Offering Costs balance as of December 31,
2023.
Warrant
Liabilities
The
Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates
all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain
features that qualify as embedded derivatives. The classification of derivative instruments, including whether such instruments should
be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Warrant
Liability - related party
The
Public Warrants are recognized as derivative liabilities in accordance with ASC 815 Derivatives and Hedging (“ASC 815”).
Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at
each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair
value is recognized in the Company’s consolidated statements of operations.
The
Public Warrants were initially measured at fair value using a Monte Carlo simulation model and have subsequently been measured based
on the listed market price of such warrants. The determination of the fair value of the warrant liabilities may be subject to change
as more current information becomes available and accordingly the actual results could differ significantly. Warrant liabilities are
classified as current liabilities on the Company’s consolidated balance sheets.
Warrant
Liability
The
GEM Warrants were not considered indexed to the issuer’s stock pursuant to ASC 815, as the holder’s ability to receive one
percent of the total consideration received by the Company’s stockholders in connection with a Change of Control in lieu of the
Warrant, where the surviving corporation is not publicly traded, adjusts the settlement value based on items outside the Company’s
control in violation of the fixed-for-fixed option pricing model. As such, the Company recorded the Warrants as liabilities initially
measured at fair value with subsequent changes in fair value recognized in earnings each reporting period.
The
measurement of fair value was determined utilizing a Monte Carlo simulation considering all relevant assumptions current at the date
of issuance (i.e., share price, exercise price, term, volatility, risk-free rate, probability of dilutive term of three years, and expected
time to conversion). The Company determined the Warrants were share issuance costs associated with an aborted offering to purchase equity.
Aborted offering costs may not be deferred and charged against proceeds of a subsequent offering. As such, the Company recorded an expense
for the corresponding fair value.
Simple
Agreements for Future Equity—SAFE
The
Company accounts for Simple Agreements for Future Equity (“SAFE”) at fair value in accordance with ASC 480 Distinguishing
Liabilities from Equity. The SAFEs are subject to revaluation at the end of each reporting period, with changes in fair value recognized
in the accompanying Consolidated Statement of Operations.
Concentration
of Business and Credit Risk
Financial
instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and
accounts receivable. The Company has no financial instruments with off-balance sheet risk of loss.
At
December 31, 2023, no customers accounted for 10% or more of accounts receivable. At December 31, 2022, three customers accounted for
10% or more of accounts receivable with concentrations of 21%, 16%, and 10% and totaling approximately 47% of the total accounts receivable
balance as of December 31, 2022. Total revenues from these customers amounted to $259,635 for the year ended December 31, 2022. For the
years ended December 31, 2023 and 2022, no customers accounted for 10% or more of total revenues, respectively.
At
December 31, 2023 and 2022, one supplier accounted for 10% or more of accounts payable.
Loss
Per Share
Basic
loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of
shares of common stock outstanding during the year. Diluted net loss per share excludes, when applicable, the potential impact of stock
options and convertible preferred stock because their effect would be anti-dilutive due to the net loss. Since the Company had a net
loss in each of the periods presented, basic and diluted net loss per common share are the same.
The
calculation of basic and diluted net loss per share attributable to common stock was as follows:
| | |
As of December 31, | |
| | |
2023 | | |
2022 | |
| Numerator: | |
| | | |
| | |
| Net loss attributable to common stock—basic and diluted | |
$ | (14,406,262 | ) | |
$ | (15,468,502 | ) |
| | |
| | | |
| | |
| Denominator: | |
| | | |
| | |
| Weighted average shares—basic and diluted | |
| 6,853,733 | | |
| 6,441,116 | |
| Net loss per share attributable to common stock—basic and diluted | |
$ | (2.10 | ) | |
$ | (2.40 | ) |
Securities
that were excluded from loss per share as their effect would be anti-dilutive due to the net loss position that could potentially be
dilutive in future periods are as follows:
| | |
As of December 31, | |
| | |
2023 | | |
2022 | |
| Options | |
| 748,086 | | |
| 370,998 | |
| Public warrants | |
| 11,500,000 | | |
| — | |
| GEM warrants | |
| 828,533 | | |
| — | |
| Total | |
| 13,076,619 | | |
| 370,998 | |
Leases
The
Company determines if an arrangement is a lease at inception and classifies its leases at commencement. Operating leases are presented
as right-of-use (“ROU”) assets and the corresponding lease liabilities are included in operating lease liabilities, current
and operating lease liabilities, non-current on the Company’s balance sheets. ROU assets represent the Company’s right to
use an underlying asset, and lease liabilities represent the Company’s obligation for lease payments in exchange for the ability
to use the asset for the duration of the lease term.
ROU
assets and lease liabilities are recognized at commencement date and determined using the present value of the future minimum lease payments
over the lease term. The Company uses an incremental borrowing rate based on estimated rate of interest for collateralized borrowing
since the Company’s leases do not include an implicit interest rate. The estimated incremental borrowing rate considers market
data, actual lease economic environment, and actual lease term at commencement date. The lease term may include options to extend when
it is reasonably certain that the Company will exercise that option. In addition, the Company does not recognize short-term leases that
have a term of twelve months or less as ROU assets or lease liabilities. The Company recognizes operating lease expense on a straight-line
basis over the lease term.
The
Company has lease agreements which contain both lease and non-lease components, which it has elected to account for as a single lease
component when the payments are fixed. As such, variable lease payments, including those not dependent on an index or rate, such as real
estate taxes, common area maintenance, and other costs that are subject to fluctuation from period to period are not included in lease
measurement.
The
Company evaluates long-lived assets for recoverability if there are indicators of potential impairment. Indicators of potential impairment
may include subleasing a location for less than the head lease cost. If there are indicators of potential impairment, the Company will
test the assets for recoverability. If the undiscounted cash flows estimated to be generated are less than the carrying value of the
underlying assets, the assets are deemed impaired. If it is determined that assets are impaired, an impairment loss is calculated based
on the amount that the asset’s book value exceeds its fair value.
Revenue
Recognition
Revenue
is generated through Banzai providing marketing and webinar platform subscription software service for a set period of time. The Statement
of Work (“SOW”) or Invoice, and the accompanying documents are negotiated and signed by both parties (if applicable). Alternatively,
customer contracting is achieved via self service and invoicing is initiated automatically once the customer accepts the terms and conditions
on the platform, based on their selection of the desired subscription product. When execution or completion of the contract occurs, the
contract is valid and revenue is earned when the service is provided for each period of performance, daily. The amount is paid by the
customer based on the contract terms monthly, quarterly, or annually, with the majority paid via credit card processing.
The
Company recognizes revenue in an amount that reflects the consideration to which it expects to be entitled in exchange for the transfer
of promised services to its customers. To determine revenue recognition for contracts with customers, the Company performs the following
steps described in ASC 606: (1) identifies the contract with the customer, or Step 1, (2) identifies the performance obligations in the
contract, or Step 2, (3) determines the transaction price, or Step 3, (4) allocates the transaction price to the performance obligations
in the contract, or Step 4, and (5) recognizes revenue when (or as) the entity satisfies a performance obligation, or Step 5.
Revenue
from contracts with customers are not recorded until the Company has the approval and commitment from the parties, the rights of the
parties are identified, payment terms are established, the contract has commercial substance and collectability of the consideration
is probable. The Company also evaluates the following indicators, amongst others, when determining whether it is acting as a principal
in the transaction (and therefore whether to record revenue on a gross basis): (i) whether the Company is primarily responsible for fulfilling
the promise to provide the specified good or service, (ii) whether the Company has the inventory risk before the specified good or service
has been transferred to a customer or after transfer of control to the customerCan and (iii) whether the Company has the discretion to
establish the price for the specified good or service. If the terms of a transaction do not indicate that the Company is acting as a
principal in the transaction, then the Company is acting as an agent in the transaction and therefore, the associated revenue is recognized
on a net basis (that is revenue net of costs).
Revenue
is recognized once control passes to the customer. The following indicators are evaluated in determining when control has passed to the
customer: (i) whether the Company has a right to payment for the product or service, (ii) whether the customer has legal title to the
product or service, (iii) whether the Company has transferred physical possession of the product or service to the customer, (iv) whether
the customer has the significant risk and rewards of ownership of the product or service and (v) whether the customer has accepted the
product or service. When an arrangement contains more than one performance obligation, the Company will allocate the transaction price
to each performance obligation on a relative standalone selling price basis. The Company utilizes the observable price of products and
services when they are sold separately to similar customers in order to estimate standalone selling price.
Costs
of Revenue
Costs
of revenue consist primarily of infrastructure, streaming service, data license and contracted services costs, as well as merchant fees
and payroll costs.
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising costs were $941,737 and $783,764 for the years ended December 31, 2023 and 2022, respectively,
which are included in general and administrative expenses on the consolidated statements of operations.
Stock-Based
Compensation
The
Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date
fair value of the awards in accordance with ASC 718, Stock Compensation. The Company accounts for forfeitures as they occur. The
Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating
the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application
of management’s judgment.
Income
Taxes
Income
taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an
asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence,
it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions
in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions
to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination
as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as
consideration of the available facts and circumstances. The Company recognizes any interest and penalties accrued related to unrecognized
tax benefits as income tax expense.
Derivative
Financial Instruments
The
Company evaluates all its financial instruments to determine if such instruments contain features that qualify as embedded derivatives.
Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment
of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded
derivatives are recognized at fair value, with changes in fair value recognized in the statement of operations each period. Bifurcated
embedded derivatives are classified with the related host contract in the Company’s balance sheet. Refer to Note 8 - Fair Value
Measurements and Note 14 - Debt for further detail.
Fair
Value of Financial Instruments
In
accordance with FASB ASC 820 Fair Value Measurements and Disclosures, the Company uses a three-level hierarchy for fair value
measurements of certain assets and liabilities for financial reporting purposes that distinguishes between market participant assumptions
developed from market data obtained from outside sources (observable inputs) and the Company’s own assumptions about market participant
assumptions developed from the best information available to us in the circumstances (unobservable inputs). The fair value hierarchy
is divided into three levels based on the source of inputs as follows:
Level
1: Quoted prices in active markets for identical assets or liabilities.
Level
2: Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level
3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash
flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment
or estimation.
The
fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management
during the years ended December 31, 2023 and 2022. The carrying amount of cash, accounts receivable, prepaid expenses and other current
assets, accounts payable, accrued expenses, deferred revenue, and other current liabilities approximated their fair values as of December
31, 2023 and 2022. During 2022, the Company carried convertible notes bifurcated embedded derivatives and Simple Agreements for Future
Equity (“SAFE”) investments at their fair value (see Note 8 - Fair Value Measurements for fair value information).
Business
Combinations
The
Company accounts for business combinations in accordance with FASB ASC 805 (“ASC 805”), Business Combinations. Accordingly,
identifiable tangible and intangible assets acquired and liabilities assumed are recorded at their estimated fair values, the excess
of the purchase consideration over the fair values of net assets acquired is recorded as goodwill, and transaction costs are expensed
as incurred.
Recent
Accounting Pronouncements
Recent
accounting pronouncements not yet effective
In
December 2023, the FASB issued ASU 2023-09 (Topic 740), Improvements to income tax disclosures, which enhances the disclosure requirements
for the income tax rate reconciliation, domestic and foreign income taxes paid, requiring disclosure of disaggregated income taxes paid
by jurisdiction, unrecognized tax benefits, and modifies other income tax-related disclosures. The amendments are effective for annual
periods beginning after December 15, 2024. Early adoption is permitted and should be applied prospectively. The Company is currently
evaluating the effect of adopting this guidance on its consolidated financial statements.
4.
Reverse Merger Capitalization with 7GC & Co. Holdings Inc.
On
December 14, 2023 (the “Closing Date”), Banzai consummated the previously announced Merger with 7GC, as a result of which
Banzai became a wholly-owned subsidiary of 7GC. While 7GC was the legal acquirer of Banzai in the merger, for accounting purposes, Legacy
Banzai was deemed to be the accounting acquirer in the merger. The determination was primarily based on Legacy Banzai’s stockholders
having a majority of the voting power in the combined Company, Legacy Banzai having the ability to appoint a majority of the Board of
Directors of the Company, Legacy Banzai’s existing management team comprising the senior management of the combined Company, Legacy
Banzai comprising the ongoing operations of the combined Company and the combined Company assumed the name “Banzai International,
Inc.”. Accordingly, for accounting purposes, the merger was treated as the equivalent of Legacy Banzai issuing stock for the net
assets of 7GC, accompanied by a recapitalization. The net assets of 7GC are stated at historical cost, with no goodwill or other intangible
assets recorded.
Preferred
Stock Conversion
Immediately
prior to the First Merger (the “First Effective Time”), each share of Legacy Banzai Series A preferred stock, par value $0.0001
(the “Legacy Banzai Preferred Stock”), that was issued and outstanding was automatically converted into one share of Legacy
Banzai Class A Common Stock, par value $0.0001 (the “Legacy Banzai Class A Common Stock”) in accordance with the Amended
and Restated Certificate of Incorporation of Legacy Banzai, such that each converted share of Legacy Banzai Preferred Stock was no longer
outstanding and ceased to exist, and each holder of shares of Legacy Banzai Preferred Stock thereafter ceased to have any rights with
respect to such securities.
At
the First Effective Time, by virtue of the First Merger and without any action on the part of 7GC, First Merger Sub, Legacy Banzai or
the holders of any of the following securities:
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(a) |
|
each outstanding share of Legacy Banzai Class A Common Stock, including the shares of Legacy Banzai Class A Common Stock from the conversion of the Legacy Banzai Preferred Stock described above, and each outstanding share of Class B common stock of Legacy Banzai, par value $0.0001 per share (the “Legacy Banzai Class B Common Stock” and together with Legacy Banzai Class A Common Stock, “Legacy Banzai Common Stock”) (in each case, other than dissenting shares and any shares held in the treasury of Legacy Banzai), was cancelled and converted into the right to receive a number of shares of Class A Common Stock or a number of shares of Class B common stock of the Company, par value $0.0001 (“Class B Common Stock” and, collectively with the Class A Common Stock, the “Common Stock”), respectively, equal to (x) the Per Share Value (as defined below) divided by (y) $10.00 (the “Exchange Ratio”); |
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(b) |
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(1) each option to purchase Legacy Banzai Class A Common Stock (“Legacy Banzai Option”), whether vested or unvested, that was outstanding immediately prior to the First Effective Time and held by any securityholders of Legacy Banzai immediately prior to the First Effective Time (each, a “Pre-Closing Holder”) who was providing services to Legacy Banzai immediately prior to the First Effective Time (a “Pre-Closing Holder Service Provider”), was assumed and converted into an option (a “Company Option”) to purchase shares of Class A Common Stock, calculated in the manner set forth in the Merger Agreement; and (2) the vested portion of each Legacy Banzai Option that was outstanding at such time and held by a Pre-Closing Holder who was not then providing services to Legacy Banzai (a “Pre-Closing Holder Non-Service Provider”) was assumed and converted into a Company Option to purchase shares of Class A Common Stock, calculated in the manner set forth in the Merger Agreement; |
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(c) |
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each right of each SAFE investor to receive a portion of the Total Consideration (as defined below) pursuant to certain Simple Agreements for Future Equity (“each, a “SAFE Agreement”) that was outstanding immediately prior to the First Effective Time was cancelled and converted into the right (each, a “SAFE Right”) to receive a number of shares of Class A Common Stock equal to (i) the Purchase Amount as defined in the applicable SAFE Agreement that governed such SAFE Right (the “SAFE Purchase Amount”) in respect of such SAFE Right divided by the Valuation Cap Price as defined in each SAFE Agreement in respect of such SAFE Right multiplied by (ii) the Exchange Ratio; and |
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(d) |
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each Subordinated Convertible Note set forth in Section 1.1(a) of the Legacy Banzai disclosure schedules to the Merger Agreement (the “Subordinated Convertible Notes”) that was outstanding immediately prior to the First Effective Time was cancelled and converted into the right to receive a number of shares of Class A Common Stock equal to (i) all of the outstanding principal and interest in respect of such Subordinated Convertible Note, divided by the quotient obtained by dividing the Valuation Cap by the Fully Diluted Capitalization (each as defined in and determined pursuant to the terms of such Subordinated Convertible Note) in respect of such Subordinated Convertible Note, multiplied by (ii) the Exchange Ratio. |
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(e) |
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“Per Share Value” equals (i) an amount equal to $100,000,000, payable in shares of Class A Common Stock or shares of Class B Common Stock, as applicable (the “Total Consideration”), divided by (ii) (A) the total number of shares of Legacy Banzai Class A Common Stock and Legacy Banzai Class B Common Stock issued and outstanding as of immediately prior to the First Effective Time, (B) the maximum aggregate number of shares of Legacy Banzai Class A Common Stock issuable upon full exercise of Legacy Banzai Options issued, outstanding, and vested immediately prior to the First Effective Time, (C) the maximum aggregate number of shares of Legacy Banzai Class A Common Stock issuable upon conversion of certain senior convertible notes outstanding as of immediately prior to the First Effective Time at the applicable conversion price, (D) the maximum aggregate number of shares of Legacy Banzai Class A Common Stock issuable upon conversion of all of the outstanding principal and interest under the Subordinated Convertible Notes as of immediately prior to the First Effective Time at the applicable conversion price, and (E) the maximum aggregate number of shares of Legacy Banzai Class A Common Stock issuable upon conversion of the SAFE Purchase Amount under each SAFE Right as of immediately prior to the First Effective Time at the applicable SAFE Conversion Price. |
At
the effective time of the Second Merger (the “Second Effective Time”), by virtue of the Second Merger and without any action
on the part of 7GC, Surviving Corporation, Second Merger Sub or the holders of any securities of 7GC or the Surviving Corporation or
the Second Merger Sub, each share of common stock of the Surviving Corporation issued and outstanding immediately prior to the Second
Effective Time was cancelled and extinguished, and no consideration was delivered therefor.
Retroactive
Restatement for Conversion of Common Stock and Series A Preferred Stock by Applying Exchange Ratio
Upon
the closing of the merger, holders of Legacy Banzai common stock and Series A preferred stock received shares of common stock in an amount
determined by application of the Exchange Ratio. In accordance with guidance applicable to these circumstances, the equity structure
has been restated in all comparable periods, prior to the merger, up to December 14, 2023, to reflect the number of shares of the Company’s
common stock, $0.0001 par value per share, issued to Legacy Banzai’s stockholders in connection with the merger. As such, the shares
and corresponding capital amounts and earnings per share related to Legacy Banzai’s outstanding Series A preferred stock and Legacy
Banzai’s common stock prior to the merger have been retroactively restated as shares reflecting the exchange ratio of approximately
0.6147 established in the merger. Legacy Banzai’s Series A preferred stock previously classified as temporary equity was retroactively
adjusted, converted into common stock and reclassified to permanent equity as a result of the reverse recapitalization. The consolidated
assets, liabilities, and results of operations prior to the merger are those of Legacy Banzai.
The
aggregate consideration payable to securityholders of Banzai at the Closing Date was equal to $100,000,000. Holders of 3,207,428 shares
of 7GC’s Class A common stock, par value $0.0001 per share (“7GC Class A Common Stock”), exercised their right to redeem
their shares for cash at a redemption price of approximately $10.76 per share, for an aggregate redemption amount of $34,524,065. Immediately
prior to the Closing Date, each share of Banzai’s Preferred Stock that was issued and outstanding was automatically converted into
one share of Banzai’s Class A Common Stock, par value $0.0001 per share. Each share of Banzai’s Class B Common Stock that
was not held by the Chief Executive Officer of the Company converted to one share of Banzai’s Class A Common Stock, while the Chief
Executive Officer received Class B Common Stock.
On
the terms and subject to the conditions set forth in the Merger Agreement, at the Second Effective Time, each share of common stock of
the Surviving Corporation issued and outstanding immediately prior to the Second Effective Time was cancelled and no consideration was
delivered therefore.
Treatment
of Outstanding Equity Awards
In
addition, as of the First Effective Time: (i) each Legacy Banzai Option, whether vested or unvested, that was outstanding immediately
prior to the First Effective Time and held by a Pre-Closing Holder Service Provider, was assumed and converted into a Company Option
with respect to a number of shares of Class A Common Stock calculated in the manner set forth in the Merger Agreement; and (ii) the vested
portion of each Legacy Banzai Option that was outstanding at such time and held by a Pre-Closing Holder Non-Service Provider was assumed
and converted into a Company Option with respect to a number of shares of Class A Common Stock calculated in the manner set forth in
the Merger Agreement. See Note 19 - Stock-Based Compensation for further details related to the outstanding equity awards.
Treatment
of SAFE Rights
As
of the First Effective Time, each SAFE Right that was outstanding immediately prior to the First Effective Time was cancelled and converted
into and became the right to receive a number of shares of Class A Common Stock equal to the SAFE Purchase Amount in respect of such
SAFE Right divided by the SAFE Conversion Price in respect of such SAFE Right multiplied by (ii) the Exchange Ratio. See Note 16 -
Simple Agreements for Future Equity for further details related to the SAFEs.
Treatment
of Convertible Notes
As
of the First Effective Time, each Subordinated Convertible Note that was outstanding immediately prior to the First Effective Time was
cancelled and converted into the right to receive a number of shares of Class A Common Stock equal to (i) all of the outstanding principal
and interest in respect of such Subordinated Convertible Note divided by the Subordinated Convertible Note Conversion Price in respect
of such Subordinated Convertible Note, multiplied by (ii) the Exchange Ratio. In connection with the Forbearance Agreement and amended
and restated Senior Convertible Notes, each Senior Convertible Note remained outstanding following the Closing (to be convertible at
CP BF’s option into shares of Class A Common Stock after the Merger).
On
December 14, 2023, Legacy Banzai entered into the Forbearance Amendment, pursuant to which CP BF agreed not to exercise any right or
remedy under the Loan Agreement with CP BF entered into on February 19, 2021 (the “CP BF Loan Agreement”), including its
right to accelerate the aggregate amount outstanding under the CP BF Loan Agreement, until (a) the date that is the earlier of the date
that all Yorkville Promissory Notes to be issued under the SEPA (See below for further detail) have been repaid (and/or converted) in
full, or (b) six months after the Closing of the Merger. See below and Note 14 - Debt for further details.
Material
Agreements Related to the Close of the Merger
In
connection with the close of the merger, the following material agreements and transactions were entered into by 7GC and Legacy Banzai:
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Sponsor
Forfeiture Agreement - On August 4, 2023, 7GC, 7GC & Co. Holdings LLC, a Delaware limited liability company (the “Sponsor”),
and Legacy Banzai entered into a Sponsor Forfeiture Agreement (the “Sponsor Forfeiture Agreement”), pursuant to which,
contingent upon Closing, the Sponsor agreed to forfeit all 7,350,000 of its private placement warrants to purchase shares of 7GC
Class A Common Stock, exercisable at $11.50 per share (the “Forfeited Private Placement Warrants”), acquired by the Sponsor
in December 2020 in connection with the IPO. At the Closing, the Forfeited Private Placement Warrants were transferred from the Sponsor
to 7GC for cancellation in exchange for no consideration, and 7GC retired and cancelled all of the Forfeited Private Placement Warrants. |
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Yorkville
Standby Equity Purchase Agreement (“SEPA”) - On December 14, 2023, the Company entered into the Original SEPA with
Legacy Banzai and Yorkville. Additionally, Yorkville agreed to advance to the Company the principal amount of $3.5 million, which
was subsequently increased pursuant to the SEPA Supplemental Agreement by $1.0 million to an aggregate principal amount of $4.5 million
(the “Pre-Paid Advance”). The Pre-Paid Advance is evidenced by promissory notes convertible into shares of Class A Common
Stock (each, a “Yorkville Promissory Note”). See Note 14 - Debt and Note 18 - Equity for further details
of these transactions. |
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Share
Transfer Agreements and Alco Promissory Notes - In connection with the Merger, Legacy Banzai issued the Alco September 2023 Promissory
Note and the Alco November 2023 Promissory Note and entered into certain share transfer agreements (the “Prior Transfer Agreements”),
dated October 3, 2023 and November 16, 2023, with Alco, 7GC and Sponsor, pursuant to which the parties agreed, concurrently with
and contingent upon the Closing, that the Sponsor would forfeit 150,000 and 75,000 shares of 7GC Class B Common Stock and the Company
would issue to Alco 150,000 and 75,000 shares of Class A Common Stock. |
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On
December 13, 2023, in connection with the Merger, 7GC and the Sponsor entered into a share transfer agreement (the “December
Share Transfer Agreement”) with Alco, pursuant to which for each $10.00 in principal borrowed under the New Alco Note, the
Sponsor agreed to forfeit three shares of 7GC Class B Common Stock held by the Sponsor, in exchange for the right of Alco to receive
three shares of Class A Common Stock, in each case, at (and contingent upon) the Closing, with such forfeited and issued shares capped
at an amount equal to 600,000. Additionally, in connection with the December Share Transfer Agreement, (a) Legacy Banzai issued the
New Alco Note to Alco in the aggregate principal amount of $2.0 million, which bears interest at a rate of 8% per annum and will
be due and payable on December 31, 2024, and (b) Legacy Banzai, Alco, and CP BF Lending, LLC agreed to amend that certain Subordinated
Promissory Note issued by Legacy Banzai to Alco on September 13, 2023 in the aggregate principal amount of $1.5 million to extend
the maturity date from January 10, 2024 to September 30, 2024 (the “Alco Note Amendment”). Immediately prior to, and
substantially concurrently with, the Closing, (i) the Sponsor surrendered and forfeited to 7GC for no consideration an aggregate
of 825,000 shares of 7GC Class B Common Stock and (ii) the Company issued to Alco 825,000 shares of Class A Common Stock pursuant
to the Share Transfer Agreements. See Note 14 - Debt for further details of these transactions. |
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GEM
Agreements - On May 27, 2022, Legacy Banzai entered into a certain share purchase agreement with GEM (the “GEM Agreement”),
pursuant to which, among other things, upon the terms and subject to the conditions of the GEM Agreement, GEM was to purchase from
Legacy Banzai (or its successor per the GEM Agreement) up to the number of duly authorized, validly issued, fully paid and non-assessable
shares of common stock having an aggregate value of $100,000,000. Further, in terms of the GEM Agreement, on the date of public listing
of Legacy Banzai, Legacy Banzai was required to make and execute a warrant granting GEM the right to purchase up to the number of
common shares of Legacy Banzai that would be equal to 3% of the total equity interests, calculated on a fully diluted basis, and
at an exercise price per share equal to the lesser of (i) the public offering price or closing bid price on the date of public listing
or (ii) the quotient obtained by dividing $650 million by the total number of equity interests. |
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On
December 13, 2023, Legacy Banzai and GEM entered into that certain binding term sheet (the “GEM Term Sheet”) and, on
December 14, 2023, a letter agreement (the “GEM Letter”), agreeing to terminate in its entirety the GEM Agreement by
and between Legacy Banzai and GEM, other than with respect to the Company’s obligation (as the post-combination company in
the Merger) to issue to GEM a warrant (the “GEM Warrant”) granting the right to purchase Class A Common Stock in an amount
equal to 3% of the total number of equity interests outstanding as of the Closing, calculated on a fully diluted basis, at an exercise
price on the terms and conditions set forth therein, in exchange for issuance of a $2.0 million convertible debenture with a five-year
maturity and 0% coupon, with the documentation of such debenture to be agreed upon and finalized promptly following the Closing.
See Note 15 - Warrant Liabilities for further details of these transactions, and Note 21 - Subsequent Events for details
related to the subsequent settlement agreement entered into with GEM, in 2024. |
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7GC
Promissory Notes - On December 12, 2023, in connection with the Merger, the Sponsor came to a non-binding agreement with 7GC
to amend the optional conversion provision of the 7GC Promissory Notes, consisting of (i) the 7GC 2022 Promissory Note, issued by
7GC to the Sponsor, pursuant to which 7GC may borrow up to $2,300,000 from the Sponsor, and (ii) the 2023 Promissory Note, to provide
that the Sponsor 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 days after the Closing at a conversion price equal to the average daily VWAP of the Class A Common Stock for
the 30 trading days following the Closing (equal to approximately $2.86 per share). See Note 14 - Debt and Note 6 - Related Party
Transactions for further details of this transaction, and Note 21 - Subsequent Events for details related to the subsequent
conversion of the 7GC Promissory Notes, in 2024. |
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CP
BF Senior Convertible Notes - On February 19, 2021, Legacy Banzai issued the First Senior Convertible Note in an aggregate principal
amount of $1,500,000 to CP BF in connection with the Loan Agreement. On October 10, 2022, the Loan Agreement was amended, whereby
CP BF waived payment by Banzai of four months of cash interest with respect to the term loan under the Loan Agreement in replacement
for the Second Senior Convertible Note in an aggregate principal amount of $321,345. On August 24, 2023, Legacy Banzai and CP BF
entered into the Forbearance Agreement, in connection with which they agreed to amend and restate the Senior Convertible Notes so
that they would not convert at the Closing of the Merger as a “Change of Control.” After Closing, the Senior Convertible
Notes became convertible, at CP BF’s option on 5 days’ written notice to the Company, into shares of Class A Common Stock.
The Senior Convertible Notes provide that, at all times after a SPAC Transaction (as defined in the Senior Convertible Notes), the
conversion price for any such conversion is approximately $4.35 per share (subject to adjustment as set forth therein). See Note
14 - Debt for further details of this transaction. |
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● |
Cantor
Fee Agreement - On November 8, 2023, Cantor Fitzgerald & Co. (“Cantor”) and 7GC entered into the Fee Reduction
Agreement, pursuant to which Cantor agreed to forfeit $4,050,000 of the aggregate of $8,050,000 of deferred underwriting fees payable
(“Original Deferred Fee”), with the remaining $4,000,000 payable by 7GC to Cantor (the “Reduced Deferred Fee”)
following the Closing of the Merger. Pursuant to the Fee Reduction Agreement, the Reduced Deferred Fee was payable in the form of
the Cantor Fee Shares, calculated as a number of shares of Class A Common Stock equal to the greater of (a) 400,000 or (b) the quotient
obtained by dividing (x) the Reduced Deferred Fee by (y) the dollar volume-weighted average price for the shares of Class A Common
Stock on Nasdaq, over the five trading days immediately preceding the date of filing of this resale registration statement on Form
S-1, as reported by Bloomberg through its “AQR” function (as adjusted for any stock dividend, split, combination, recapitalization
or other similar transaction). 7GC and Cantor amended the Fee Reduction Agreement on December 28, 2023 to provide that the Reduced
Deferred Fee was payable in the form of 1,113,927 shares of Class A Common Stock and to provide that Cantor is subject to a 12-month
lock-up with respect to the Cantor Fee Shares. On December 28, 2023, the Company issued the Cantor Fee Shares to Cantor, covering
the Reduced Deferred Fee in accordance with the Fee Reduction Agreement. Pursuant to the Fee Reduction Agreement, the Company also
agreed to use its reasonable best efforts to have the registration statement declared effective by the SEC by the 120th calendar
day after December 29, 2023, the date of the initial filing thereof, and to maintain the effectiveness of such registration statement
until the earliest to occur of (i) the second anniversary of the date of the effectiveness thereof, (ii) the Cantor Fee Shares shall
have been sold, transferred, disposed of or exchanged by Cantor, and (iii) the Cantor Fee Shares issued to Cantor may be sold without
registration pursuant to Rule 144 under the Securities Act (such obligations, the “Cantor Registration Rights Obligations”).
See Note 17 - Commitments and Contingencies for further details of this transaction. |
Upon
the closing of the merger, the Company’s certificate of incorporation was amended and restated to, among other things, increase
the total number of authorized shares of all classes of capital stock to 350,000,000 shares, consisting of 250,000,000 shares of Class
A Common Stock, 25,000,000 shares of Class B Common Stock, and 75,000,000 shares of Preferred Stock, all having a par value of $0.0001
per share. As of December 31, 2023, there were 16,019,256 shares of Common Stock and no shares of Preferred Stock outstanding.
Reconciliation
of the Merger to the Company’s Consolidated Financial Statements
The
following table reconciles the elements of the Merger to the consolidated statements of cash flows:
| | |
Recapitalization | |
| Deferred underwriting fees assumed | |
$ | 4,000,000 | |
| Convertible notes payable assumed | |
| 2,550,000 | |
| Warrant liabilities assumed | |
| 460,000 | |
| Less: effect on equity | |
| (14,625,462 | ) |
| Effect of reverse recapitalization, net of transaction costs | |
$ | (7,615,462 | ) |
The
following table reconciles the elements of the Merger to the consolidated statements of changes in stockholders’ deficit:
| | |
Recapitalization | |
| Cash | |
$ | 197,166 | |
| Non-cash net working capital assumed | |
| (7,812,628 | ) |
| Deferred underwriting fees assumed | |
| (4,000,000 | ) |
| Convertible notes payable assumed | |
| (2,550,000 | ) |
| Fair value of assumed warrant liabilities | |
| (460,000 | ) |
| Transaction costs | |
| (3,233,097 | ) |
| Effect of reverse recapitalization | |
$ | (17,858,559 | ) |
The
effect of the reverse recapitalization above differs from the effect of equity on the consolidated statements of cash flows, due to the
transaction costs.
Effect
of Merger on Class A and Class B Common Stock
Upon
the Close of the Merger, holders of Legacy Banzai common stock and Series A preferred stock were converted into shares of common stock
in an amount determined by application of the Exchange Ratio. As noted above, the equity structure has been restated in all comparable
periods, prior to the Merger, up to December 14, 2023, to reflect the number of shares of the Company’s common stock, $0.0001 par
value per share, issued to Legacy Banzai’s stockholders in connection with the Merger. At January 1, 2022, the Company had 8,276,972
shares of common stock issued and outstanding, consisting of 1,956,972 shares of Class A common stock and 6,320,000 shares of Class B
common stock. Additionally, the company had 2,328,823 shares of Series A preferred stock outstanding. The retrospective impact of the
recapitalization to the Class A common stock and Class B common stock was a decrease of 754,119 and 2,435,327, respectively. The retrospective
impact of the Series A preferred stock outstanding was a decrease of 897,380 shares. The total impact to common stock was 1,758,003 which
was determined by the decrease in the Class A and Class B common stock of 754,119 and 2,435,327, respectively, offset by the increase
of reclassification of the Series A preferred stock into common stock of 1,431,443.
The
total shares of common stock issued and outstanding at December 31, 2022, after giving effect to the recapitalization and activity during
the year, was 6,445,599, consisting of 2,560,926 shares of Class A common stock and 3,884,673 shares of Class B common stock. At December
31, 2023, the Company had 16,019,256 shares of common stock issued and outstanding, consisting of 13,708,122 shares of Class A common
stock and 2,311,134 shares of Class B common stock.
5.
Asset Disposal
Disposal
of High Attendance Assets
On
July 1, 2022, the Company sold the assets and liabilities of High Attendance, a subsidiary of the Company, back to its former owner (the
“Buyer”), from whom the assets were originally purchased during the year ended December 31, 2020 pursuant to an Asset Purchase
Agreement. At the time of the sale, the Buyer was employed by and a shareholder of the Company. The sale was accounted for as a nonmonetary
transaction as the Company determined the sale of the High Attendance asset group represents the rescission of the prior acquisition
of these assets in the asset acquisition which occurred during the year ended December 31, 2020.
The
assets and liabilities of High Attendance were exchanged for the cancellation of 81,908 shares of restricted Class A Common Stock of
the Company, par value $0.0001 per share, held by the former owner of High Attendance, and which were previously granted to the Buyer
as consideration for the acquisition of High Attendance during the year ended December 31, 2020. As additional consideration for the
Buyer’s assumption of liabilities relating to the purchased assets of High Attendance, the Company paid $17,500 to the Buyer at
closing. The shares of restricted Class A Common Stock had vesting terms over 24 months of continuous service from the date of the initial
purchase during the year ended December 31, 2020.
In
accordance with the provisions of ASC 845 Nonmonetary Transactions, the Company recorded the cancellation of 81,908 shares of
restricted Class A Common Stock as a reduction of additional paid in capital, and no gain or loss was recorded in this transaction.
6.
Related Party Transactions
7GC
Related Party Promissory Notes
On
December 21, 2022, 7GC issued an unsecured promissory note (the “December 2022 7GC Note”) to the Sponsor, 7GC & Co. Holdings
LLC, which provides for borrowings from time to time of up to an aggregate of $2,300,000. Up to $500,000 of the December 2022 7GC Note
may be drawn and used for Working Capital Drawdowns and up to $1,800,000 of the December 2022 7GC Note may be drawn and used for Extension
Drawdowns. 7GC borrowed $1,100,000 under the December 2022 7GC Note on December 21, 2022, $900,000 of which was an Extension Drawdown
and $200,000 of which was a Working Capital Drawdown. The December 2022 7GC Note does not bear interest and is repayable in full upon
the earlier of the consummation of a Business Combination or the date 7GC liquidates the Trust Account upon the failure to consummate
a Business Combination within the requisite time period. Upon the consummation of a Business Combination, the Sponsor shall have the
option, but not the obligation, to convert the principal balance of the December 2022 7GC Note, in whole or in part, into that number
of shares of Class A common stock, $0.0001 par value per share, of 7GC (the “Converted Shares”) equal to the principal amount
of the December 2022 7GC Note so converted divided by $10.00. The terms of the Converted Shares, if issued, will be identical to the
terms of 7GC’s Public Shares, except that the Converted Shares (x) will not be registered under the Securities Act, and (y) will
be subject to the terms of that certain letter agreement, dated as of December 22, 2020, among 7GC, the Sponsor, and certain other parties
thereto. The December 2022 7GC Note is subject to customary events of default, the occurrence of which automatically trigger the unpaid
principal balance of the December 2022 7GC Note and all other sums payable with regard to the December 2022 7GC Note becoming immediately
due and payable. On February 9, 2023, 7GC borrowed an additional $177,500 under the December 2022 7GC Note which was a Working Capital
Drawdown. During the three months ended June 30, 2023 an additional $122,500 was borrowed under the Working Capital Drawdown, for a total
outstanding of $500,000. During the three months ended June 30, 2023 an additional $900,000 was borrowed as an Extensions drawdown, for
a total outstanding of $1,800,000.
On
October 3, 2023, 7GC issued an additional unsecured promissory note (the “October 2023 7GC Note”, together with the December
2022 7GC Note, the “ 7GC Promissory Notes”) to the Sponsor, which provides for borrowings from time to time of up to an aggregate
of $500,000 for working capital purposes. The October 2023 7GC Note does not bear interest and is repayable in full upon the earlier
of the consummation of a Business Combination or the date 7GC liquidates the Trust Account established in connection with 7GC’s
Initial Public Offering upon the failure of 7GC to consummate a Business Combination within the requisite time period. Upon the consummation
of a Business Combination, the Sponsor shall have the option, but not the obligation, to convert the principal balance of the October
2023 7GC Note, in whole or in part, into that number of the Converted Shares, equal to the principal amount of the October 2023 7GC Note
so converted divided by $10.00.
Upon
Closing of the Merger, Banzai assumed the 7GC Promissory Notes which remained outstanding as of December 31, 2023. As of December 31,
2023, $2,540,091 was outstanding on the loans. See Note 14 - Debt for further details of these transactions and associated balances
and Note 21 - Subsequent Events for details related to the subsequent conversion of the 7GC Promissory Notes, in 2024.
Due
to Related Party of 7GC
During
the year ended December 31, 2023, the Sponsor paid certain expenses on behalf of 7GC. Upon Closing of the Merger, Banzai assumed the
$67,118 liability. As of December 31, 2023, the entire balance remained outstanding and is included within due to related party under
current liabilities on the accompanying consolidated balance sheet.
Legacy
Banzai Related Party Transactions
During
2022 and 2023, Legacy Banzai issued Promissory Notes and Convertible Notes to related parties. See Note 14 - Debt for further
details related to these transactions and associated balances. Legacy Banzai also entered into Simple Agreements for Future Equity (SAFE)
arrangements with related parties during 2021. See Note 16 - Simple Agreements for Future Equity for further details of these
transactions and associated balances.
7.
Revenue
Under
ASC 606, revenue is recognized throughout the life of the executed agreement. The Company measures revenue based on considerations specified
in terms and conditions agreed to by a customer. Furthermore, the Company recognizes revenue when a performance obligation is satisfied
by transferring control of the service to the customer, which occurs over time.
The
Company’s services include providing end-to-end video engagement solutions that provide a fast, intuitive and powerful platform
of marketing tools that create more intent-driven videos, webinars, virtual events and other digital and in-person marketing campaigns.
As
noted within the SOW’s and invoices, agreements range from monthly to annual and Banzai generally provides for net 30-day payment
terms with the payment made directly through check or electronic means.
Banzai’s
Management believes its exposure to credit risk is sufficiently mitigated by collection through credit card sales or direct payment from
established clients.
The
Company follows the provisions of ASC 606, under which the Company recognizes revenue when the customer obtains control of promised goods
or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The
Company recognize revenues following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify
the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance
obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation. The Company only
applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange
for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope
of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations
and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction
price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add,
and other taxes collected on behalf of third parties are excluded from revenue.
Nature
of Products and Services
The
following is a description of the Company’s products and services from which the Company generates revenue, as well as the nature,
timing of satisfaction of performance obligations, and significant payment terms for each, as applicable:
Demio
The
Demio product is a full-stack technology that marketers can leverage live and automated for video marketing content such as webinars
and virtual events. Software products are provided to Demio customers for a range of attendees and hosts within a specified time frame
at a specified established price. The performance obligations identified include access to the suite and platform, within the parameters
established, and within the standards established in the agreement. Contracts include a standalone selling price for the number of webinars
and hosts as a performance obligation. There are no financing components and payments are typically net 30 of date or receipt of invoice.
It is nearly 100% certain that a significant revenue reversal will not occur. The Company recognizes revenue for its sale of Demio services
over time which corresponds with the period of time that access to the service is provided.
Reach
While
the Reach product is in the process of being phased out, the Company continues to generate revenues from the product. The Reach product
provides a multi-channel targeted audience acquisition (via Reach) to bolster engagement and Return on Investment (ROI). Banzai enables
marketing teams to create winning webinars and virtual and in-person events that increase marketing efficiency and drive additional revenue.
Software products are provided to Reach customers for a range of simultaneous events and registrations within a specified time frame
at a specified established price. The performance obligations identified include access to the suite and platform, within the parameters
established, and within the standards established in the agreement. Contracts include a standalone selling price for the number of simultaneous
published events as a performance obligation. There are no financing components and payments are typically net 30 of date or receipt
of invoice. It is nearly 100% certain that a significant revenue reversal will not occur. The Company recognizes revenue for its sale
of Reach services over time which corresponds with the timing the service is rendered.
Service
Trade Revenue
The
Company has one customer for which the customer is also a vendor. For this one customer, the Company exchanged services for approximately
$375,000 and $293,500, during the years ended December 31, 2023 and 2022, respectively.
Disaggregation
of Revenue
The
following table summarizes revenue by region based on the billing address of customers:
| | |
Year Ended December 31, | |
| | |
2023 | | |
2022 | |
| | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | |
| Americas | |
$ | 2,677,050 | | |
| 59 | % | |
$ | 3,307,129 | | |
| 62 | % |
| Europe, Middle East and Africa (EMEA) | |
| 1,511,886 | | |
| 33 | % | |
| 1,588,539 | | |
| 30 | % |
| Asia Pacific | |
| 372,364 | | |
| 8 | % | |
| 437,311 | | |
| 8 | % |
| Total | |
$ | 4,561,300 | | |
| 100 | % | |
$ | 5,332,979 | | |
| 100 | % |
Contract
Balances
Accounts
Receivable, Net
A
receivable is recorded when an unconditional right to invoice and receive payment exists, such that only the passage of time is required
before payment of consideration is due. The Company receives payments from customers based upon agreed-upon contractual terms, typically
within 30 days of invoicing the customer. The timing of revenue recognition may differ from the timing of invoicing to customers.
| | |
For The Years Ended December 31, | |
| | |
2023 | | |
2022 | |
| | |
Opening Balance | | |
Closing Balance | | |
Opening Balance | | |
Closing Balance | |
| Accounts receivable, net | |
$ | 68,416 | | |
$ | 105,049 | | |
$ | 74,727 | | |
$ | 68,416 | |
Costs
to Obtain a Contract
Sales
commissions, the principal costs incurred to obtain a contract, are earned when the contract is executed. Management has capitalized
these costs and amortized the commission expense over time in accordance with the related contract’s term. For the years ended
December 31, 2023 and 2022, commission expenses were $299,450 and $434,446, respectively. Capitalized commissions at the years ended
December 31, 2023 and 2022 were $51,472 and $69,737, respectively, and are included within Prepaid expenses and other current assets
on the Consolidated Balance Sheets.
The
following summarizes the Costs to obtain a contract activity during the years ended December 31, 2023 and 2022:
| Balance - December 31, 2021 | |
$ | 90,662 | |
| Commissions Incurred | |
| 343,003 | |
| Deferred Commissions Recognized | |
| (363,928 | ) |
| Balance - December 31, 2022 | |
| 69,737 | |
| Commissions Incurred | |
| 242,810 | |
| Deferred Commissions Recognized | |
| (261,075 | ) |
| Balance - December 31, 2023 | |
$ | 51,472 | |
8.
Fair Value Measurements
The
fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management
as of and during the years ended December 31, 2023 and 2022. The carrying amount of accounts payable approximated fair value as they
are short term in nature.
Fair
Value on a Non-recurring Basis
The
fair value of non-financial assets measured at fair value on a non-recurring basis, classified as Level 3 in the fair value hierarchy,
is determined based on using market-based approaches, or estimates of discounted expected future cash flows.
Fair
Value on a Recurring Basis
The
Company follows the guidance in ASC 820 Fair Value Measurements and Disclosures for its financial assets and liabilities that
are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and
reported at fair value at least annually. The estimated fair value of the Public Warrants liabilities represent Level 2 measurements.
The estimated fair value of the convertible notes bifurcated embedded derivative liabilities, GEM warrant liabilities, Yorkville convertible
note, and SAFE represent Level 3 measurements.
The
following table presents information about the Company’s financial instruments that are measured at fair value on a recurring basis
at December 31, 2023 and 2022, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such
fair value:
| Description | |
Level | |
December 31,
2023 | | |
December 31,
2022 | |
| Liabilities: | |
| |
| | | |
| | |
| Warrant liabilities - public | |
2 | |
$ | 575,000 | | |
$ | - | |
| GEM warrant liabilities | |
3 | |
$ | 641,000 | | |
$ | - | |
| Yorkville convertible note | |
3 | |
$ | 1,766,000 | | |
$ | - | |
| Bifurcated embedded derivative liabilities | |
3 | |
$ | - | | |
$ | 845,473 | |
| Bifurcated embedded derivative liabilities - related party | |
3 | |
$ | - | | |
$ | 1,936,827 | |
| SAFE | |
3 | |
$ | - | | |
$ | 663,804 | |
| SAFE - related party | |
3 | |
$ | - | | |
$ | 8,802,196 | |
Warrant
Liability - Public Warrants
The
Company assumed 11,500,000 Public Warrants in the Merger which remained outstanding as of December 31, 2023. The fair values of the Public
Warrants are measured based on the listed market price of such warrants through December 31, 2023. See Note 15 - Warrant Liabilities
for further details.
For
the period from December 14, 2023 through December 31, 2023, the Company recognized a benefit of approximately $115,000 resulting from
changes in the fair value of the derivative warrant liabilities, presented as change in fair value of warrant liabilities in the accompanying
condensed consolidated statements of operations.
The
estimated fair values of the Public Warrants prior to being separately listed and traded, were initially determined using Level 3 inputs.
Inherent in a Monte Carlo simulation are assumptions related to expected stock-price volatility, expected life, risk-free interest rate
and dividend yield. The Company estimates the volatility of its common stock warrants based on implied volatility from the Company’s
traded warrants and from historical volatility of select peer company’s common stock that matches the expected remaining life of
the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar
to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual
term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.
The
following tables set forth a summary of the changes in the fair value of the Public Warrants liability which are Level 2 financial liabilities
that are measured at fair value on a recurring basis:
| | |
Fair Value | |
| Balance at December 31, 2022 | |
$ | - | |
| Merger date assumption of public warrants | |
| 460,000 | |
| Change in fair value | |
| 115,000 | |
| Balance at December 31, 2023 | |
$ | 575,000 | |
Warrant
Liability - GEM Warrants
The
measurement of fair value of the GEM Warrants were determined utilizing a Monte Carlo simulation considering all relevant assumptions
current at the date of issuance (i.e., share price, exercise price, term, volatility, risk-free rate, probability of dilutive term of
three years, and expected time to conversion). Refer to Note 15 - Warrant Liabilities for further details.
As
of December 31, 2023, the Company recognized a benefit (loss) of approximately $1,807,000, resulting from changes in the fair value of
the derivative warrant liabilities, presented as change in fair value of warrant liabilities in the accompanying condensed consolidated
statements of operations.
The
following tables set forth a summary of the changes in the fair value of the GEM Warrants liability which are Level 3 financial liabilities
that are measured at fair value on a recurring basis:
| | |
Fair Value | |
| Balance at December 31, 2022 | |
$ | - | |
| Issuance of GEM warrants | |
| 2,448,000 | |
| Change in fair value | |
| (1,807,000 | ) |
| Balance at December 31, 2023 | |
$ | 641,000 | |
Yorkville
Convertible Note
The
measurement of fair value of the Yorkville convertible note were determined utilizing a Monte Carlo simulation considering all relevant
assumptions current at the date of issuance (i.e., share price, term, volatility, risk-free rate, and probability of optional redemption).
Refer to Note 14 - Debt for further details.
Issuance
of yorkville convertible note
As
of December 31, 2023, the Company recognized a benefit (loss) of approximately $(34,000) resulting from changes in the fair value of
the Yorkville convertible note, presented as change in fair value of convertible promissory notes in the accompanying condensed consolidated
statements of operations.
The
following tables set forth a summary of the changes in the fair value of the Yorkville convertible note which is a Level 3 financial
liability measured at fair value on a recurring basis:
| | |
Fair Value | |
| Balance at December 31, 2022 | |
$ | - | |
| Issuance of yorkville convertible note | |
| 1,800,000 | |
| Change in fair value | |
| (34,000 | ) |
| Balance at December 31, 2023 | |
$ | 1,766,000 | |
Bifurcated
Embedded Derivative Liability
The
fair value of the embedded put option was determined using a Black Scholes option pricing model. Estimating fair values of embedded conversion
features requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the
instrument with related changes in internal and external market factors. Because the embedded conversion features are initially and subsequently
carried at fair values, the Company’s consolidated statements of operations will reflect the volatility in these estimate and assumption
changes. On December 14, 2023, all outstanding principal and accrued interest, including the carrying value of any related embedded derivative,
related to the Related Party Convertible Notes and Third Party Convertible Notes converted into the Company’s Class A Common Stock
pursuant to the close of the Merger Agreement. Refer to Note 14 - Debt for further details.
The
following tables set forth a summary of the changes in the fair value of the bifurcated embedded derivative liability, related to the
Related Party and Third Party Convertible Debt, respectively, which are Level 3 financial liabilities that are measured at fair value
on a recurring basis:
| | |
Fair Value | |
| | |
Related Party | | |
Third Party | |
| Balance at December 31, 2021 | |
$ | — | | |
$ | 4,000 | |
| Issuance of convertible notes with bifurcated embedded derivatives | |
| 1,398,595 | | |
| 586,405 | |
| Issuance of CP BF convertible notes with bifurcated embedded derivative | |
| 1,375 | | |
| 625 | |
| Extinguishment of Old Alco Note derivative | |
| (70,000 | ) | |
| — | |
| Change in fair value | |
| 606,857 | | |
| 254,443 | |
| Balance at December 31, 2022 | |
| 1,936,827 | | |
| 845,473 | |
| Issuance of convertible notes with bifurcated embedded derivative | |
| 1,126,451 | | |
| 559,390 | |
| Change in fair value | |
| (3,063,278 | ) | |
| (1,404,863 | ) |
| Balance at December 31, 2023 | |
$ | — | | |
$ | — | |
Simple
Agreements for Future Equity (SAFE)
During
2021, the Company entered into Simple Agreements for Future Equity (SAFE) arrangements (the “SAFEs”). In the event of an
Equity Financing (as defined in the SAFEs agreements), the SAFEs will automatically convert into shares of the Company’s common
or preferred stock at a discount of 15% of the per share price of the shares offered in the Equity Financing (the “Discount Price”).
In the event of a Liquidity Event, SPAC Transaction or Dissolution Event (all terms as defined in the SAFEs agreements), the holders
of the SAFEs will be entitled to receive cash or shares of the Company’s common or preferred stock. The number of shares required
to be issued to settle the SAFEs at the equity financing is variable, because that number will be determined by the discounted fair value
of the Company’s equity shares on the date of settlement (i.e., Discount Price). Regardless of the fair value of the shares on
the date of settlement, the holder will receive a fixed monetary value based on the Purchase Amount of the SAFE. If there is a Liquidity
Event or SPAC Transaction before the settlement or termination of the SAFEs, the SAFEs will automatically be entitled to receive a portion
of Proceeds, due and payable immediately prior to, or concurrent with, the consummation of such Liquidity Event or SPAC Transaction,
equal to the greater of (i) two times (2x) the Purchase Amount (the “Cash-Out Amount”) or (ii) the amount payable on the
number of shares of Common Stock equal to the Purchase Amount divided by the Liquidity Price (as defined in the SAFEs agreements). Refer
to Note 16 - Simple Agreements for Future Equity for additional information related to the Company’s SAFEs.
The
fair value of the SAFEs was determined using a scenario-based method for the pre-modification SAFE’s and a Monte Carlo simulation
method for the post-modification SAFEs. The value of the SAFE liability as of December 31, 2023 and 2022 is based on significant inputs
not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the SAFEs on
the date of issuance was determined to be $3,836,000. On December 14, 2023, all outstanding principal related to the Third Party SAFEs
and Related Party SAFEs converted into the Company’s Class A Common Stock pursuant to the close of the Merger Agreement. Refer
to Note 16 - Simple Agreements for Future Equity for further details.
The
following tables set forth a summary of the activity of the Related Party and Third Party SAFE liabilities, respectively (See Note
16 - Simple Agreements for Future Equity for further detail), which represents a recurring fair value measurement at the end of each
reporting period:
| | |
Fair Value | |
| | |
Related Party | | |
Third Party | |
| Balance at December 31, 2021 | |
$ | 3,121,591 | | |
$ | 235,409 | |
| Change in fair value | |
| 4,078,431 | | |
| 307,569 | |
| Loss on modification | |
| 1,602,174 | | |
| 120,826 | |
| Balance at December 31, 2022 | |
| 8,802,196 | | |
| 663,804 | |
| Change in fair value | |
| (2,752,430 | ) | |
| (207,570 | ) |
| Conversion of SAFEs | |
| (6,049,766 | ) | |
| (456,234 | ) |
| Balance at December 31, 2023 | |
$ | — | | |
$ | — | |
9.
Property and Equipment
Property
and equipment, net consisted of the following at the dates indicated:
| | |
December 31, | |
| | |
2023 | | |
2022 | |
| Computers and equipment | |
$ | 30,867 | | |
$ | 30,866 | |
| Less: accumulated depreciation | |
| (26,223 | ) | |
| (19,063 | ) |
| Property and equipment, net | |
$ | 4,644 | | |
$ | 11,803 | |
Depreciation
expense for the years ended December 31, 2023 and 2022 was $7,160 and $9,588, respectively.
10.
Prepaid Expenses and Other Current Assets
Prepaid
expenses and other current assets consisted of the following at the dates indicated:
| | |
December 31, | |
| | |
2023 | | |
2022 | |
| Prepaid expenses and other current assets: | |
| | | |
| | |
| Service Trade | |
$ | 364,384 | | |
$ | 97,875 | |
| Prepaid consulting costs | |
| 120,332 | | |
| 3,124 | |
| Prepaid data license and subscription costs | |
| 53,124 | | |
| 40,000 | |
| Prepaid commissions | |
| 51,472 | | |
| 69,737 | |
| Prepaid software costs | |
| 29,887 | | |
| 10,255 | |
| Prepaid merchant fees | |
| 26,224 | | |
| 26,401 | |
| Prepaid insurance costs | |
| 17,661 | | |
| 15,430 | |
| Prepaid advertising and marketing costs | |
| 11,074 | | |
| 32,178 | |
| Other current assets | |
| 66,997 | | |
| 38,507 | |
| Total prepaid expenses and other current assets | |
$ | 741,155 | | |
$ | 333,507 | |
11.
Goodwill
The
following summarizes our goodwill activity during the years ended December 31, 2023 and 2022:
| | |
Total | |
| Goodwill - December 31, 2021 | |
$ | 2,171,526 | |
| Impairment | |
| - | |
| Goodwill - December 31, 2022 | |
| 2,171,526 | |
| Impairment | |
| - | |
| Goodwill - December 31, 2023 | |
$ | 2,171,526 | |
As
the Company has one operating segment which was deemed to be its only reporting unit, goodwill is allocated to that one reporting unit
and the carrying value is determined based on the equity of the entire company for purposes of evaluating goodwill impairment. The last
quantitative goodwill impairment analysis was performed on December 31, 2022 where the Company determined that the carrying value of
the Company’s reporting unit was negative. As of December 31, 2023, the date of the last goodwill impairment analysis, the reporting
unit had a negative carrying value. No impairment of goodwill was identified as of December 31, 2023 or 2022, respectively.
12.
Accrued and Other Current Liabilities
Accrued
and other current liabilities consisted of the following at the dates indicated:
| | |
December 31,
2023 | | |
December 31,
2022 | |
| Accrued and other current liabilities: | |
| | | |
| | |
| Accrued legal costs | |
$ | 2,694,439 | | |
$ | 31,355 | |
| Accrued accounting and professional services costs | |
| 1,511,889 | | |
| 94,573 | |
| Sales tax payable | |
| 314,873 | | |
| 230,617 | |
| Excise tax payable | |
| 223,717 | | |
| — | |
| Accrued payroll and benefit costs | |
| 185,504 | | |
| 95,947 | |
| Deposits | |
| 54,102 | | |
| — | |
| Accrued streaming service costs | |
| 37,765 | | |
| — | |
| Accrued subscription costs | |
| 22,110 | | |
| 28,774 | |
| Accrued offering costs | |
| — | | |
| 261,090 | |
| Other current liabilities | |
| 149,841 | | |
| 3,017 | |
| Total accrued and other current liabilities | |
$ | 5,194,240 | | |
$ | 745,373 | |
13.
Deferred Revenue
Deferred
revenue represents amounts that have been collected in advance of revenue recognition and is recognized as revenue when transfer of control
to customers has occurred or services have been provided. The deferred revenue balance does not represent the total contract value of
annual or multi-year, non-cancelable revenue agreements. Differences between the revenue recognized per the below schedule, and the revenue
recognized per the consolidated statement of operations, reflect amounts not recognized through the deferred revenue process, and which
have been determined to be insignificant. For the year ended December 31, 2023, the Company recognized $930,436 in revenue that was included
in the prior year deferred revenue balance.
The
change in deferred revenue was as follows for the periods indicated:
| | |
December 31, | |
| | |
2023 | | |
2022 | |
| Deferred revenue, beginning of period | |
$ | 930,436 | | |
$ | 1,060,040 | |
| Billings | |
| 4,781,924 | | |
| 5,040,665 | |
| Revenue recognized (prior year deferred revenue) | |
| (930,436 | ) | |
| (1,004,697 | ) |
| Revenue recognized (current year deferred revenue) | |
| (3,567,828 | ) | |
| (4,165,572 | ) |
| Deferred revenue, end of period | |
$ | 1,214,096 | | |
$ | 930,436 | |
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
to Alco Investment Company (“Alco”), a related party. Alco held approximately 5% of the issued equity of the Company, through
its ownership of Series A preferred stock. The Old Alco Note bore interest at a rate of 15% per annum until exchanged. The outstanding
principal and accrued interest were due and payable on December 31, 2023 (“Original Maturity Date”), provided that, Alco
could elect to extend the Original Maturity Date up to two times by additional 12-month increments by delivering written notice to the
Company prior to the Original Maturity Date of such election. 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% of the price per share of Equity Financing Securities paid by the other
investors in the Equity Financing, with any resulting fraction of a share rounded to the nearest whole share (with 0.5 being rounded
up) (the “Conversion Option”) or (ii) immediately prior to the closing of an Equity Financing, become due and payable in
cash.
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) 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.
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 debt discount upon issuance of the Old Alco Note. For the year
ended December 31, 2022, interest expense on the Old Alco Note totaled $124,621, comprised of $100,274 of contractual interest and $24,347
for the amortization of the discount. The effective interest rate was 20% prior to the exchange of the Old Alco Note as noted below.
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 (representing
the principal amount plus accrued interest under the Old Alco Note) (the “New Alco Note”). In accordance with ASC 470 Debt,
the Company treated the Old Alco Note as extinguished and recognized a loss on debt extinguishment of $56,653, determined by the sum
of the fair value of the New Alco Note in excess of the carrying value of the Old Alco Note less the bifurcated embedded derivative liability
at the time of the modification.
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 to related parties Alco, Mason Ward and DNX. Between March
and September 2023, the Company issued additional subordinate convertible notes (together with the 2022 Related Party Convertible Notes,
the “Related Party Convertible Notes”) for an aggregate amount of $2,583,000 to related parties Alco, Mason Ward, DNX and
William Bryant. DNX held in excess of 5% of the issued equity of the Company, through its ownership of Series A preferred stock. William
Bryant will become a member of the Board of Directors upon completion of the Merger. The Related 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) at a conversion price equal to the lesser of (i) 80% of the per share price paid
by the cash purchasers of such Qualified Financing Securities (as defined in the agreement) in the Qualified Financing, or (ii) the conversion
price obtained by dividing $50,000,000 by the Fully Diluted Capitalization (as defined in the agreement). If not sooner converted or
prepaid, the Convertible Notes are payable no later than the earlier of (a) the written demand by the holders of a majority-in-interest
of the Notes then outstanding on or after September 1, 2023, (b) consummation of a Liquidity Event (as defined in the agreement), or
(c) the written demand by the Majority Holders (as defined in the agreement) after an Event of Default (as defined in the agreement)
has occurred. In the event of a Liquidity Event (as defined below) while this Note is outstanding, immediately prior to the closing of
such Liquidity Event and in full satisfaction of this Note, an amount equal to the greater of (a) the Outstanding Amount, or (b) two
times (2x) the principal amount of this Note then outstanding shall become immediately due and payable in cash.
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 debt discount upon issuance of the above
described Related Party Convertible Notes, which is comprised of $1,292,777 related to the bifurcated derivative and $18,248 of debt
issuance costs. During the year ended December 31, 2023, the Company recorded a $1,126,451 debt discount upon issuance of additional
Related Party Convertible Notes. For the year ended December 31, 2023, interest expense on the Related Party Convertible Notes totaled
$2,307,013, comprised of $464,071 of contractual interest and $1,842,942 for the amortization of the discount.
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 converted into 1,146,435 shares the Company’s Class A Common Stock pursuant to the close of the Merger
Agreement and application of the exchange ratio.
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 to third-party creditors. Between March and September 2023, the Company issued additional subordinate
convertible notes (together with the 2022 Third Party Convertible Notes, the “Third Party Convertible Notes”) for an aggregate
amount of $1,435,000 to third-party creditors. 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)
at a conversion price equal to the lesser of (i) 80% of the per share price paid by the cash purchasers of such Qualified Financing Securities
(as defined in the agreement) in the Qualified Financing, or (ii) the conversion price obtained by dividing $50,000,000 by the Fully
Diluted Capitalization (as defined in the agreement). If not sooner converted or prepaid, the Convertible Notes are payable no later
than the earlier of (a) the written demand by the holders of a majority-in-interest of the Notes then outstanding on or after September
1, 2023, (b) consummation of a Liquidity Event (as defined in the agreement), or (c) the written demand by the Majority Holders (as defined
in the agreement) after an Event of Default (as defined in the agreement) has occurred. In the event of a Liquidity Event (as defined
below) while this Note is outstanding, immediately prior to the closing of such Liquidity Event and in full satisfaction of this Note,
an amount equal to the greater of (a) the Outstanding Amount, or (b) two times (2x) the principal amount of this Note then outstanding
shall become immediately due and payable in cash.
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 debt discount upon issuance of the Third Party
Convertible Notes, which is comprised of $541,223 related to the bifurcated derivative and $7,648 of debt issuance costs. During the
year ended December 31, 2023, the Company recorded a $559,390 debt discount upon issuance of additional Third Party Convertible Notes.
For the year ended December 31, 2023, interest expense on the Third Party Convertible Notes totaled $1,063,093, comprised of $188,059
of contractual interest and $875,034 for the amortization of the discount.
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 converted into 529,867 shares the Company’s Class A Common Stock pursuant to the close of the Merger
Agreement and application of the exchange ratio.
The
following table presents the Related Party and Third Party Convertible Notes, respectively, as of December 31, 2023:
| | |
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 to Alco Investment Company, a related party. Alco held its ownership of over 10% of the issued equity of the Company,
through its ownership of Series A preferred stock. The Alco August Promissory Note bears interest at a rate of 8% per annum. The outstanding
principal and accrued interest are due and payable on April 29, 2024. The Company recorded a $3,711 debt discount upon issuance of the
Alco August Promissory Note. For the year ended December 31, 2023, interest expense on the Alco August Promissory Note totaled $4,494,
comprised of $4,044 of contractual accrued interest and $450 for the amortization of the discount. As of December 31, 2023, $150,000
of principal and $4,044 of accrued interest is outstanding under the Alco August Promissory Note recorded in note payable - related party
on the balance sheets.
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 to Alco Investment Company, a related party. The Alco September Promissory Note bears interest at
a rate of 8% per annum. The outstanding principal and accrued interest are due and payable on January 10, 2024. The Company recorded
$8,588 of debt issuance costs and a $638,808 debt discount upon issuance of the Alco September Promissory Note, relating to the share
transfer agreements, see below. For the year ended December 31, 2023, interest expense on the Alco September Promissory Note totaled
$478,815, comprised of $30,575 of contractual accrued interest and $448,240 for the amortization of the discount. As of December 31,
2023, $1,500,000 of principal and $30,575 of accrued interest is outstanding under the Alco September Promissory Note recorded in note
payable - related party on the balance sheets.
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 $10.00 in principal
borrowed under the Alco September Promissory Note, the Sponsor agreed to forfeit one share of 7GC Class B Common Stock held by the Sponsor,
in exchange for the right of Alco to receive one New Banzai Class A Share, in each case, at (and contingent upon) the Closing, with such
forfeited and issued shares capped at an amount equal to 150,000. Pursuant to the Alco October Share Transfer Agreement, the shares are
subject to an 180-day lock-up period upon issuance of the shares.
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 to Alco Investment Company, a related party. The Alco November Promissory Note bears interest at a rate of 8%
per annum. The outstanding principal and accrued interest are due and payable on April 13, 2024. The Company recorded a $363,905 debt
discount upon issuance of the Alco November Promissory Note relating to the share transfer agreements, see below. For the year ended
December 31, 2023, interest expense on the Alco November Promissory Note totaled $94,005, comprised of $7,397 of contractual accrued
interest and $86,608 for the amortization of the discount. As of December 31, 2023, $750,000 of principal and $7,397 of accrued interest
is outstanding under the Alco November Promissory Note recorded in note payable - related party on the consolidated balance sheets.
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 $10.00 in principal
borrowed under the Alco November Promissory Note, the Sponsor agreed to forfeit one share of 7GC Class B Common Stock held by the Sponsor,
in exchange for the right of Alco to receive one New Banzai Class A Share, in each case, at (and contingent upon) the Closing, with such
forfeited and issued shares capped at an amount equal to 75,000. Pursuant to the November 2023 Transfer Agreement, the shares are subject
to an 180-day lock-up period upon issuance of the shares.
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 to Alco Investment Company, a related party. The Alco December Promissory Note bears interest at a rate of
8% per annum. The outstanding principal and accrued interest are due and payable on December 31, 2024. The Company recorded a $1,496,252
debt discount upon issuance of the Alco December Promissory Note, relating to the share transfer agreements, see below. For the year
ended December 31, 2023, interest expense on the Alco December Promissory Note totaled $39,087, comprised of $7,890 of contractual accrued
interest and $31,197 for the amortization of the discount. As of December 31, 2023, $2,000,000 of principal and $7,890 of accrued interest
is outstanding under the Alco December Promissory Note recorded in note payable – related party on the consolidated balance sheets.
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
$10.00 in principal borrowed under the December 2023 Note, the Sponsor agreed to forfeit three shares of 7GC Class B Common Stock held
by the Sponsor, in exchange for the right of Alco to receive three New Banzai Class A Shares, in each case, at (and contingent upon)
the Closing, with such forfeited and issued shares capped at an amount equal to 600,000. Pursuant to the December Share 2023 Transfer
Agreement, the shares are subject to an 180-day lock-up period upon issuance of the shares.
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 was drawn on September 13, 2023, the DLOM was estimated using the put option
models described above and the following assumptions: a holding period for the shares of 272 days (approximately 0.77 years) measured
from the date of issuance of the $1,000,000 of proceeds under the September Note through the issuance of the shares under the Alco October
Share Transfer Agreement on December 14, 2023 at which time the 180-day lock-up period commenced; a re-levered equity volatility estimated
using guideline public companies of 54.0%; and a risk-free rate commensurate with the term of 5.3%. The put option models provided a
DLOM range of 10.7% to 16.0% and the concluded DLOM was estimated to be 12.5%. The Company’s expected percentage of completing
the Merger on this date was 80%.
For
the remaining $500,000 drawn on the Alco September Promissory Note on October 3, 2023, the DLOM was estimated using the put option models
described above and the following assumptions: a holding period for the shares of 252 days (approximately 0.72 years) measured from the
date of issuance of the remaining $500,000 of proceeds under the September Note through the issuance of the shares under the Alco October
Share Transfer Agreement on December 14, 2023 at which time the 180-day lock-up period commenced; a re-levered equity volatility estimated
using guideline public companies of 52.0%; and a risk-free rate commensurate with the term of 5.4%. The put option models provided a
DLOM range of 10.0% to 15.0% and the concluded DLOM was estimated to be 11.5%. The Company’s expected percentage of completing
the Merger on this date was 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 years) measured from the issuance date of the November Note through the
issuance of the shares under the November 2023 Share Transfer Agreement on December 14, 2023 at which time the 180-day lock-up period
commenced; a re-levered equity volatility estimated using guideline public companies of 54.0%; and a risk-free rate commensurate with
the term of 5.2%. The put option models provided a DLOM range of 9.5% to 15.0% and the concluded DLOM was estimated to be 11.5%. The
Company’s expected percentage of completing the Merger on this date was 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 years) measured from the issuance date of the December Note through the
issuance of the shares under the December 2023 Share Transfer Agreement on December 14, 2023 at which time the 180-day lock-up period
commenced; a re-levered equity volatility estimated using guideline public companies of 47.0%; and a risk-free rate commensurate with
the term of 5.2%. The put option models provided a DLOM range of 7.5% to 12.0% and the concluded DLOM was estimated to be 9.0%. The Company’s
expected percentage of completing its Business Combination on this date was 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. Alco is a related
party to the Company due to its ownership of over 10% of the issued equity of the Company. The Company evaluated the terms of the 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 resulting from the First
Amendment. Accordingly, the Company accounted for the 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 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 to be recognized in future periods.
Promissory
Notes - 7GC
The
Company assumed two promissory notes in connection with the Merger which remained outstanding as of December 31, 2023. The promissory
notes were issued on December 21, 2022 for a principal amount of $2,300,000 (“December 2022 7GC Note”) and on October 3,
2023 for a principal amount of $250,000 (“October 2023 7G Note, together with the December 2022 7GC Note, the “7GC Promissory
Notes”). The 7GC Promissory Notes were issued to the Sponsor, 7GC & Co. Holdings LLC. The 7GC Promissory Notes do not bear
interest and were repayable in full upon the earlier of the consummation of a business combination or the date the Company liquidates
the trust account (the “Trust Account”) established in connection with the Company’s initial public offering (the “IPO”)
upon the failure of the Company to consummate a business combination within the requisite time period. Under the original terms of the
7GC Promissory Notes, the Sponsor has the option, but not the obligation, to convert the principal balance of the Note, in whole or in
part, into that number of shares of Class A common stock, $0.0001 par value per share, of the Company equal to the principal
amount of the Note so converted divided by $10.00. As of December 31, 2023 and the Merger date, $2,550,000 was outstanding under the
7GC Promissory Notes. The combined balance of the outstanding amount of $2,550,000 offset by the effect of the modification as discussed
below of $9,909 results in the $2,540,091 balance recorded on Consolidated Balance Sheets in Convertible notes - related party. See Note
6 - Related Party Transactions for further details of these transactions and associated balances and Note 21 - Subsequent Events
for details related to the subsequent conversion of the 7GC Promissory Notes, in 2024.
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 days after
the closing of the Merger (the “Closing”) at a conversion price equal to the average daily VWAP of the Class A Common Stock
for the 30 trading days following the Closing. This amendment was deemed to be a debt modification in accordance with ASC 470, Debt,
which will be accounted for prospectively. Modification does not result in recognition of a gain or loss in the consolidated statement
of operations but does impact interest expense recognized in the future. Pursuant to ASC 470, if the modification or exchange of a convertible
debt instrument is not accounted for as an extinguishment, the accounting for the change in the fair value of the embedded conversion
option which increases the value of the embedded conversion option (calculated as the difference between the fair value of the embedded
conversion option immediately before and after the modification or exchange) is recorded as a reduction to the carrying amount of the
7GC Promissory Notes with a corresponding increase to additional paid in capital. At the time of modification, it was determined the
embedded conversion option value increased by $9,909 and was recorded as a reduction to the carrying amount of the 7GC Promissory Notes
which are recorded on the Consolidated Balance Sheets in Convertible notes - related party.
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 for further details), Yorkville agreed to advance to the Company, in exchange for convertible promissory notes,
an aggregate principal amount of up to $3,500,000, $2,000,000 of which was funded at the Closing in exchange for the issuance by the
Company of a Convertible Promissory Note (the “Yorkville Convertible Note”) and $1,500,000 of which (the “Second Tranche”)
will be funded upon the effectiveness of a registration statement for the resale under the Securities Act by Yorkville of the shares
of Class A common stock issued under the SEPA pursuant to an Advance requested to be included in such registration statement; provided
that if at the time of the initial filing of the registration statement, shares issuable under the Exchange Cap multiplied by the closing
price on the day prior to such filing is less than $7,000,000, the Second Tranche will be further conditioned upon the Company obtaining
stockholder approval to exceed the Exchange Cap. The registration statement was declared effective on February 14, 2024, and the value
of shares issuable upon the initial filing of the registration statement was less than $7,000,000. On March 25, 2024 the Company obtained
stockholder approval to exceed the Exchange Cap and the Second Tranche was funded.
The
Company received net proceeds of $1,800,000 million after a non-cash original issue discount of $.2 million.
The
Yorkville Convertible Note has a maturity date of June 14, 2024, and accrues interest at 0% per annum, subject to an increase to 18%
per annum upon events of default as defined in the agreement. As of December 31, 2023, no events of default have occurred.
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% of the
total number of shares of Class A common stock outstanding after giving effect to such conversion.
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% prepayment
premium, plus all accrued and unpaid interest; provided that (i) the Company provides Yorkville with no less than ten trading days’
prior written notice thereof and (ii) on the date such notice is issued, the VWAP of the Class A common stock is less than the Fixed
Price.
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, plus (y) 10% in respect of such amount, and (z) all outstanding accrued
and unpaid interest as of each payment date. See Note 21 - Subsequent Events for details related to the receipt by the Company
of a an amortization event waiver, from Yorkville, in January, 2024.
As
of December 31, 2023, the principal amount outstanding under the Yorkville Convertible Note is $2 million. During the year ended December
31, 2023, the Company recorded interest expense of $0 in connection with the Yorkville Convertible Note.
The
Yorkville Convertible Note is required to be measured at fair value pursuant to ASC 480 Distinguishing Liabilities from Equity
(“ASC 480”) at the date of issuance, December 14, 2023, and in subsequent reporting periods, due to the variable share-settled
feature described above in which, if converted, the value to be received by Yorkville fluctuates based on something other than the fair
value of the Company’s common stock. The fair value of the Yorkville Convertible Note as of December 14, 2023 and December 31,
2023 was $1,800,000 and $1,766,000, respectively. The Company used a Monte Carlo simulation model in order to determine the Yorkville
Convertible Note’s fair value at December 14, 2023, with the following inputs: the fair value of the Company’s common stock
of $10.96 on the issuance date, estimated equity volatility of 43%, the time to maturity of 0.5 years, a discounted market interest rate
of 14.9%, a risk free rate of 5.30%, and probability of optional redemption 10.0%.
During
the year ended December 31, 2023, the Company recorded a gain of $34,000 related to the change in fair value of the Yorkville Convertible
Note liability. The Company used a Monte Carlo simulation model in order to determine the Yorkville Convertible Note’s fair value
at December 31, 2023, with the following inputs: the fair value of the Company’s common stock of $1.88 on December 31, 2023, estimated
equity volatility of 71%, the time to maturity of 0.46 years, a discounted market interest rate of 14%, a risk free rate of 5.28%, and
probability of optional redemption 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 (the “Loan
Agreement”). The Loan Agreement was comprised of a Term Note for $6,500,000 and a Convertible Note for $1,500,000, with the option
upon the request of the Company for Additional Loan (“Additional Loan”) principal amount of up to $7,000,000, evidenced by
additional notes with 81.25% of the principal amount of such Additional Loan being evidenced by a Term Note, and 18.75% of the principal
amount of such an Additional Loan being evidenced by a Convertible Note. The Term Note bears cash interest at a rate of 14% per annum
paid monthly and accrued interest payable-in-kind (“PIK”) cumulatively at 1.5% per annum. The outstanding principal balance
of the Term Note together with accrued and unpaid interest thereon, unpaid fees and expenses and any other Obligations then due, shall
be paid on February 19, 2025 (“Loan Maturity Date”). The Convertible Note accrues PIK interest cumulatively at a rate of
15.5% per annum, and is convertible into Class A Common Stock upon Qualified Financing (as defined in the agreement), upon a Change of
Control (as defined in the agreement), upon Prepayment, or at Maturity at a fixed conversion price. If not sooner converted or prepaid,
the Convertible Note principal together with accrued and unpaid interest thereon, unpaid fees and expenses and any other Obligations
then due, shall be paid on the Loan Maturity Date. Upon the occurrence, and during the continuance, of an Event of Default (as defined
in the agreement), interest on the Term Note will bear cash interest at a per annum rate of 20% (“Default Rate”) and no PIK
interest shall accrue at any time during an Event of Default and the Convertible Note will bear PIK Interest at a per annum at the Default
Rate.
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% of the outstanding principal balance of the Loans, with only the portion of the principal balance
so converted counted for purposes of determining the applicable Exit Fee; and provided further, that, in the event of a partial prepayment
of the Loans, the Exit Fee shall be calculated on the principal amount so repaid and not on the entire outstanding principal balance
thereof, and (iv) all other Obligations, if any, that shall have become due and payable hereunder with respect to the principal amount
so prepaid.
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. The Loan Agreement is secured
by a first-priority Lien (subject to Permitted Liens) on and security interest in the Collateral pursuant to the terms of the Collateral
Documents. The Loan Agreement named Joseph Davy, CEO, as Guarantor, and per the term of the Loan Agreement, he is willing to guarantee
the full payment, performance and collection of all of the Credit Parties’ obligations thereunder and under the Loan Agreement,
all as further set forth therein.
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 and $71,674 of costs associated with the issuance of the Term Note and Convertible
Notes, respectively, and amortizes these costs to interest expense over the term of the debt, using the effective interest method. The
capitalized debt issuance costs are presented as a reduction of the carrying value of the Term Note and Convertible Notes.
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. Subsequent changes in fair value
of the feature will be recognized as a gain or loss 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).
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,
which is not considered an Additional Loan as defined above. The First Amendment Convertible Note has the same features as the Convertible
Note described above.
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 debt
discount upon issuance of the Convertible Notes. For the year ended December 31, 2023, interest expense on the Term Note totaled $1,140,106,
comprised of $1,058,230 of contractual interest and $81,876 for the amortization of the discount. The effective interest rate for the
Term Note was 16% for years ended December 31, 2023 and 2022. For the year ended December 31, 2023, interest expense on the Convertible
Notes totaled $422,507, comprised of $395,575 of contractual interest and $26,932 for the amortization of the discount. The effective
interest rate for the CP BF Convertible Note and First Amendment Convertible Note was 16% for the years ended December 31, 2023 and 2022.
For the year ended December 31, 2022, interest expense on the Term Note totaled $1,110,296, comprised of $1,042,291 of contractual interest
and $68,006 for the amortization of the discount. For the year ended December 31, 2022, interest expense on the Convertible Notes totaled
$319,743, comprised of $303,121 of contractual interest and $16,622 for the amortization of the discount.
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 “Amendment Fee”) on the execution date to extend the forbearance
period from the four-month anniversary of the closing of the Merger to the six-month anniversary of the closing of the Merger. This amendment
was deemed to be a debt modification in accordance with ASC 470, Debt, which will be accounted for prospectively. Modification does 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 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 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:
| 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 | |
15.
Warrant Liabilities
Public
Warrants
The
Company assumed 11,500,000 Public Warrants in the Merger which remained outstanding as of December 31, 2023. The Public Warrants have
an exercise price of $11.50 per share, subject to adjustments, and will expire five years from the Merger Closing Date. The exercise
price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including
in the event of a share dividend, or recapitalization, reorganization, merger or consolidation.
The
Company will not be obligated to deliver any shares of Class A Common Stock pursuant to the exercise of a Public Warrant and will have
no obligation to settle such Public Warrant exercise unless a registration statement under the Securities Act with respect to the shares
of Class A Common Stock underlying the Public Warrants is then effective and a prospectus relating thereto is current, subject to the
Company’s satisfying its obligations described below with respect to registration, or a valid exemption from registration is available.
No Public Warrant will be exercisable and the Company will not be obligated to issue a share of Class A Common Stock upon exercise of
a Public Warrant unless the shares of Class A Common Stock issuable upon such Public Warrant exercise has been registered, qualified,
or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Public Warrants. In the event
that the conditions in the two immediately preceding sentences are not satisfied with respect to a Public Warrant, the holder of such
Public Warrant will not be entitled to exercise such Public Warrant and such Public Warrant may have no value and expire worthless. In
no event will the Company be required to net cash settle any Public Warrant. The Resale Registration statement went effective on February
14, 2024.
The
Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of the Merger, it will
its best efforts to file with the SEC a registration statement covering the shares of Class A common stock issuable upon exercise of
the warrants, to cause such registration statement to become effective and to maintain a current prospectus relating to those shares
of Class A common stock until the warrants expire. If a registration statement covering the shares of Class A common stock issuable upon
exercise of the warrants is not effective by the 60th business day after the closing of the Merger, the warrant holders may, until such
time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective
registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act
and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but
it will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
In such event, each holder would pay the exercise price by surrendering the Public Warrants for that number of shares of Class A Common
Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A Common Stock underlying the Public
Warrants, multiplied by the excess of the “fair market value” (as defined below) less the exercise price of the Public Warrants
by (y) the fair market value. The “fair market value” as used in this paragraph shall mean the average last sale price of
the Class A Common Stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption
is sent to the warrant holders.
Redemption
of Public Warrants When the price per Share of Class A Common Stock Equals or Exceeds $18.00. Once the Public Warrants become exercisable,
the Company may redeem the outstanding Public Warrants:
| ● | in
whole and not in part; |
| ● | at
a price of $0.01 per Warrant; |
| ● | upon
a minimum of 30 days’ prior written notice of redemption (the “30-day redemption
period”); and |
| ● | if,
and only if, the closing price per share of Class A Common Stock equals or exceeds $18.00
per share (as adjusted for adjustments to the number of shares issuable upon exercise or
the exercise price of a Public Warrant as described under the heading “- Warrants—Public
Stockholder Warrants—Anti-dilution Adjustments”) for any 20 trading days within
a 30-trading day period ending three trading days before the Company sends the notice of
redemption to the warrant holders. |
The
Company will not redeem the Public Warrants as described above unless a registration statement under the Securities Act covering the
issuance of shares of Class A Common Stock issuable upon exercise of the Public Warrants is then effective and a current prospectus relating
to those shares of Class A Common Stock is available throughout the 30-day redemption period. If and when the Public Warrants become
redeemable by the Company, the Company may not exercise its redemption right if the Company is unable to register or qualify the underlying
securities for sale under all applicable state securities laws.
The
Company has established the last of the redemption criterion discussed above to prevent a redemption call unless there is at the time
of the call a significant premium to the Public Warrant exercise price. If the foregoing conditions are satisfied and the Company issues
a notice of redemption of the Public Warrants, each warrant holder will be entitled to exercise his, her or its Public Warrant prior
to the scheduled redemption date. However, the price per share of Class A Common Stock may fall below the $18.00 redemption trigger price
(as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a Public Warrant as described under
the heading “-Warrants—Public Stockholder Warrants—Anti-dilution Adjustments”) as well as the $11.50 (for whole
shares) Public Warrant exercise price after the redemption notice is issued.
No
fractional shares of Class A Common Stock will be issued upon exercise. If, upon exercise, a holder would be entitled to receive a fractional
interest in a share, the Company will round down to the nearest whole number of the number of shares of Class A Common Stock to be issued
to the holder.
GEM
Financing Arrangement
In
May 2022, the Company entered into a Share Purchase Agreement with GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (collectively,
“GEM”) (the “GEM Agreement”) pursuant to which, among other things, upon the terms and subject to the conditions
of the GEM Agreement, GEM is to purchase from the Company (or its successor following a Reverse Merger Transaction (as defined in the
GEM Agreement)) up to the number of duly authorized, validly issued, fully paid and non-assessable shares of common stock having an aggregate
value of $100,000,000 (the “GEM Financing”). Further, in terms of the GEM Agreement, on the Public Listing Date, the Company
was required to make and execute a warrant (“GEM Warrant”) granting GEM the right to purchase up to the number of common
shares of the Company that would be equal to 3% of the total equity interests, calculated on a fully diluted basis, and at an exercise
price per share equal to the lesser of (i) the public offering price or closing bid price on the date of public listing or (ii) the quotient
obtained by dividing $650 million by the total number of equity interests.
On
December 13, 2023, the Company and GEM entered into a binding term sheet (the “GEM Term Sheet”) and, on December 14, 2023,
a letter agreement (the “GEM Letter”), agreeing to terminate in its entirety the GEM Agreement by and between the Company
and GEM, other than with respect to the Company’s obligation (as the post-combination company in the Merger) to issue the GEM Warrant
granting the right to purchase Class A Common Stock in an amount equal to 3% of the total number of equity interests outstanding as of
the Closing, calculated on a fully diluted basis, at an exercise price on the terms and conditions set forth therein, in exchange for
issuance of a $2.0 million convertible debenture with a five-year maturity and 0% coupon. Due to the determination of the final terms
of the planned $2.0 million convertible debenture having not been finalized, nor the final agreement related to the convertible debenture
having been executed, as of December 31, 2023, the Company recognized, concurrent with the close of the merger, a liability for the GEM
commitment fee, along with a corresponding GEM commitment fee expense, in the amount of $2.0 million. See Note 21 - Subsequent Events
for details related to the subsequent execution of the GEM Settlement Agreement and issuance of the final GEM convertible promissory
note, in 2024.
At
Closing, the GEM Warrant automatically became an obligation of the Company, and on December 15, 2023, the Company issued the GEM Warrant
granting GEM the right to purchase 828,533 shares at an exercise price of $6.49 per share. The exercise price will be adjusted to 105%
of the then-current exercise price if on the one-year anniversary date of the Effective Time, the GEM Warrant has not been exercised
in full and the average closing price per share of Class A Common Stock for the 10 days preceding the anniversary date is less than 90%
of the initial exercise price. GEM may exercise the GEM Warrant at any time and from time to time until December 14, 2026. The terms
of the GEM Warrant provide that the exercise price of the GEM Warrant, and the number of shares of Class A Common Stock for which the
GEM Warrant may be exercised, are subject to adjustment to account for increases or decreases in the number of outstanding shares of
New Banzai Common Stock resulting from stock splits, reverse stock splits, consolidations, combinations and reclassifications. Additionally,
the GEM Warrant contains weighted average anti-dilution provisions that provide that if the Company issues shares of common stock, or
securities convertible into or exercisable or exchange for, shares of common stock at a price per share that is less than 90% of the
exercise price then in effect or without consideration, then the exercise price of the GEM Warrant upon each such issuance will be adjusted
to the price equal to 105% of the consideration per share paid for such common stock or other securities. In the event of a Change of
Control, if the Surviving Corporation does not have registered class of equity securities and common shares listed on a U.S. national
securities exchange, then the Holder is entitled to receive one percent of the total consideration received by the Company’s stockholders
and the GEM Warrants will expire upon payment.
The
Warrants were not considered indexed to the issuer’s stock pursuant to ASC 815, as the holder’s ability to receive one percent
of the total consideration received by the Company’s stockholders in connection with a Change of Control in lieu of the Warrant,
where the surviving corporation is not publicly traded, adjusts the settlement value based on items outside the Company’s control
in violation of the fixed-for-fixed option pricing model. As such, the Company recorded the Warrants as liabilities initially measured
at fair value with subsequent changes in fair value recognized in earnings each reporting period.
The
measurement of fair value was determined utilizing a Monte Carlo simulation considering all relevant assumptions current at the date
of issuance (i.e., share price, exercise price, term, volatility, risk-free rate, probability of dilutive term of three years, and expected
time 1to conversion). The fair value of the Warrants on the grant date, as determined by the Monte Carlo simulation option pricing model,
was $2,448,000 on December 15, 2023. The Company determined the Warrants were share issuance costs associated with an aborted offering.
ASC 340 notes aborted offering costs may not be deferred and charged against proceeds of a subsequent offering. As such, the Company
will record an expense for the corresponding fair value. As of December 31, 2023, the fair value of the Warrants, as determined by the
Monte Carlo simulation option pricing model, was $641,000.
If
the per share market value of one share of Class A Common Stock is greater than the then-current exercise price, then GEM will have the
option to exercise the GEM Warrant on a cashless basis and receive a number of shares of Class A Common Stock equal to (x) the number
of shares of Class A Common Stock purchasable upon exercise of all of the GEM Warrant or, if only a portion of the GEM Warrant is being
exercised, the portion of the GEM Warrant being exercised, less (y) the product of the then-current exercise price and the number of
shares of Class A Common Stock purchasable upon exercise of all of the GEM Warrant or, if only a portion of the GEM Warrant is being
exercised, the portion of the GEM Warrant being exercised, divided by the per share market value of one share of Class A Common Stock.
The
GEM Warrant is subject to a restriction on exercise of the GEM Warrant such that the GEM Warrant may not be exercised if such exercise
would result in the beneficial ownership of the holder and its affiliates in excess of 9.99% of the then-issued and outstanding shares
of Common Stock.
16.
Simple Agreements for Future Equity
Simple
Agreements for Future Equity - Related Party
During
2021, the Company entered into Simple Agreements for Future Equity (SAFE) arrangements with related parties Alco, DNX and William Bryant
(See Note 14 - Debt, for a description of the related party relationship with these entities) (the “Related Party SAFEs”)
pursuant to which the Company received gross proceeds in the amount of $3,567,000. In the event of an Equity Financing (as defined in
the SAFEs agreements), the Related Party SAFEs will automatically convert into shares of the Company’s common or preferred stock
at a discount of 15% of the per share price of the shares offered in the Equity Financing (the “Discount Price”). In the
event of a Liquidity Event, SPAC Transaction or Dissolution Event (all terms as defined in the SAFEs agreements), the holders of the
Related Party SAFEs will be entitled to receive cash or shares of the Company’s common or preferred stock. The Related Party SAFEs
were recorded as a liability in accordance with the applicable accounting guidance as they are redeemable for cash upon contingent events
that are outside of the Company’s control. The initial fair value of the Related Party SAFE liability was $3,567,000. Subsequent
changes in fair value at each reporting period are recognized in the consolidated statement of operations. For the years ended December
31, 2023 and 2022, the Company recognized a gain of $2,752,430 and loss of $4,078,431, respectively, for the change in fair value of
the Related Party SAFE liability.
The
Company utilizes a combination of scenario-based methods and Monte Carlo simulation to determine the fair value of the Related Party
SAFE liability as of the valuation dates. 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.
On
September 2, 2022, the Company modified the SAFE agreements pursuant to approval by the holders. In accordance with the modified terms,
in the event of an Equity Financing or SPAC Transaction, the Related Party SAFEs will automatically convert into shares of the Company’s
common or preferred stock at the lesser of (a) the Discount Price for an Equity Financing (Liquidity Price (as defined in the agreements)
for a SPAC Transaction) or (b) the conversion price obtained by dividing $50,000,000 by the Fully Diluted Capitalization (as defined
in the agreements). Upon modification, the Company calculated the fair value of the Related Party SAFE liability immediately before and
immediately after the modification which resulted in the recognition of a loss for the change in fair value of $1,602,174.
On
December 14, 2023, all outstanding principal related to the Related Party SAFEs at a carrying value of $6,049,766 converted into 551,949
shares the Company’s Class A Common Stock pursuant to the close of the Merger Agreement and application of the exchange ratio.
Simple
Agreements for Future Equity - Third Party
During
2021, the Company entered into Simple Agreements for Future Equity (SAFE) arrangements with third party investors (the “Third Party
SAFEs”) pursuant to which the Company received gross proceeds in the amount of $269,000. In the event of an Equity Financing (as
defined in the SAFEs agreements), the Third Party SAFEs will automatically convert into shares of the Company’s common or preferred
stock at a discount of 15% of the per share price of the shares offered in the Equity Financing (the “Discount Price”). In
the event of a Liquidity Event, SPAC Transaction or Dissolution Event (all terms as defined in the SAFEs agreements), the holders of
the Third Party SAFEs will be entitled to receive cash or shares of the Company’s common or preferred stock. The Third Party SAFEs
were recorded as a liability in accordance with the applicable accounting guidance as they are redeemable for cash upon contingent events
that are outside of the Company’s control. The initial fair value of the Third Party SAFE liability was $269,000. Subsequent changes
in fair value at each reporting period are recognized in the Consolidated Statement of Operations. For the years ended December 31, 2023
and 2022, the Company recognized a gain of $207,570 and a loss of $307,569, respectively, for the change in fair value of the Third Party
SAFE liability.
The
Company utilizes a combination of scenario-based methods and Monte Carlo simulation to determine the fair value of the Third Party SAFE
liability as of the valuation dates. 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.
On
September 2, 2022, the Company modified the Third Party SAFE agreements pursuant to approval by the holders. In accordance with the modified
terms, in the event of an Equity Financing or SPAC Transaction, the Third Party SAFEs will automatically convert into shares of the Company’s
common or preferred stock at the lesser of (a) the Discount Price for an Equity Financing (Liquidity Price (as defined in the agreements)
for a SPAC Transaction) or (b) the conversion price obtained by dividing $50,000,000 by the Fully Diluted Capitalization (as defined
in the agreements). Upon modification, the Company calculated the fair value of the Third Party SAFE liability immediately before and
immediately after the modification which resulted in the recognition of a loss for the change in fair value of $120,826.
On
December 14, 2023, all outstanding principal related to the Third Party SAFEs at a carrying value of $456,234 converted into 41,626 shares
the Company’s Class A Common Stock pursuant to the close of the Merger Agreement and application of the exchange ratio.
17.
Commitments and Contingencies
Leases
The
Company has operating leases for its real estate across multiple states. The operating leases have remaining lease terms of approximately
0.76 years as of December 31, 2023 and consist primarily of office space.
The
lease agreements generally do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate
incremental borrowing rate to discount remaining lease payments.
Leases
with an initial term of twelve months or less are not recorded on the balance sheet. There are no material residual guarantees associated
with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease
agreements. Certain leases include variable payments related to common area maintenance and property taxes, which are billed by the landlord,
as is customary with these types of charges for office space. The Company has not entered into any lease arrangements with related parties.
The
Company’s existing leases contain escalation clauses and renewal options. The Company is not reasonably certain that renewal options
will be exercised upon expiration of the initial terms of its existing leases. Prior to adoption of ASU 2016-02 effective January 1,
2022, the Company accounted for operating lease transactions by recording lease expense on a straight-line basis over the expected term
of the lease.
The
Company entered into a sublease which it has identified as an operating lease prior to the adoption of ASC 842 Leases. The Company
remains the primary obligor to the head lease lessor, making rental payments directly to the lessor and separately billing the sublessee.
The sublease is subordinate to the master lease, and the sublessee must comply with all applicable terms of the master lease. The Company
subleased the real estate to a third-party at a monthly rental payment amount that was less than the monthly cost that it pays on the
headlease with the lessor.
In
evaluating long-lived assets for recoverability, the Company calculated the fair value of the sublease using its best estimate of future
cash flows expected to result from the use of the asset. When undiscounted cash flows to be generated through the sublease is less than
the carrying value of the underlying asset, the asset is deemed impaired. If it is determined that assets are impaired, an impairment
loss is recognized for the amount that the asset’s book value exceeds its fair value. Based on the expected future cash flows,
the Company recognized an impairment loss upon adoption of ASC 842 Leases of $303,327. The impairment loss was recorded to impairment
loss on lease on the consolidated statement of operations for the year ended December 31, 2022.
The
components of lease expense, are as follows:
| | |
For the Year Ended December 31, | |
| Components of lease expense: | |
2023 | | |
2022 | |
| Operating lease cost | |
$ | 199,611 | | |
$ | 191,483 | |
| Lease impairment cost | |
| — | | |
| 303,327 | |
| Sublease income | |
| (204,324 | ) | |
| (177,588 | ) |
| Total lease (income) cost | |
$ | (4,713 | ) | |
$ | 317,222 | |
Supplemental
cash flow information related to leases are as follows:
| | |
For the Year Ended December 31, | |
| Supplemental cash flow information: | |
2023 | | |
2022 | |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| | | |
| | |
| Non-cash lease expense (operating cash flow) | |
$ | 173,245 | | |
$ | 152,018 | |
| Non-cash impairment of right to use assets (operating cash flow) | |
| — | | |
| (303,327 | ) |
| Change in lease liabilities (operating cash flow) | |
| (284,963 | ) | |
| (243,596 | ) |
| Operating lease right-of-use assets obtained in exchange for lease obligations: | |
| | | |
| | |
| Operating leases | |
$ | — | | |
$ | 762,603 | |
Supplemental
balance sheet information related to leases was as follows:
| Operating leases: | |
December 31,
2023 | | |
December 31,
2022 | |
| Operating lease right-of-use assets | |
$ | 134,013 | | |
$ | 307,258 | |
| Operating lease liability, current | |
| 234,043 | | |
| 284,963 | |
| Operating lease liability, long-term | |
| — | | |
| 234,043 | |
| Total operating lease liabilities | |
$ | 234,043 | | |
$ | 519,006 | |
| Weighted-average remaining lease term: | |
December 31,
2023 | | |
December 31,
2022 | |
| Operating leases (in years) | |
| 0.76 | | |
| 1.76 | |
| Weighted-average discount rate: | |
December 31,
2023 | | |
December 31,
2022 | |
| Operating leases | |
| 6.76 | % | |
| 6.74 | % |
Future
minimum lease payments under non-cancellable lease as of December 31, 2023, are as follows:
| Maturities of lease liabilities: | |
| |
| Year Ending December 31, | |
| | |
| 2024 | |
$ | 240,818 | |
| Total undiscounted cash flows | |
| 240,818 | |
| Less discounting | |
| (6,775 | ) |
| Present value of lease liabilities | |
$ | 234,043 | |
Cantor
Fee Agreement
In
connection with the Merger, 7GC previously agreed to pay Cantor an Original Deferred Fee of $8,050,000 as deferred underwriting commissions.
On November 8, 2023, Cantor and 7GC entered into a Fee Reduction Agreement, pursuant to which Cantor agreed to forfeit $4,050,000 of
the $8,050,000 Original Deferred Fee, with the remaining $4,000,000 Reduced Deferred Fee payable by Banzai to Cantor following the Closing
of the Merger. Pursuant to the Fee Reduction Agreement, the Reduced Deferred Fee will be payable in the form of the Cantor Fee Shares,
which will be calculated as a number of Class A Common Stock equal to the greater of (a) 400,000 or (b) the quotient obtained by dividing
(x) the Reduced Deferred Fee by (y) the dollar volume-weighted average price for the Class A Common Stock on Nasdaq, over the five trading
days immediately preceding the date of filing of a resale registration statement on Form S-1, as reported by Bloomberg through its “AQR”
function (as adjusted for any stock dividend, split, combination, recapitalization or other similar transaction). In connection with
the merger discussed in Note 4 - Merger, the Company assumed the outstanding liabilities of 7GC, including the above discussed
deferred underwriting fee payable.
Pursuant
to the Fee Reduction Agreement, the Company also agreed to use its reasonable best efforts to have the registration statement declared
effective by the SEC by the 120th calendar day after December 29, 2023, the date of the initial filing thereof, and to maintain the effectiveness
of such registration statement until the earliest to occur of (i) the second anniversary of the date of the effectiveness thereof, (ii)
the Cantor Fee Shares shall have been sold, transferred, disposed of or exchanged by Cantor, and (iii) the Cantor Fee Shares issued to
Cantor may be sold without registration pursuant to Rule 144 under the Securities Act (such obligations, the “Cantor Registration
Rights Obligations”).
On
December 28, 2023, the Company and Cantor amended the Fee Reduction Agreement to provide that the Reduced Deferred Fee was payable in
the form of 1,113,927 shares of Class A Common Stock and to provide that Cantor is subject to a 12-month lock-up with respect to the
Cantor Fee Shares. On December 28, 2023, the Company issued the Cantor Fee Shares to Cantor, covering the Reduced Deferred Fee in accordance
with the Fee Reduction Agreement. The fair value of the 1,113,927 shares of Class A Common Stock was determined to be $2,450,639 on December
28, 2023 based on the Company’s opening stock price of $2.20. Although the Company issued the Cantor Fee Shares, as of December
31, 2023, the Company has not satisfied its Cantor Registration Rights Obligations. As such, the Company cannot conclude that it has
settled its outstanding obligations to Cantor. Therefore, neither criteria under ASC 405 for extinguishment and derecognition of the
liability were satisfied and the $4,000,000 Reduced Deferred Fee remained outstanding as a current liability on the Company’s December
31, 2023 balance sheet.
At
each interim period after December 31, 2023, the Company will monitor its compliance with the Cantor Registration Rights Obligations
to determine whether the entire amount of the Reduced Deferred Fee has become due and payable in cash, or the Company’s obligations
have been satisfied and the remaining liability should be derecognized. At such time as the Company’s obligations under the Fee
Reduction Agreement have been satisfied the relief of the liability will be recorded through equity.
Legal
Matters
In
the regular course of business affairs and operations, we are subject to possible loss contingencies arising from third-party litigation
and federal, state, and local environmental, labor, health and safety laws and regulations. We assess the probability that we could incur
liability in connection with certain of these lawsuits. Our assessments are made in accordance with generally accepted accounting principles,
as codified in ASC 450-20, and is not an admission of any liability on the part of the Company or any of its subsidiaries. In certain
cases that are in the early stages and in light of the uncertainties surrounding them, we do not currently possess sufficient information
to determine a range of reasonably possible liability.
18.
Equity
Class
A and B Common Stock
The
Company is authorized to issue up to 275,000,000 shares, consisting of 250,000,000 Class A Common Stock, and 25,000,000 shares of Class
B Common Stock par value $0.0001 per share.
As
discussed in Note 4 - Reverse Merger Capitalization with 7GC & Co. Holdings Inc., the Company has retroactively adjusted the
shares issued and outstanding prior to December 14, 2023 to give effect to the Exchange Ratio to determine the number of shares of Company
Common Stock into which they were converted.
The
Class A Common Stock and Class B Common Stock entitle their holders to one vote per share and ten votes per share, respectively, on each
matter properly submitted to the stockholders entitled to vote thereon. The holders of shares of Common Stock shall be entitled to receive
dividends declared by the Board of Directors, on a pro rata basis based on the number of shares of Common Stock held by each such holder,
assuming conversion of all Class B Common Stock into Class A Common Stock at a one to one conversion ratio.
Preferred
Stock
The
Company is authorized to issue 75,000,000 shares of preferred stock with a par value of $0.0001 per share. The board of directors of
the Company (the “Board”) has the authority to issue preferred stock and to determine the rights, privileges, preferences,
restrictions, and voting rights of those shares. As of December 31, 2023, no shares of preferred stock were outstanding.
On
December 14, 2023, pursuant to the Merger, 2,328,823 outstanding shares of Preferred Stock were automatically converted into 1,432,443
shares of the Company’s Class A Common Stock pursuant to the Exchange Ratio. Refer to Note 4 - Reverse Merger Capitalization
with 7GC & Co. Holdings Inc. for further details.
Restricted
Stock
In
connection with the acquisition of Demio and High Attendance, the Company issued restricted stock to the selling shareholders and founders
of Demio. 745,800 shares of the Company’s restricted Class A common stock were issued to the selling shareholders and founders
of Demio and 81,908 shares of the Company’s restricted Class A common stock were issued to the High Attendance shareholder. All
shares issued to the selling shareholders and founders of Demio vested and are outstanding as of December 31, 2023. On July 1, 2022,
all shares issued to the High Attendance shareholder were cancelled and are not outstanding as of December 31, 2023 and 2022. Upon the
closing of the Merger, the restrictions on the outstanding shares were lifted and the shares became freely tradeable.
Yorkville
Standby Equity Purchase Agreement (“SEPA”)
On
December 14, 2023, the Company entered into the SEPA with YA II PN, LTD, a Cayman Islands exempt limited partnership managed by
Yorkville Advisors Global, LP (“Yorkville”) in connection with the Merger. Pursuant to the SEPA, subject to certain conditions,
the Company shall have the option, but not the obligation, to sell to Yorkville, and Yorkville shall subscribe for, an aggregate amount
of up to up to $100,000,000 of the Company’s shares of Class A common stock, par value $0.0001 per share, at the Company’s
request any time during the commitment period commencing on December 14, 2023 and terminating on the 36-month anniversary of the SEPA
(the “SEPA Option”).
Each
advance (each, an “Advance”) the Company requests under the SEPA (notice of such request, an “Advance Notice”)
may be for a number of shares of Class A common stock up to the greater of (i) 500,000 shares or (ii) such amount as is equal to 100%
of the average daily volume traded of the Class A common stock during the five trading days immediately prior to the date the Company
requests each Advance; provided, in no event shall the number of shares of Class A common stock issued cause the aggregate shares of
Class A common stock held by Yorkville and its affiliates as of any such date to exceed 9.99% of the total number of shares of Class
A common stock outstanding as of the date of the Advance Notice (less any such shares held by Yorkville and its affiliates as of such
date) (the “Exchange Cap”). The shares would be purchased, at the Company’s election, at a purchase price equal to
either:
i)
95% of the average daily Volume Weighted Average Price (“VWAP”) of the Class A Common Stock on the Nasdaq Stock Market (“Nasdaq”),
subject to certain conditions per the SEPA (the “Option 1 Pricing Period; or
ii)
96% of the lowest daily VWAP of the Class A Common Stock during the three trading days commencing on the Advance Notice date, subject
to certain conditions per the SEPA (the “Option 2 Pricing Period”).
Any
purchase under an Advance would be subject to certain limitations, including that Yorkville shall not purchase or acquire any shares
that would result in it and its affiliates beneficially owning more than 9.99% of the then outstanding voting power or number of shares
of Class A common stock or any shares that, aggregated with shares issued under all other earlier Advances, would exceed 19.99% of all
shares of Class A common stock and Class B common stock of the Company, par value $0.0001 per share, outstanding on the date of the SEPA,
unless Company shareholder approval was obtained allowing for issuances in excess of such amount.
The
SEPA Option was determined to be a freestanding financial instrument which did not meet the criteria to be accounted for as a derivative
instrument or to be recognized within equity. Pursuant to ASC 815 Derivatives and Hedging (“ASC 815”), the Company
will therefore recognize the SEPA Option as an asset or liability, measured at fair value at the date of issuance, December 14, 2023,
and in subsequent reporting periods, with changes in fair value recognized in earnings. The SEPA Option was determined to have a fair
value of $0 at December 14, 2023 and December 31, 2023.
In
connection with the execution of the SEPA, the Company paid a cash structuring fee to Yorkville in the amount of $35,000 (the “Structuring
Fee”). Additionally, (a) Legacy Banzai issued to Yorkville immediately prior to the Closing of the Merger on December 14, 2023
such number of shares of Legacy Banzai’s Class A common stock such that upon the Closing, Yorkville received 300,000 shares of
Class A common stock (the “Closing Shares”) having an aggregate fair value of $3,288,000 at issuance, as a holder of shares
of Class A common stock of Legacy Banzai, and (b) the Company agreed to pay a commitment fee of $500,000 to Yorkville at the earlier
of (i) March 14, 2024 or (ii) the termination of the SEPA, which will be payable, at the option of the Company, in cash or shares of
Class A common stock through an Advance (the “Deferred Fee”). The aggregate fair value of the Structuring Fee, the Closing
Shares, and the Deferred Fee of $3,823,000 was recorded to general and administrative expense upon execution of the SEPA.
Pursuant
to the terms of the SEPA, at any time that there is a balance outstanding under the Yorkville Convertible Note, Yorkville has the right
to receive shares to pay down the principal balance, and may select the timing and delivery of such shares (via an “Investor Notice”),
in an amount up to the outstanding principal balance on the Yorkville Convertible Note at a purchase price equal to the lower of (i)
$10.00 per share of Class A common stock (the “Fixed Price”), or (ii) 90% of the lowest daily Volume Weighted Average Price
(“VWAP”) of the Class A common stock on Nasdaq during the 10 consecutive Trading Days immediately preceding the Investor
Notice date or other date of determination (the “Variable Price”). The Variable Price shall not be lower than $2.00 per share
(the “Floor Price”). The Floor Price shall be adjusted (downwards only) to equal 20% of the average VWAP for the five trading
days immediately prior to the date of effectiveness of the initial Registration Statement. Notwithstanding the foregoing, the Company
may reduce the Floor Price to any amount via written notice to Yorkville, provided that such amount is no more than 75% of the closing
price on the Trading Day immediately prior to the time of such reduction and no greater than $2.00 per share of Class A common stock
(the “Conversion Price”). At any time that there is a balance outstanding under the Yorkville Convertible Note, the Company
is not permitted to issue Advance Notices under the SEPA unless an Amortization Event has occurred under the terms of the Yorkville Convertible
Note agreement. Refer to Note 21 Subsequent Events for further details
There
were no Advance Notices issued pursuant to the SEPA during the year ended December 31, 2023 or as of the date that these financial statements
were issued.
Cantor
Fee Agreement
On
December 28, 2023, the Company issued 1,113,927 shares of Class A Common Stock to Cantor pursuant to the Fee Reduction Agreement. See
Note 17 - Commitments and Contingencies for further details of this transaction.
19.
Stock-Based Compensation
Prior
to the Merger, the Company established the Banzai International, Inc. 2016 Equity Incentive Plan (“the 2016 Plan”) on April
26, 2016, to enable the Company to attract, incentivize and retain eligible individuals through the granting of awards in the Company.
The maximum number of options that may be issued over the term of the Plan were initially set at 400,000 shares of common stock. On July
19, 2017, the 2016 Plan was amended to increase the maximum number of options that may be issued to 2,400,000 shares of common stock.
Accordingly, the Company has reserved a sufficient number of shares to permit the exercise of options in accordance with the terms of
the 2016 Plan. The term of each award under the 2016 Plan shall be no more than ten years from the date of grant thereof. The Company’s
Board of Directors is responsible for the administration of the 2016 Plan and has the sole discretion to determine which grantees will
be granted awards and the terms and conditions of the awards granted. As of December 31, 2023, 572,172 stock options remain available
to be awarded under the 2023 Plan.
During
2023, the Company adopted the 2023 Equity Incentive Plan (the “2023 Plan”). The 2023 Plan permits the granting of incentive
stock options, nonstatutory stock options, SARs, restricted stock awards, RSU awards, performance awards, and other awards. to employees,
directors, and consultants. The aggregate number of shares of common stock that may be issued will not exceed approximately 12.5% of
the fully diluted common stock determined at the Close of the Merger. In addition, the aggregate number of shares of common stock will
automatically increase on January 1 of each year for a period of ten years commencing on January 1, 2024 and ending on January 1, 2033,
in an amount equal to 5% of the total number of shares of the fully diluted common stock determined as of the day prior to such increase.
The aggregate maximum number of shares of common stock that may be issued pursuant to the exercise of incentive stock options is approximately
three times the total number of shares of common stock initially reserved for issuance. As of December 31, 2023, no shares have been
awarded under the 2023 Plan.
The
Company accounts for stock-based payments pursuant to ASC 718 Stock Compensation and, accordingly, the Company records compensation
expense for stock-based awards based upon an assessment of the grant date fair value for options using the Black-Scholes option pricing
model. The Company has concluded that its historical share option exercise experience does not provide a reasonable basis upon which
to estimate expected term. Therefore, the expected term was determined according to the simplified method, which is the average of the
vesting tranche dates and the contractual term. Due to the lack of company specific historical and implied volatility data, the estimate
of expected volatility is primarily based on the historical volatility of a group of similar companies that are publicly traded. For
these analyses, companies with comparable characteristics were selected, including enterprise value and position within the industry,
and with historical share price information sufficient to meet the expected life of the share-based awards. The Company computes the
historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent periods of the
calculated expected term of its share-based awards. The risk-free interest rate is determined by reference to the U.S. Treasury zero-coupon
issues with remaining maturities similar to the expected term of the options. Expected dividend yield is zero based on the fact that
the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
On
December 3, 2023, the Board of Directors of Banzai approved the repricing of 359,673 outstanding stock options held by current employees
to an exercise price of $5.15. No other changes to the original stock option grant terms were made.
The
incremental compensation cost was measured as the fair value of the stock options immediately before and immediately after the modification.
The Company determined the total incremental compensation cost from the modification to be $113,475, of which $23,849 related to fully
vested options and was expensed as stock-based compensation expense, and $89,626 related to unvested options and will be recognized over
the remaining service period.
In
connection with the Merger, each option of Banzai that was outstanding and unexercised immediately prior to the Effective Time (whether
vested or unvested) was assumed by 7GC and converted into an option to acquire an adjusted number of shares of Common Stock at an adjusted
exercise price per share (the “Substitute Options”), based on the Option Exchange Ratio (of 0.6147), and will continue to
be governed by substantially the same terms and conditions, including vesting, as were applicable to the former option. Each Substitute
Option will be exercisable for a number of whole shares of Common Stock equal to the product of the number of shares of Banzai common
stock underlying such Banzai option multiplied by the Option Exchange Ratio, and the per share exercise price of such Substitute Option
will be equal to the quotient determined by dividing the exercise price per share of Banzai common stock by the Option Exchange Ratio.
The percentage of total shares of Common Stock subject to each Substitute Option that is vested immediately following the Effective Time
will equal the percentage of total shares of Banzai common stock subject to each Banzai option that is vested immediately prior to the
Effective Time.
Upon
the closing of the Merger, the outstanding and unexercised Banzai stock options became options to purchase an aggregate 748,087 shares
of the Company’s Common Stock at a weighted average exercise price of $5.87 per share. The Company accounted for the Substitute
Options as a modification of the existing options. Incremental compensation costs, measured as the excess, if any, of the fair value
of the modified options over the fair value of the original options immediately before its terms are modified, is measured based on the
fair value of the underlying shares and other pertinent factors at the modification date. The change to the award effected only the number
of options and strike price by the same exchange ratio, the Company determined the change would not impact the fair value of the awards.
As such, no incremental compensation costs relating to the Substitute Options was recorded at the date of modification.
The
following table summarizes assumptions used to compute the fair value of options granted:
| | |
December 31,
2023 | | |
December 31,
2022 | |
| Stock price | |
$ | 8.38 - 11.98 | | |
$ | 1.54 | |
| Exercise price | |
$ | 8.38
- 11.98 | | |
$ | 1.04 | |
| Expected volatility | |
| 80.00 - 110.95 | % | |
| 53.61 - 55.30 | % |
| Expected term (in years) | |
| 5.00 - 6.08 | | |
| 5.94 - 6.08 | |
| Risk-free interest rate | |
| 3.46 - 4.31 | % | |
| 1.95 - 2.85 | % |
A
summary of stock option activity under the Plan is as follows:
| | |
Shares Underlying Options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term (in years) | | |
Intrinsic Value | |
| Outstanding at December 31, 2021 | |
| 781,715 | | |
$ | 1.15 | | |
| 7.20 | | |
$ | 369,102 | |
| Retroactive application of recapitalization (Note 4) | |
| (301,223 | ) | |
| 0.72 | | |
| | | |
| | |
| Outstanding at December 31, 2021, after effect of Merger (Note 4) | |
| 480,492 | | |
| 1.87 | | |
| | | |
| | |
| Granted | |
| 235,109 | | |
| 2.77 | | |
| | | |
| | |
| Exercised | |
| (8,538 | ) | |
| 1.24 | | |
| | | |
| 10,835 | |
| Expired | |
| (120,569 | ) | |
| 1.38 | | |
| | | |
| | |
| Forfeited | |
| (215,496 | ) | |
| 2.59 | | |
| | | |
| | |
| Outstanding at December 31, 2022 | |
| 370,998 | | |
$ | 2.13 | | |
| 7.95 | | |
$ | 3,433,946 | |
| Granted | |
| 821,998 | | |
| 10.01 | | |
| | | |
| | |
| Exercised | |
| (17,643 | ) | |
| 2.19 | | |
| | | |
| 4,440 | |
| Expired | |
| (12,908 | ) | |
| 11.97 | | |
| | | |
| | |
| Forfeited | |
| (414,359 | ) | |
| 10.76 | | |
| | | |
| | |
| Outstanding at December 31, 2023 | |
| 748,086 | | |
$ | 5.87 | | |
| 8.43 | | |
$ | 103,662 | |
| Exercisable at December 31, 2023 | |
| 345,018 | | |
$ | 4.23 | | |
| 7.56 | | |
$ | 103,251 | |
In
connection with issuances under the Plan, the Company recorded stock-based compensation expense of $1,245,796 and $770,336, which is
included in general and administrative expense for the years ended December 31, 2023 and 2022, respectively. The weighted-average grant-date
fair value per option granted during the years ended December 31, 2023 and 2022 was $4.86 and $0.77, respectively. As of December 31,
2023 and 2022, $2,594,571 and $160,203 of unrecognized compensation expense related to non-vested awards is expected to be recognized
over the weighted average period of 2.73 and 2.74 years, respectively. The aggregate intrinsic value is calculated as the difference
between the fair value of the Company’s stock price and the exercise price of the options.
20.
Income Taxes
A
reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate consists of the following:
| | |
For the Years Ended December 31, | |
| | |
2023 | | |
2022 | |
| Statutory federal income tax benefit | |
$ | (3,025,315 | ) | |
| 21.0 | % | |
$ | (3,248,385 | ) | |
| 21.0 | % |
| State taxes, net of federal tax benefit | |
| (219,705 | ) | |
| 1.5 | % | |
| (327,095 | ) | |
| 2.1 | % |
| Change in valuation allowance | |
| 2,079,231 | | |
| -14.4 | % | |
| 1,435,041 | | |
| -9.3 | % |
| Change in state tax rate | |
| 462,709 | | |
| -3.2 | % | |
| 13,055 | | |
| -0.1 | % |
| Change in fair value estimates | |
| (2,050,026 | ) | |
| 14.2 | % | |
| 1,610,993 | | |
| -10.4 | % |
| Non-deductible interest - IRC 163(j) | |
| 738,993 | | |
| -5.1 | % | |
| - | | |
| 0.0 | % |
| Non-deductible transaction/restructuring costs | |
| 1,313,792 | | |
| -9.1 | % | |
| - | | |
| 0.0 | % |
| Nondeductible warrant issuance expense | |
| 552,321 | | |
| -3.8 | % | |
| - | | |
| 0.0 | % |
| Other non-deductible expenses | |
| 148,000 | | |
| -1.0 | % | |
| 516,391 | | |
| -3.3 | % |
| Effective tax rate | |
$ | - | | |
| 0.0 | % | |
$ | - | | |
| 0.0 | % |
The
components of income tax provision (benefit) are as follows:
| | |
As of December 31, | |
| | |
2023 | | |
2022 | |
| Federal: | |
| | | |
| | |
| Current | |
$ | — | | |
$ | — | |
| Deferred | |
| — | | |
| — | |
| State and Local: | |
| | | |
| | |
| Current | |
| — | | |
| — | |
| Deferred | |
| — | | |
| — | |
| Total | |
$ | — | | |
$ | — | |
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying value of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes. The temporary differences that give rise to deferred tax assets and liabilities
are as follows:
| | |
As of December 31, | |
| | |
2023 | | |
2022 | |
| Deferred tax assets (liabilities): | |
| | | |
| | |
| Net operating loss carryforwards | |
$ | 6,368,669 | | |
$ | 3,744,512 | |
| Contribution carryforwards | |
| 24,626 | | |
| 20,837 | |
| Stock-based compensation | |
| 155,404 | | |
| 25,216 | |
| Accrual to cash adjustment | |
| 1,299 | | |
| 482,109 | |
| Startup costs | |
| 1,816,143 | | |
| — | |
| Lease Liabilities | |
| 52,805 | | |
| 119,971 | |
| Right of use assets | |
| (30,236 | ) | |
| (71,024 | ) |
| Capitalized R&D costs (Sec. 174) | |
| 798,802 | | |
| 451,195 | |
| Other | |
| (3,363 | ) | |
| 696 | |
| | |
| 9,184,149 | | |
| 4,773,512 | |
| Valuation allowance | |
| (9,184,149 | ) | |
| (4,773,512 | ) |
| Deferred tax assets, net of allowance | |
$ | — | | |
$ | — | |
As
of December 31, 2023, the Company had federal and state net operating loss carryforwards of approximately $26,705,200 and $13,043,900,
respectively. As of December 31, 2022, the Company had federal and state net operating loss carryforwards of approximately $15,325,300
and $9,175,400, respectively. Federal losses of $124,500 begin to expire in 2036 and $26,580,700 of the federal losses carryforward indefinitely.
State losses of $10,666,100 begin to expire in 2031 and $2,377,800 of the state losses carryforward indefinitely. Utilization of the
net operating loss carryforwards may be subject to an annual limitation according to Section 382 of the Internal Revenue Code of 1986
as amended, and similar provisions.
The
Company has determined, based upon available evidence, that it is more likely than not that all the net deferred tax assets will not
be realized and, accordingly, has provided a full valuation allowance against its net deferred tax asset. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, net operating loss carryback potential, and tax planning strategies
in making these assessments.
The
Company has determined that it had no material uncertain tax benefits for the year ended December 31, 2023 and 2022. The Company recognizes
interest accrued related to unrecognized tax benefits and penalties in interest expense and penalties in operating expense. No amounts
were accrued for the payment of interest and penalties at December 31, 2023, and 2022.
The
Company files tax returns as prescribed by the tax laws of the jurisdictions in which they operate. In the normal course of business,
the Company is subject to examination by federal and state jurisdictions where applicable based on the statute of limitations that apply
in each jurisdiction. As of December 31, 2023, the 2016 and subsequent tax years related to all jurisdictions remain open.
The
Company has no open tax audits with any taxing authority as of December 31, 2023.
21.
Subsequent Events
Yorkville
SEPA Supplemental Agreement
As
previously disclosed, pursuant to the SEPA, dated December 14, 2023, between the Company and Yorkville, Yorkville agreed to advance to
the Company, in exchange for convertible promissory notes, a Pre-Paid Advance for an aggregate principal amount of up to $3.5 million,
$2.0 million (less a 10% discount) of which was funded at the closing of the Company’s Merger and $1.5 million (less a 10% discount)
of which was to be funded when the Company’s Registration Statement on Form S-1, originally filed with the U.S. Securities and
Exchange Commission on December 29, 2023, and amended on February 5, 2024, becomes effective and the Company obtains stockholder approval
for the issuance of shares in excess of 19.99% of the aggregate number of shares of the Company’s Class A common stock issued and
outstanding as of the date of the SEPA in accordance with the applicable rules of Nasdaq.
On
February 5, 2024, the Company and Yorkville entered into a supplemental agreement (the “SEPA Supplemental Agreement”) to
increase the amount of the Pre-Paid Advance under the SEPA by $1.0 million (the “Additional Pre-Paid Advance Amount”), for
an aggregate principal amount of $4.5 million to be advanced by Yorkville to the Company under the SEPA and SEPA Supplemental Agreement.
The Additional Pre-Paid Advance Amount (less a 10% discount) was funded on February 5, 2024 in exchange for a promissory note in the
principal amount of $1.0 million (the “Yorkville Promissory Note”). The Yorkville Promissory Note matures on June 14, 2024
and bears interest at a rate of 0%, subject to certain adjustments.
On
March 27, 2024, the Company and Yorkville entered into a supplemental agreement (the “SEPA March Supplemental Agreement”)
to increase the amount of the Pre-Paid Advance under the SEPA by $1.5 million (the “March Additional Pre-Paid Advance Amount”),
for an aggregate principal amount of $4.5 million to be advanced by Yorkville to the Company under the SEPA, SEPA Supplemental Agreement,
and SEPA March Supplemental Agreement. The March Additional Pre-Paid Advance Amount (less a 10% discount) was funded on March 27, 2024
in exchange for a promissory note in the principal amount of $1.5 million (the “March Yorkville Promissory Note”). The March
Yorkville Promissory Note matures on June 14, 2024 and bears interest at a rate of 0%, subject to certain adjustments.
Yorkville
Advance Agreement Amortization Event Waiver
On
January 24, 2024, Yorkville provided the Company with a waiver with respect to the triggering of an amortization event in January 2024,
in terms of the Yorkville Convertible Note Agreement, which would have required the Company 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, plus (y) 10%
in respect of such amount, and (z) all outstanding accrued and unpaid interest as of each payment date. As a result of the waiver, no
repayments were required by the Company, and the floor price trigger underlying the amortization event was reset on February 15, 2023,
at which point the amortization event trigger was cured.
Yorkville
SEPA Advance Purchase Notices and Yorkville Deferred Fee Settlement
In
February, 2024, Yorkville submitted two Advance Notice Investor Notices, related to the purchase of common shares of the Company, with
the aggregate purchase price of those shares offset against amounts outstanding by the Company under the Pre-Paid Yorkville Convertible
Notes. Yorkville purchased a total of 344,377 shares, for a total aggregate purchase consideration of $300,000. The conversion prices
applicable to these purchases ranged from $0.7616 to $1.2229 per share.
In
March, 2024, Yorkville submitted six Advance Notice Investor Notices, related to the purchase of common shares of the Company, with the
aggregate purchase price of those shares offset against amounts outstanding by the Company under the Pre-Paid Yorkville Convertible Notes
and to settle the Deferred Fee payable to Yorkville. Yorkville purchased a total of 1,889,358 and 710,025 shares, for a total aggregate
purchase consideration of $1,200,000 and $500,000 in settlement of the Yorkville Convertible Notes and Deferred Fee, respectively. The
conversion prices applicable to these purchases ranged from $0.6330 to $0.7042 per share.
Roth
Addendum to Letter Agreements
On
October 13, 2022, Roth and Legacy Banzai entered into the Roth Engagement Letter, pursuant to which Legacy Banzai engaged Roth as a financial
advisor in connection with the Merger and, on October 14, 2022, MKM and 7GC entered into the MKM Engagement Letter, pursuant to which
7GC engaged MKM as a financial advisor in connection with the Merger. In February 2023, Roth acquired MKM.
On
February 2, 2024, the Company and Roth entered into an addendum to (i) the engagement letter, dated October 13, 2022, by and between
Roth and Legacy Banzai, and (ii) the engagement letter, dated October 14, 2022, by and between Roth (as successor to MKM Partners, LLC)
and 7GC (such engagement agreements, collectively, the “Roth Engagement Agreements,” and such addendum, the “Roth Addendum”).
Pursuant to the Roth Addendum, in lieu of payment in cash of the full amount of any advisory fees or other fees or expenses, incurred
in 2024, and owed under the Roth Engagement Agreements (collectively, the “Roth Fee”), the Company (i) issued to Roth 175,000
shares (the “Roth Shares”) of the Company’s Class A Common Stock, and (ii) on or before June 30, 2024, will pay to
Roth an amount in cash equal to $300,000 or, if the Company determines that such payment should not be made in cash due to the Company’s
cash position at such time, issue to Roth a number of shares of Class A Common Stock equal to $300,000 divided by the daily VWAP for
the trading day immediately preceding June 30, 2024 (any such shares, the “Additional Roth Shares”). The Company registered
the Roth Shares and 600,000 shares of Class A Common Stock (in addition to the Roth Shares) on a registration statement to cover any
issuances of Additional Roth Shares (which may be more or less than 600,000) that may occur pursuant to the Roth Addendum. This registration
statement became effective on February 14, 2024. The $300,000 cash payment has not yet been made as of the date of filing of these annual
financial statements.
Notice
of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
On
February 5, 2024, the Company received a letter (the “Letter”) from the staff at Nasdaq notifying the Company that, for the
30 consecutive business days prior to the date of the Letter, the Company’s Minimum Value of Listed Securities (“MVLS”)
was below the minimum of $50 million required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(b)(2)(A).
The staff at Nasdaq also noted in the Letter that the Company is not in compliance with Nasdaq Listing Rule 5450(b)(3)(A), which requires
listed companies to have total assets and total revenue of at least $50,000,000 each for the most recently completed fiscal year or for
two of the three most recently completed fiscal years. The Letter is only a notification of deficiency, not of imminent delisting, and
has no current effect on the listing or trading of the Company’s securities on Nasdaq.
In
accordance with Nasdaq listing rule 5810(c)(3)(C), the Company has 180 calendar days, or until August 5, 2024, to regain compliance.
The Letter notes that to regain compliance, the Company’s MVLS must close at or above $50 million for a minimum of ten consecutive
business days during the compliance period. The Letter further notes that if the Company is unable to satisfy the MVLS requirement prior
to such date, the Company may be eligible to transfer the listing of its securities to The Nasdaq Capital Market (provided that the Company
then satisfies the requirements for continued listing on that market).
If
the Company does not regain compliance by August 5, 2024, Nasdaq staff will provide written notice to the Company that its securities
are subject to delisting. At that time, the Company may appeal any such delisting determination to a hearings panel.
The
Company intends to actively monitor the Company’s MVLS between now and August 5, 2024, and may, if appropriate, evaluate available
options to resolve the deficiency and regain compliance with the MVLS requirement. While the Company is exercising diligent efforts to
maintain the listing of its securities on Nasdaq, there can be no assurance that the Company will be able to regain or maintain compliance
with Nasdaq listing standards.
GEM
Agreement
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 million in cash within three business days of the GEM Settlement
Agreement and (ii) issued to GEM, on February 5, 2024, an unsecured promissory note in the amount of $1.0 million, payable in monthly
installments of $100,000 beginning on March 1, 2024, with the final payment to be made on December 1, 2024 (the “GEM Promissory
Note”).
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 shares of Class A Common Stock that may be issuable under the terms of the GEM Promissory Note. The GEM Promissory
Note contains customary events of default. If an event of default occurs, GEM may, at its option, demand from the Company immediate payment
of any outstanding balance under the GEM Promissory Note. As of the date of this Annual Report, we have issued an aggregate of 139,470
shares of Class A Common Stock to GEM in lieu of monthly payment obligations.
Conversion
of 7GC Promissory Notes
As
discussed per Note 14 - Debt, On December 12, 2023, in connection with the Merger, the Sponsor came to a non-binding agreement
with 7GC to amend the 7GC Promissory Notes, to provide that 7GC 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 days after the closing of the Merger at a conversion price equal to the
average daily VWAP of the Class A Common Stock for the 30 trading days following the Closing.
On
February 2, 2024, pursuant to and in accordance with the First Amendment Conversion Provisions, the Sponsor exercised its right
to convert the full principal amount under each of the 7GC Notes within 30 days after the Closing, and such conversions were completed
on February 2, 2024, resulting in the issuance to the Sponsor of an aggregate of 890,611 shares of Class A Common Stock (collectively,
the “Conversion and Issuance”).
Forfeiture
and Cancellation of 7GC Sponsor Shares
In
January 2024, the Company and 7GC entered into an agreement whereby 7GC agreed to forfeit a total of 100,000 shares held by 7GC. These
shares were transferred to the Company and subsequently cancelled.
Issuance
of Shares as Compensation for Marketing Agreement
On
February 16, 2024, the Company entered into a Marketing Services Agreement with a vendor. This agreement was effective February 19, 2024,
and relates to the provision of marketing and distribution services to the Company. Effective as of February 19, 2024, as compensation
for these services, the Company agreed to issued to this vendor a total of 153,492 ordinary shares, with a market value as of the valuation
date, of $200,000. As of the date of this annual report, these shares have not yet been issued to the vendor.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 2024
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: 001-39826
Banzai
International, Inc.
(Exact
name of Registrant as specified in its Charter)
| Delaware |
|
85-3118980 |
(State
or other jurisdiction of
incorporation
or organization) |
|
(I.R.S.
Employer
Identification
No.) |
| |
|
|
435
Ericksen Ave, Suite 250
Bainbridge
Island, Washington |
|
98110 |
| (Address
of principal executive offices) |
|
(Zip
Code) |
(206)
414-1777
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
| Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
| Class
A common stock, par value $0.0001 per share |
|
BNZI |
|
The
Nasdaq Global Market |
| Redeemable
Warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 |
|
BNZIW |
|
The
Nasdaq Capital Market |
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 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 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 filer |
|
☐ |
Accelerated
filer |
|
☐ |
| |
|
|
|
| Non-accelerated
filer |
|
☒ |
Smaller
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 ☒
Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES ☒ NO ☐
The
number of shares outstanding of each of the registrant’s classes of common stock, $0.0001 par value per share, as of May 10, 2024:
Class
A Common Stock - 19,322,460 shares
Class
B Common Stock - 2,311,134 shares
Table
of Contents
PART
I—FINANCIAL INFORMATION
BANZAI
INTERNATIONAL, INC.
Condensed
Consolidated Balance Sheets
| | |
March 31, 2024 | | |
December 31, 2023 | |
| | |
(Unaudited) | | |
| |
| ASSETS | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash | |
$ | 1,026,932 | | |
$ | 2,093,718 | |
| Accounts receivable, net of allowance for credit losses of $3,557 and $5,748, respectively | |
| 34,670 | | |
| 105,049 | |
| Prepaid expenses and other current assets | |
| 1,073,914 | | |
| 741,155 | |
| Total current assets | |
| 2,135,516 | | |
| 2,939,922 | |
| | |
| | | |
| | |
| Property and equipment, net | |
| 3,080 | | |
| 4,644 | |
| Goodwill | |
| 2,171,526 | | |
| 2,171,526 | |
| Operating lease right-of-use assets | |
| 90,308 | | |
| 134,013 | |
| Other assets | |
| 38,381 | | |
| 38,381 | |
| Total assets | |
| 4,438,811 | | |
| 5,288,486 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable | |
| 8,336,909 | | |
| 6,439,863 | |
| Accrued expenses and other current liabilities | |
| 3,862,714 | | |
| 5,194,240 | |
| Convertible notes (Yorkville) | |
| 3,064,000 | | |
| 1,766,000 | |
| Convertible notes - related party | |
| — | | |
| 2,540,091 | |
| Convertible notes | |
| 3,709,889 | | |
| 2,693,841 | |
| Notes payable | |
| 6,948,710 | | |
| 6,659,787 | |
| Notes payable - related party | |
| 3,082,650 | | |
| 2,505,137 | |
| Deferred underwriting fees | |
| 4,000,000 | | |
| 4,000,000 | |
| Deferred fee | |
| — | | |
| 500,000 | |
| Warrant liability | |
| 233,000 | | |
| 641,000 | |
| Warrant liability - related party | |
| 460,000 | | |
| 575,000 | |
| Earnout liability | |
| 37,125 | | |
| 59,399 | |
| Due to related party | |
| 67,118 | | |
| 67,118 | |
| GEM commitment fee liability | |
| — | | |
| 2,000,000 | |
| Deferred revenue | |
| 1,245,306 | | |
| 1,214,096 | |
| Operating lease liabilities, current | |
| 158,965 | | |
| 234,043 | |
| Total current liabilities | |
| 35,206,386 | | |
| 37,089,615 | |
| | |
| | | |
| | |
| Other long-term liabilities | |
| 75,000 | | |
| 75,000 | |
| Total liabilities | |
| 35,281,386 | | |
| 37,164,615 | |
| | |
| | | |
| | |
| Commitments and contingencies (Note 14) | |
| | | |
| | |
| | |
| | | |
| | |
| Stockholders’ deficit: | |
| | | |
| | |
| Common stock, $0.0001 par value, 275,000,000 shares authorized and 20,221,589 and 16,019,256 issued and outstanding at March 31, 2024 and December 31, 2023, respectively (Note 15) | |
| 2,022 | | |
| 1,602 | |
| Preferred stock, $0.0001 par value, 75,000,000 shares authorized, 0 shares issued and outstanding at March 31, 2024 and December 31, 2023 | |
| — | | |
| — | |
| Additional paid-in capital | |
| 20,421,999 | | |
| 14,888,593 | |
| Accumulated deficit | |
| (51,266,596 | ) | |
| (46,766,324 | ) |
| Total stockholders’ deficit | |
| (30,842,575 | ) | |
| (31,876,129 | ) |
| Total liabilities and stockholders’ deficit | |
$ | 4,438,811 | | |
$ | 5,288,486 | |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BANZAI
INTERNATIONAL, INC.
Unaudited
Condensed Consolidated Statements of Operations
| | |
For the Three Months Ended March 31, | |
| | |
2024 | | |
2023 | |
| Operating income: | |
| | | |
| | |
| Revenue | |
$ | 1,079,472 | | |
$ | 1,177,061 | |
| Cost of revenue | |
| 381,380 | | |
| 412,226 | |
| Gross profit | |
| 698,092 | | |
| 764,835 | |
| | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | |
| General and administrative expenses | |
| 4,308,929 | | |
| 3,170,063 | |
| Depreciation expense | |
| 1,564 | | |
| 2,404 | |
| Total operating expenses | |
| 4,310,493 | | |
| 3,172,467 | |
| | |
| | | |
| | |
| Operating loss | |
| (3,612,401 | ) | |
| (2,407,632 | ) |
| | |
| | | |
| | |
| Other expenses (income): | |
| | | |
| | |
| GEM settlement fee expense | |
| 200,000 | | |
| — | |
| Other income, net | |
| (4,118 | ) | |
| (62,538 | ) |
| Interest income | |
| (10 | ) | |
| (111 | ) |
| Interest expense | |
| 451,399 | | |
| 537,878 | |
| Interest expense - related party | |
| 577,513 | | |
| 383,284 | |
| Gain on extinguishment of liability | |
| (527,980 | ) | |
| — | |
| Loss on debt issuance | |
| 171,000 | | |
| — | |
| Change in fair value of warrant liability | |
| (408,000 | ) | |
| — | |
| Change in fair value of warrant liability - related party | |
| (115,000 | ) | |
| — | |
| Change in fair value of simple agreement for future equity | |
| — | | |
| 22,861 | |
| Change in fair value of simple agreement for future equity - related party | |
| — | | |
| 303,139 | |
| Change in fair value of bifurcated embedded derivative liabilities | |
| — | | |
| 32,415 | |
| Change in fair value of bifurcated embedded derivative liabilities - related party | |
| — | | |
| 137,285 | |
| Change in fair value of convertible notes | |
| 544,000 | | |
| — | |
| Total other expenses, net | |
| 888,804 | | |
| 1,354,213 | |
| Loss before income taxes | |
| (4,501,205 | ) | |
| (3,761,845 | ) |
| Income tax (benefit) expense | |
| (933 | ) | |
| 3,277 | |
| Net loss | |
$ | (4,500,272 | ) | |
$ | (3,765,122 | ) |
| | |
| | | |
| | |
| Net loss per share | |
| | | |
| | |
| Basic and diluted | |
$ | (0.26 | ) | |
$ | (0.59 | ) |
| | |
| | | |
| | |
| Weighted average common shares outstanding | |
| | | |
| | |
| Basic and diluted | |
| 17,355,609 | | |
| 6,382,180 | |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BANZAI
INTERNATIONAL, INC.
Unaudited
Condensed Consolidated Statements of Stockholders’ Deficit
for
the Three Months Ended March 31, 2024 and 2023
| | |
Series A Preferred Stock | | |
Common Stock | | |
Additional
Paid-in- | | |
Accumulated | | |
Total
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| Balance December 31, 2023 | |
| — | | |
$ | — | | |
| 16,019,256 | | |
$ | 1,602 | | |
$ | 14,888,593 | | |
$ | (46,766,324 | ) | |
$ | (31,876,129 | ) |
| Conversion of convertible notes - related party | |
| — | | |
| — | | |
| 890,611 | | |
| 89 | | |
| 2,540,002 | | |
| — | | |
| 2,540,091 | |
| Shares issued to Yorkville for convertible notes | |
| — | | |
| — | | |
| 2,233,735 | | |
| 223 | | |
| 1,666,777 | | |
| — | | |
| 1,667,000 | |
| Shares issued to Yorkville for commitment fee | |
| | | |
| | | |
| 710,025 | | |
| 71 | | |
| 499,929 | | |
| | | |
| 500,000 | |
| Shares issued to Roth for advisory fee | |
| — | | |
| — | | |
| 175,000 | | |
| 18 | | |
| 278,815 | | |
| — | | |
| 278,833 | |
| Shares issued to GEM | |
| — | | |
| — | | |
| 139,470 | | |
| 14 | | |
| 99,986 | | |
| — | | |
| 100,000 | |
| Shares issued for marketing expense | |
| — | | |
| — | | |
| 153,492 | | |
| 15 | | |
| 194,920 | | |
| | | |
| 194,935 | |
| Forfeiture of sponsor shares | |
| — | | |
| — | | |
| (100,000 | ) | |
| (10 | ) | |
| 10 | | |
| — | | |
| — | |
| Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 252,967 | | |
| — | | |
| 252,967 | |
| Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (4,500,272 | ) | |
| (4,500,272 | ) |
| Balance March 31, 2024 | |
| — | | |
$ | — | | |
| 20,221,589 | | |
$ | 2,022 | | |
$ | 20,421,999 | | |
$ | (51,266,596 | ) | |
$ | (30,842,575 | ) |
| | |
Series A Preferred Stock | | |
Common Stock | | |
Additional
Paid-in- | | |
Accumulated | | |
Total
Stockholders’ | |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| Balance December 31, 2022 | |
| — | | |
$ | — | | |
| 6,445,599 | | |
$ | 645 | | |
$ | 8,245,359 | | |
$ | (32,360,062 | ) | |
$ | (24,114,058 | ) |
| Exercise of stock options | |
| — | | |
| — | | |
| 8,538 | | |
| 1 | | |
| 5,542 | | |
| — | | |
| 5,543 | |
| Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 402,448 | | |
| — | | |
| 402,448 | |
| Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (3,765,122 | ) | |
| (3,765,122 | ) |
| Balance March 31, 2023 | |
| — | | |
$ | — | | |
| 6,454,137 | | |
$ | 646 | | |
$ | 8,653,349 | | |
$ | (36,125,184 | ) | |
$ | (27,471,189 | ) |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BANZAI
INTERNATIONAL, INC.
Unaudited
Condensed Consolidated Statements of Cash Flow
| | |
For the Three Months Ended March 31, | |
| | |
2024 | | |
2023 | |
| Cash flows from operating activities: | |
| | | |
| | |
| Net loss | |
$ | (4,500,272 | ) | |
$ | (3,765,122 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Depreciation expense | |
| 1,564 | | |
| 2,404 | |
| Provision for credit losses on accounts receivable | |
| (2,191 | ) | |
| (68,285 | ) |
| Non-cash share issuance for marketing expenses | |
| 48,734 | | |
| — | |
| Non-cash settlement of GEM commitment fee | |
| 200,000 | | |
| — | |
| Non-cash interest expense | |
| 374,944 | | |
| 151,316 | |
| Non-cash interest expense - related party | |
| 87,758 | | |
| 90,422 | |
| Amortization of debt discount and issuance costs | |
| 30,027 | | |
| 149,798 | |
| Amortization of debt discount and issuance costs - related party | |
| 489,755 | | |
| 292,862 | |
| Amortization of operating lease right-of-use assets | |
| 43,705 | | |
| 43,086 | |
| Stock based compensation expense | |
| 252,967 | | |
| 402,448 | |
| Gain on extinguishment of liability | |
| (527,980 | ) | |
| — | |
| Loss on debt issuance | |
| 171,000 | | |
| — | |
| Change in fair value of warrant liability | |
| (408,000 | ) | |
| — | |
| Change in fair value of warrant liability - related party | |
| (115,000 | ) | |
| — | |
| Change in fair value of simple agreement for future equity | |
| — | | |
| 22,861 | |
| Change in fair value of simple agreement for future equity - related party | |
| — | | |
| 303,139 | |
| Change in fair value of bifurcated embedded derivative liabilities | |
| — | | |
| 32,415 | |
| Change in fair value of bifurcated embedded derivative liabilities - related party | |
| — | | |
| 137,285 | |
| Change in fair value of convertible promissory notes | |
| 544,000 | | |
| — | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| Accounts receivable | |
| 72,570 | | |
| 74,946 | |
| Prepaid expenses and other current assets | |
| (186,558 | ) | |
| (31,969 | ) |
| Deferred offering costs | |
| — | | |
| (127,054 | ) |
| Accounts payable | |
| 1,897,046 | | |
| 1,175,710 | |
| Deferred revenue | |
| 31,210 | | |
| 103,164 | |
| Accrued expenses | |
| (524,713 | ) | |
| (200,224 | ) |
| Operating lease liabilities | |
| (75,078 | ) | |
| (68,373 | ) |
| Earnout liability | |
| (22,274 | ) | |
| (200,000 | ) |
| Net cash used in operating activities | |
| (2,116,786 | ) | |
| (1,479,171 | ) |
| Cash flows from financing activities: | |
| | | |
| | |
| Payment of GEM commitment fee | |
| (1,200,000 | ) | |
| — | |
| Proceeds from issuance of convertible notes, net of issuance costs | |
| 2,250,000 | | |
| — | |
| Proceeds from issuance of convertible notes, net of issuance costs - related party | |
| — | | |
| 1,500,000 | |
| Proceeds from issuance of common stock | |
| — | | |
| 5,543 | |
| Net cash provided by financing activities | |
| 1,050,000 | | |
| 1,505,543 | |
| Net (decrease) / increase in cash | |
| (1,066,786 | ) | |
| 26,372 | |
| Cash at beginning of period | |
| 2,093,718 | | |
| 1,023,499 | |
| Cash at end of period | |
$ | 1,026,932 | | |
$ | 1,049,871 | |
| Supplemental disclosure of cash flow information: | |
| | | |
| | |
| Cash paid for interest | |
| 44,814 | | |
| 234,336 | |
| Non-cash investing and financing activities | |
| | | |
| | |
| Shares issued to Roth for advisory fee | |
| 278,833 | | |
| — | |
| Shares issued to GEM | |
| 100,000 | | |
| — | |
| Shares issued for marketing services | |
| 194,935 | | |
| — | |
| Settlement of GEM commitment fee | |
| 200,000 | | |
| — | |
| Shares issued to Yorkville for commitment fee | |
| 500,000 | | |
| — | |
| Issuance of promissory note - GEM | |
| 1,000,000 | | |
| — | |
| Conversion of convertible notes - Yorkville | |
| 1,667,000 | | |
| — | |
| Conversion of convertible notes - related party | |
| 2,540,091 | | |
| — | |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
BANZAI
INTERNATIONAL, INC.
Unaudited
Notes to Condensed Consolidated Financial Statements
1.
Organization
The
Business
Banzai
International, Inc. (the “Company” or “Banzai”) was incorporated in Delaware on September 30, 2015. Banzai is
a leading enterprise SaaS Video Engagement platform used by marketers to power webinars, trainings, virtual events, and on-demand video
content.
Close
of the Merger
On
December 14, 2023 (the “Closing Date”), 7GC & Co. Holdings Inc. (“7GC”), our predecessor company, consummated
the business combination pursuant to the Agreement and Plan of Merger and Reorganization, dated as of December 8, 2022 (the “Original
Merger Agreement”), by and among 7GC, Banzai International, Inc. (“Legacy Banzai”), 7GC Merger Sub I, Inc., an indirect
wholly owned subsidiary of 7GC (“First Merger Sub”), and 7GC Merger Sub II, LLC, a direct wholly owned subsidiary of 7GC
(“Second Merger Sub”), as amended by the Amendment to Agreement and Plan of Merger, dated as of August 4, 2023 (the “Merger
Agreement Amendment” and, together with the Original Merger Agreement, the “Merger Agreement”), by and between 7GC
and Legacy Banzai.
Pursuant
to the terms of the Merger Agreement, a business combination between 7GC and Legacy Banzai was effected through (a) the merger of First
Merger Sub with and into Legacy Banzai, with Legacy Banzai surviving as a wholly-owned subsidiary of 7GC (Legacy Banzai, in its capacity
as the surviving corporation of the merger, the “Surviving Corporation”) (the “First Merger”) and (b) the subsequent
merger of the Surviving Corporation with and into Second Merger Sub, with Second Merger Sub being the surviving entity of the Second
Merger, which ultimately resulted in Legacy Banzai becoming a wholly-owned direct subsidiary of 7GC (the “Second Merger”
and, together with the First Merger, the “Mergers” and, collectively with the other transactions described in the Merger
Agreement, the “Merger”). On the Closing Date, and in connection with the closing of the Merger (the “Closing”),
7GC changed its name to Banzai International, Inc.
Although
7GC was the legal acquirer of Legacy Banzai in the merger, Legacy Banzai is deemed to be the accounting acquirer, and the historical
financial statements of Legacy Banzai became the basis for the historical financial statements of the Company upon the closing of the
merger.
As
a result, the financial statements included here reflect (i) the historical operating results of Legacy Banzai prior to the merger; (ii)
the combined results of 7GC and Legacy Banzai following the close of the merger; (iii) the assets and liabilities of Legacy Banzai at
their historical cost and (iv) the Legacy Banzai’s equity structure for all periods presented, as affected by the recapitalization
presentation after completion of the merger.
The
aggregate consideration payable to securityholders of Legacy Banzai at the Closing consisted of a number of shares of Class A Common
Stock or shares of Class B Common Stock, and cash in lieu of any fractional shares of Class A Common Stock or shares of Class B Common
Stock that would otherwise have been payable to any Legacy Banzai securityholders, equal to $100,000,000. See Note 4 - Reverse Merger
Capitalization with 7GC & Co. Holdings Inc. for further details of the merger.
Emerging
Growth Company
Upon
closure of the Merger, the Company became an “emerging growth company,” as defined in Section 2(a) of the Securities Act
of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS
Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to public companies
that are not emerging growth companies.
Section
102(b) (1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards
until private companies are required to comply. Private companies are those companies that have not had a Securities Act registration
statement declared effective or do not have a class of securities registered under the Exchange Act of 1934, as amended (the “Exchange
Act”). The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies. Any such election to opt out is irrevocable. The Company has elected not to opt out of such
extended transition period, which means that when a standard is issued or revised, it adopts the new or revised standard at the time
private companies adopt the new or revised standard. Therefore, the Company’s financial statements may not be comparable to certain
public companies.
2.
Going Concern
As
of March 31, 2024 the Company had cash of approximately $1.0 million. For the three months ended March 31, 2024, the Company used approximately
$2.1 million in cash for operating activities. The Company has incurred recurring net losses from operations and negative cash flows
from operating activities since inception. As of March 31, 2024, the Company had an accumulated deficit of approximately $51.3 million.
These factors raise substantial doubt regarding the Company’s ability to continue as a going concern within one year of the date
these financial statements were issued.
The
continuation of the Company as a going concern is dependent upon the continued financial support from its stockholders and debt holders.
Specifically, continuation is contingent on the Company’s ability to obtain necessary equity or debt financing to continue operations,
and ultimately the Company’s ability to generate profit from sales and positive operating cash flows, which is not assured.
The
Company’s plans include obtaining future debt and equity financings associated with the close of the Merger described in Note
4 - Reverse Merger Capitalization with 7GC & Co. Holdings Inc.. If the Company is unsuccessful in completing these planned transactions,
it may be required to reduce its spending rate to align with expected revenue levels and cash reserves, although there can be no guarantee
that it will be successful in doing so. Accordingly, the Company may be required to raise additional cash through debt or equity transactions.
It may not be able to secure financing in a timely manner or on favorable terms, if at all. As a result, management’s plans cannot
be considered probable and thus do not alleviate substantial doubt about the Company’s ability to continue as a going concern.
These
accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going
concern and do not include any adjustments that might result from the outcome of this uncertainty.
3.
Summary of Significant Accounting Policies
Basis
of Presentation
The
Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) and applicable regulations of the Securities and Exchange Commission (“SEC”)
for interim financial information and with the instructions to Form 10-Q of Regulation S-X. Certain information and note disclosures
normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations
of the SEC relating to interim financial statements. The December 31, 2023 balance sheet information was derived from the audited financial
statements as of that date. Except as disclosed herein, there has been no material change in the information disclosed in the notes to
the consolidated financial statements for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K,
as filed with the Securities and Exchange Commission on April 1, 2024. The interim unaudited condensed consolidated financial statements
should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of management, all
adjustments considered necessary for a fair statement of the financial statements, consisting solely of normal recurring adjustments,
have been made. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2024.
Warrant
Liabilities
The
Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates
all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain
features that qualify as embedded derivatives. The classification of derivative instruments, including whether such instruments should
be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Warrant
Liability - related party
The
Public Warrants are recognized as derivative liabilities in accordance with ASC 815 Derivatives and Hedging (“ASC 815”).
Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at
each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercise or expiration, and any
change in fair value is recognized in the Company’s consolidated statements of operations.
The
Public Warrants were initially measured at fair value using a Monte Carlo simulation model and have subsequently been measured based
on the listed market price of such warrants. Warrant liabilities are classified as current liabilities on the Company’s consolidated
balance sheets.
Warrant
Liability
The
GEM Warrants were not considered indexed to the issuer’s stock pursuant to ASC 815, as the holder’s ability to receive in
lieu of the Warrant one percent of the total consideration received by the Company’s stockholders in connection with a Change of
Control, where the surviving corporation is not publicly traded, adjusts the settlement value based on items outside the Company’s
control in violation of the fixed-for-fixed option pricing model. As such, the Company recorded the Warrants as liabilities initially
measured at fair value with subsequent changes in fair value recognized in earnings each reporting period.
The
measurement of fair value was determined utilizing a Monte Carlo simulation considering all relevant assumptions current at the date
of issuance (i.e., share price, exercise price, term, volatility, risk-free rate, probability of dilutive term of three years, and expected
time to conversion).
Loss
Per Share
Basic
loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of
shares of common stock outstanding during the period. Diluted net loss per share excludes, when applicable, the potential impact of stock
options and convertible preferred stock because their effect would be anti-dilutive due to the net loss. Since the Company had a net
loss in each of the periods presented, basic and diluted net loss per common share are the same.
The
calculation of basic and diluted net loss per share attributable to common stock was as follows:
| | |
For the Three Months Ended March 31, | |
| | |
2024 | | |
2023 | |
| Numerator: | |
| | | |
| | |
| Net loss attributable to common stock—basic and diluted | |
$ | (4,500,272 | ) | |
$ | (3,765,122 | ) |
| Denominator: | |
| | | |
| | |
| Weighted average shares—basic and diluted | |
| 17,355,609 | | |
| 6,382,180 | |
| Net loss per share attributable to common stock—basic and diluted | |
$ | (0.26 | ) | |
$ | (0.59 | ) |
Securities
that were excluded from loss per share as their effect would be anti-dilutive due to the net loss position that could potentially be
dilutive in future periods are as follows:
| | |
As of March 31, | |
| | |
2024 | | |
2023 | |
| Options | |
| 801,372 | | |
| 670,247 | |
| Public warrants | |
| 11,500,000 | | |
| — | |
| GEM warrants | |
| 828,533 | | |
| — | |
| Total | |
| 13,129,905 | | |
| 670,247 | |
Derivative
Financial Instruments
The
Company evaluates all its financial instruments to determine if such instruments contain features that qualify as embedded derivatives.
Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment
of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded
derivatives are recognized at fair value, with changes in fair value recognized in the statement of operations each period. Bifurcated
embedded derivatives are classified with the related host contract in the Company’s balance sheet. Refer to Note 7 - Fair Value
Measurements and Note 11 - Debt for further detail.
Fair
Value of Financial Instruments
In
accordance with FASB ASC 820 Fair Value Measurements and Disclosures, the Company uses a three-level hierarchy for fair value
measurements of certain assets and liabilities for financial reporting purposes that distinguishes between market participant assumptions
developed from market data obtained from outside sources (observable inputs) and the Company’s own assumptions about market participant
assumptions developed from the best information available to us in the circumstances (unobservable inputs). The fair value hierarchy
is divided into three levels based on the source of inputs as follows:
Level
1: Quoted prices in active markets for identical assets or liabilities.
Level
2: Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level
3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash
flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment
or estimation.
The
fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management
during the three months ended March 31, 2024 and 2023. The carrying amount of cash, accounts receivable, prepaid expenses and other current
assets, accounts payable, accrued expenses, deferred revenue, and other current liabilities approximated their fair values as of March
31, 2024 and December 31, 2023.
Recent
Accounting Pronouncements
Recent
accounting pronouncements not yet effective
In
December 2023, the FASB issued ASU 2023-09 (Topic 740), Improvements to income tax disclosures, which enhances the disclosure requirements
for the income tax rate reconciliation, domestic and foreign income taxes paid, requiring disclosure of disaggregated income taxes paid
by jurisdiction, unrecognized tax benefits, and modifies other income tax-related disclosures. The amendments are effective for annual
periods beginning after December 15, 2024. Early adoption is permitted and should be applied prospectively. The Company is currently
evaluating the effect of adopting this guidance on its condensed consolidated financial statements.
In
November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments
in this update intend to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant
segment expenses. This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision
maker, the addition of a category for other segment items by reportable segment, that all annual segment disclosures be disclosed in
interim periods, and other related segment disclosures. The ASU is effective for fiscal years beginning after December 15, 2023, and
interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the effect of adopting this
guidance on its condensed consolidated financial statements.
4.
Reverse Merger Capitalization with 7GC & Co. Holdings Inc.
On
December 14, 2023 (the “Closing Date”), Banzai consummated the previously announced Merger with 7GC, as a result of which
Banzai became a wholly-owned subsidiary of 7GC. While 7GC was the legal acquirer of Banzai in the merger, for accounting purposes, Legacy
Banzai was deemed to be the accounting acquirer in the merger. The determination was primarily based on Legacy Banzai’s stockholders
having a majority of the voting power in the combined Company, Legacy Banzai having the ability to appoint a majority of the Board of
Directors of the Company, Legacy Banzai’s existing management team comprising the senior management of the combined Company, Legacy
Banzai comprising the ongoing operations of the combined Company and the combined Company assumed the name “Banzai International,
Inc.”. Accordingly, for accounting purposes, the merger was treated as the equivalent of Legacy Banzai issuing stock for the net
assets of 7GC, accompanied by a recapitalization. The net assets of 7GC are stated at historical cost, with no goodwill or other intangible
assets recorded.
Retroactive
Restatement for Conversion of Common Stock and Series A Preferred Stock by Applying Exchange Ratio
Upon
the closing of the merger, holders of Legacy Banzai common stock and Series A preferred stock received shares of common stock in an amount
determined by application of the Exchange Ratio. In accordance with guidance applicable to these circumstances, the equity structure
has been restated in all comparable periods, prior to the merger, up to December 14, 2023, to reflect the number of shares of the Company’s
common stock, $0.0001 par value per share, issued to Legacy Banzai’s stockholders in connection with the merger. As such, the shares
and corresponding capital amounts and earnings per share related to Legacy Banzai’s outstanding Series A preferred stock and Legacy
Banzai’s common stock prior to the merger have been retroactively restated as shares reflecting the exchange ratio of approximately
0.6147 established in the merger. Legacy Banzai’s Series A preferred stock previously classified as temporary equity was retroactively
adjusted, converted into common stock and reclassified to permanent equity as a result of the reverse recapitalization. The consolidated
assets, liabilities, and results of operations prior to the merger are those of Legacy Banzai.
The
aggregate consideration payable to securityholders of Banzai at the Closing Date was equal to $100,000,000. Holders of 3,207,428 shares
of 7GC’s Class A common stock, par value $0.0001 per share (“7GC Class A Common Stock”), exercised their right to redeem
their shares for cash at a redemption price of approximately $10.76 per share, for an aggregate redemption amount of $34,524,065. Immediately
prior to the Closing Date, each share of Banzai’s Preferred Stock that was issued and outstanding was automatically converted into
one share of Banzai’s Class A Common Stock, par value $0.0001 per share. Each share of Banzai’s Class B Common Stock that
was not held by the Chief Executive Officer of the Company converted to one share of Banzai’s Class A Common Stock, while the Chief
Executive Officer received Class B Common Stock.
On
the terms and subject to the conditions set forth in the Merger Agreement, at the Second Effective Time, each share of common stock of
the Surviving Corporation issued and outstanding immediately prior to the Second Effective Time was cancelled and no consideration was
delivered therefore.
Upon
the closing of the merger, the Company’s certificate of incorporation was amended and restated to, among other things, increase
the total number of authorized shares of all classes of capital stock to 350,000,000 shares, consisting of 250,000,000 shares of Class
A Common Stock, 25,000,000 shares of Class B Common Stock, and 75,000,000 shares of Preferred Stock, all having a par value of $0.0001
per share. As of March 31, 2024, there were 20,221,589 shares of Common Stock and no shares of Preferred Stock outstanding.
Effect
of Merger on Class A and Class B Common Stock
Upon
the Close of the Merger, holders of Legacy Banzai common stock and Series A preferred stock were converted into shares of common stock
in an amount determined by application of the Exchange Ratio. As noted above, the equity structure has been restated in all comparable
periods, prior to the Merger, up to December 14, 2023, to reflect the number of shares of the Company’s common stock, $0.0001 par
value per share, issued to Legacy Banzai’s stockholders in connection with the Merger.
5.
Related Party Transactions
7GC
Related Party Promissory Notes
On
December 21, 2022, 7GC issued an unsecured promissory note (the “December 2022 7GC Note”) to the Sponsor, 7GC & Co. Holdings
LLC, which provides for borrowings from time to time of up to an aggregate of $2,300,000. The December 2022 7GC Note does not bear interest.
Upon the consummation of a Business Combination, the Sponsor shall have the option, but not the obligation, to convert the principal
balance of the December 2022 7GC Note, in whole or in part, into that number of shares of Class A common stock, $0.0001 par value per
share, of 7GC (the “Converted Shares”) equal to the principal amount of the December 2022 7GC Note so converted divided by
$10.00.
On
October 3, 2023, 7GC issued an additional unsecured promissory note (the “October 2023 7GC Note”, together with the December
2022 7GC Note, the “ 7GC Promissory Notes”) to the Sponsor, which provides for borrowings from time to time of up to an aggregate
of $500,000 for working capital purposes. The October 2023 7GC Note does not bear interest. Upon the consummation of a Business Combination,
the Sponsor shall have the option, but not the obligation, to convert the principal balance of the October 2023 7GC Note, in whole or
in part, into that number of the Converted Shares, equal to the principal amount of the October 2023 7GC Note so converted divided by
$10.00.
Upon
Closing of the Merger, Banzai assumed the 7GC Promissory Notes which subsequently converted on February 2, 2024. At the date of conversion,
the total balance of the Notes converted was $2,540,092.
Due
to Related Party of 7GC
During
the year ended December 31, 2023, the Sponsor paid certain expenses on behalf of 7GC. Upon Closing of the Merger, Banzai assumed the
$67,118 liability. As of March 31, 2024, the entire balance remained outstanding and is included within due to related party under current
liabilities on the accompanying unaudited condensed consolidated balance sheet.
Legacy
Banzai Related Party Transactions
During
2023, Legacy Banzai issued Promissory Notes and Convertible Notes to related parties. See Note 11 - Debt for further details related
to these transactions and associated balances.
6.
Revenue
Under
ASC 606, revenue is recognized throughout the life of the executed agreement. The Company measures revenue based on considerations specified
in terms and conditions agreed to by a customer. Furthermore, the Company recognizes revenue when a performance obligation is satisfied
by transferring control of the service to the customer, which occurs over time.
The
Company’s services include providing end-to-end video engagement solutions that provide a fast, intuitive and powerful platform
of marketing tools that create more intent-driven videos, webinars, virtual events and other digital and in-person marketing campaigns.
As
noted within the SOW’s and invoices, agreements range from monthly to annual and Banzai generally provides for net 30-day payment
terms with the payment made directly through check or electronic means.
Banzai’s
Management believes its exposure to credit risk is sufficiently mitigated by collection through credit card sales or direct payment from
established clients.
Nature
of Products and Services
The
following is a description of the Company’s products and services from which the Company generates revenue, as well as the nature,
timing of satisfaction of performance obligations, and significant payment terms for each, as applicable:
Demio
The
Demio product is a full-stack technology that marketers can leverage live and automated for video marketing content such as webinars
and virtual events. Software products are provided to Demio customers for a range of attendees and hosts within a specified time frame
at a specified established price. The performance obligations identified include access to the suite and platform, within the parameters
established, and within the standards established in the agreement. Contracts include a standalone selling price for the number of webinars
and hosts as a performance obligation. There are no financing components and payments are typically net 30 of date or receipt of invoice.
It is nearly 100% certain that a significant revenue reversal will not occur. The Company recognizes revenue for its sale of Demio services
over time which corresponds with the period of time that access to the service is provided.
Reach
While
the Reach product is in the process of being phased out, the Company continues to generate revenues from the product. The Reach product
provides a multi-channel targeted audience acquisition (via Reach) to bolster engagement and Return on Investment (ROI). Banzai enables
marketing teams to create winning webinars and virtual and in-person events that increase marketing efficiency and drive additional revenue.
Software products are provided to Reach customers for a range of simultaneous events and registrations within a specified time frame
at a specified established price. The performance obligations identified include access to the suite and platform, within the parameters
established, and within the standards established in the agreement. Contracts include a standalone selling price for the number of simultaneous
published events as a performance obligation. There are no financing components and payments are typically net 30 of date or receipt
of invoice. It is nearly 100% certain that a significant revenue reversal will not occur. The Company recognizes revenue for its sale
of Reach services over time which corresponds with the timing the service is rendered.
Disaggregation
of Revenue
The
following table summarizes revenue by region based on the billing address of customers:
| | |
Three Months Ended March 31, | |
| | |
2024 | | |
2023 | |
| | |
Amount | | |
Percentage of Revenue | | |
Amount | | |
Percentage of Revenue | |
| Americas | |
$ | 582,827 | | |
| 54 | % | |
$ | 669,775 | | |
| 62 | % |
| Europe, Middle East and Africa (EMEA) | |
| 386,250 | | |
| 36 | % | |
| 407,910 | | |
| 30 | % |
| Asia Pacific | |
| 110,395 | | |
| 10 | % | |
| 99,376 | | |
| 8 | % |
| Total | |
$ | 1,079,472 | | |
| 100 | % | |
$ | 1,177,061 | | |
| 100 | % |
Contract
Balances
Accounts
Receivable, Net
A
receivable is recorded when an unconditional right to invoice and receive payment exists, such that only the passage of time is required
before payment of consideration is due. The Company receives payments from customers based upon agreed-upon contractual terms, typically
within 30 days of invoicing the customer. The timing of revenue recognition may differ from the timing of invoicing to customers.
| | |
Opening Balance | | |
Closing Balance | | |
Opening Balance | | |
Closing Balance | |
| | |
1/1/2024 | | |
3/31/2024 | | |
1/1/2023 | | |
3/31/2023 | |
| Accounts receivable, net | |
$ | 105,049 | | |
$ | 34,670 | | |
$ | 68,416 | | |
$ | 61,755 | |
Costs
to Obtain a Contract
Sales
commissions, the principal costs incurred to obtain a contract, are earned when the contract is executed. Management has capitalized
these costs and amortized the commission expense over time in accordance with the related contract’s term. For the three months
ended March 31, 2024 and 2023, commission expenses were $82,142 and $99,376, respectively. Capitalized commissions at March 31, 2024
and December 31, 2023 were $38,462 and $51,472, respectively, and are included within prepaid expenses and other current assets on the
condensed consolidated balance sheets.
The
following summarizes the Costs to obtain a contract activity during the three months ended March 31, 2024:
| Balance - December 31, 2023 | |
$ | 51,472 | |
| Commissions Incurred | |
| 31,610 | |
| Deferred Commissions Recognized | |
| (44,620 | ) |
| Balance - March 31, 2024 | |
$ | 38,462 | |
The
following summarizes the Costs to obtain a contract activity during the three months ended March 31, 2023:
| Balance - December 31, 2022 | |
$ | 69,737 | |
| Commissions Incurred | |
| 88,928 | |
| Deferred Commissions Recognized | |
| (104,289 | ) |
| Balance - March 31, 2023 | |
$ | 54,376 | |
7.
Fair Value Measurements
The
fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management
as of and during the three months ended March 31, 2024 and the year ended December 31, 2023. The carrying amount of accounts payable
approximated fair value as they are short term in nature.
Fair
Value on a Non-recurring Basis
The
fair value of non-financial assets measured at fair value on a non-recurring basis, classified as Level 3 in the fair value hierarchy,
is determined based on using market-based approaches, or estimates of discounted expected future cash flows.
Fair
Value on a Recurring Basis
The
Company follows the guidance in ASC 820 Fair Value Measurements and Disclosures for its financial assets and liabilities that
are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and
reported at fair value at least annually. The estimated fair value of the Public Warrants liabilities represent Level 1 measurements
and Level 2 measurements. The estimated fair value of the convertible notes bifurcated embedded derivative liabilities, GEM warrant liabilities,
Yorkville convertible note, and SAFE represent Level 3 measurements.
The
following table presents information about the Company’s financial instruments that are measured at fair value on a recurring basis
at March 31, 2024 and December 31, 2023, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine
such fair value:
| Description | |
Level | |
March 31, 2024 | | |
December 31, 2023 | |
| Liabilities: | |
| |
| | | |
| | |
| Warrant liabilities - public | |
2 | |
$ | 460,000 | | |
$ | - | |
| Warrant liabilities - public | |
1 | |
$ | — | | |
$ | 575,000 | |
| GEM warrant liabilities | |
3 | |
$ | 233,000 | | |
$ | 641,000 | |
| Yorkville convertible note | |
3 | |
$ | 3,064,000 | | |
$ | 1,766,000 | |
Warrant
Liability - Public Warrants
The
Company assumed 11,500,000 Public Warrants in the Merger which were outstanding as of March 31, 2024 and December 31, 2023. The fair
values of the Public Warrants are measured based on the listed market price of such warrants through March 31, 2024. See Note 12 -
Warrant Liabilities for further details.
For
the three months ended March 31, 2024, the Company recognized a benefit of approximately $115,000 resulting from changes in the fair
value of the derivative warrant liabilities, presented as change in fair value of warrant liabilities - related party in the accompanying
condensed consolidated statements of operations.
The
following tables set forth a summary of the changes in the fair value of the Public Warrants liability which are Level 1 financial liabilities
that are measured at fair value on a recurring basis:
| | |
Fair Value | |
| Balance at December 31, 2023 | |
$ | 575,000 | |
| Change in fair value | |
| (115,000 | ) |
| Balance at March 31, 2024 | |
$ | 460,000 | |
Warrant
Liability - GEM Warrants
The
measurement of fair value of the GEM Warrants were determined utilizing a Monte Carlo simulation considering all relevant assumptions
current at the date of issuance (i.e., share price, exercise price, term, volatility, risk-free rate, probability of dilutive term of
three years, and expected time to conversion). Refer to Note 12 - Warrant Liabilities for further details.
As
of March 31, 2024, the Company recognized a benefit of approximately $408,000, resulting from changes in the fair value of the derivative
warrant liabilities, presented as change in fair value of warrant liabilities in the accompanying condensed consolidated statements of
operations.
The
following tables set forth a summary of the changes in the fair value of the GEM Warrants liability which are Level 3 financial liabilities
that are measured at fair value on a recurring basis:
| | |
Fair Value | |
| Balance at December 31, 2023 | |
$ | 641,000 | |
| Change in fair value | |
| (408,000 | ) |
| Balance at March 31, 2024 | |
$ | 233,000 | |
Yorkville
Convertible Notes
The
measurement of fair value of the Yorkville convertible notes were determined utilizing a Monte Carlo simulation considering all relevant
assumptions current at the date of issuance (i.e., share price, term, volatility, risk-free rate, and probability of optional redemption).
Refer to Note 11 - Debt for further details.
As
of March 31, 2024, the Company recognized a benefit (loss) of approximately $(544,000) resulting from changes in the fair value of the
Yorkville convertible notes, presented as change in fair value of convertible promissory notes in the accompanying condensed consolidated
statements of operations.
The
following tables set forth a summary of the changes in the fair value of the Yorkville convertible notes which is a Level 3 financial
liability measured at fair value on a recurring basis:
| | |
Fair Value | |
| Balance at December 31, 2023 | |
$ | 1,766,000 | |
| Issuance of Yorkville convertible note | |
| 2,250,000 | |
| Loss on debt issuance | |
| 171,000 | |
| Payment in shares to settle Yorkville convertible notes | |
| (1,667,000 | ) |
| Change in fair value | |
| 544,000 | |
| Balance at March 31, 2024 | |
$ | 3,064,000 | |
Bifurcated
Embedded Derivative Liabilities
The
fair value of the embedded put options, relating to the Convertible Notes - Related Party, Convertible Notes, and Term and Convertible
Notes (CP BF), was determined using a Black Scholes option pricing model. Estimating fair values of embedded conversion features
requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument
with related changes in internal and external market factors. Because the embedded conversion features are initially and subsequently
carried at fair values, the Company’s consolidated statements of operations will reflect the volatility in these estimate and assumption
changes. On December 14, 2023, all outstanding principal and accrued interest, including the carrying value of any related embedded derivative,
related to the Related Party Convertible Notes and Third Party Convertible Notes converted into the Company’s Class A Common Stock
pursuant to the close of the Merger Agreement. Upon the conversion described above, the bifurcated embedded derivative liabilities were
$0 as of March 31, 2024 and December 31, 2023, respectively. Refer to Note 11 - Debt for further details.
The
following table sets forth a summary of the changes in the fair value of the bifurcated embedded derivative liabilities for the three
months ended March 31, 2023, related to the Related Party and Third Party Convertible Debt, respectively, which are Level 3 financial
liabilities that are measured at fair value on a recurring basis:
| | |
Fair Value | |
| | |
Related Party | | |
Third Party | |
| Balance at December 31, 2022 | |
$ | 1,936,827 | | |
$ | 845,473 | |
| Issuance of convertible notes with bifurcated embedded derivative | |
| 707,000 | | |
| — | |
| Change in fair value | |
| 137,285 | | |
| 32,415 | |
| Balance at March 31, 2023 | |
$ | 2,781,112 | | |
$ | 877,888 | |
Simple
Agreements for Future Equity (SAFE)
During
2021, the Company entered into Simple Agreements for Future Equity (SAFE) arrangements (the “SAFEs”). In the event of an
Equity Financing (as defined in the SAFEs agreements), the SAFEs will automatically convert into shares of the Company’s common
or preferred stock at a discount of 15% of the per share price of the shares offered in the Equity Financing (the “Discount Price”).
In the event of a Liquidity Event, SPAC Transaction or Dissolution Event (all terms as defined in the SAFEs agreements), the holders
of the SAFEs will be entitled to receive cash or shares of the Company’s common or preferred stock. The number of shares required
to be issued to settle the SAFEs at the equity financing is variable, because that number will be determined by the discounted fair value
of the Company’s equity shares on the date of settlement (i.e., Discount Price). Regardless of the fair value of the shares on
the date of settlement, the holder will receive a fixed monetary value based on the Purchase Amount of the SAFE. If there is a Liquidity
Event or SPAC Transaction before the settlement or termination of the SAFEs, the SAFEs will automatically be entitled to receive a portion
of Proceeds, due and payable immediately prior to, or concurrent with, the consummation of such Liquidity Event or SPAC Transaction,
equal to the greater of (i) two times (2x) the Purchase Amount (the “Cash-Out Amount”) or (ii) the amount payable on the
number of shares of Common Stock equal to the Purchase Amount divided by the Liquidity Price (as defined in the SAFEs agreements). Refer
to Note 13 - Simple Agreements for Future Equity for additional information related to the Company’s SAFEs.
The
fair value of the SAFEs was determined using a scenario-based method for the pre-modification SAFE’s and a Monte Carlo simulation
method for the post-modification SAFEs. The value of the SAFE liability as of December 31, 2023 is based on significant inputs not observable
in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the SAFEs on the date of issuance
was determined to be $3,836,000. On December 14, 2023, all outstanding principal related to the Third Party SAFEs and Related Party SAFEs
converted into the Company’s Class A Common Stock pursuant to the close of the Merger Agreement. Upon the conversion described
above, the SAFEs were $0 as of March 31, 2024 and December 31, 2023, respectively. Refer to Note 13 - Simple Agreements for Future
Equity for further details.
The
following tables set forth a summary of the activity of the Related Party and Third Party SAFE liabilities, respectively (See Note
13 - Simple Agreements for Future Equity for further detail), which represents a recurring fair value measurement at the end of the
relevant reporting period:
| | |
Fair Value | |
| | |
Related Party | | |
Third Party | |
| Balance at December 31, 2022 | |
$ | 8,802,196 | | |
$ | 663,804 | |
| Change in fair value | |
| 303,139 | | |
| 22,861 | |
| Balance at March 31, 2023 | |
$ | 9,105,335 | | |
$ | 686,665 | |
8.
Prepaid Expenses and Other Current Assets
Prepaid
expenses and other current assets consisted of the following at the dates indicated:
| | |
March 31, 2024 | | |
December 31, 2023 | |
| Prepaid expenses and other current assets: | |
| | | |
| | |
| Service Trade | |
$ | 333,219 | | |
$ | 364,384 | |
| Prepaid consulting costs | |
| 13,258 | | |
| 120,332 | |
| Prepaid data license and subscription costs | |
| 37,500 | | |
| 53,124 | |
| Prepaid commissions | |
| 38,462 | | |
| 51,472 | |
| Prepaid software costs | |
| 17,439 | | |
| 29,887 | |
| Prepaid merchant fees | |
| 29,182 | | |
| 26,224 | |
| Prepaid insurance costs | |
| 445,963 | | |
| 17,661 | |
| Prepaid advertising and marketing costs | |
| 146,201 | | |
| 11,074 | |
| Other current assets | |
| 12,690 | | |
| 66,997 | |
| Total prepaid expenses and other current assets | |
$ | 1,073,914 | | |
$ | 741,155 | |
9.
Accrued Expenses and Other Current Liabilities
Accrued
expenses and other current liabilities consisted of the following at the dates indicated:
| | |
March 31, 2024 | | |
December 31, 2023 | |
| Accrued expenses and other current liabilities: | |
| | | |
| | |
| Accrued accounting and professional services costs | |
$ | 2,162,984 | | |
$ | 1,511,889 | |
| Accrued subscription costs | |
| 489,972 | | |
| 22,110 | |
| Sales tax payable | |
| 338,402 | | |
| 314,873 | |
| Excise tax payable | |
| 223,717 | | |
| 223,717 | |
| Accrued legal costs | |
| 153,884 | | |
| 2,694,439 | |
| Accrued payroll and benefit costs | |
| 93,513 | | |
| 185,504 | |
| Accrued streaming service costs | |
| 56,380 | | |
| 37,765 | |
| Deposits | |
| 54,102 | | |
| 54,102 | |
| Other current liabilities | |
| 289,760 | | |
| 149,841 | |
| Total accrued expenses and other current liabilities | |
$ | 3,862,714 | | |
$ | 5,194,240 | |
10.
Deferred Revenue
Deferred
revenue represents amounts that have been collected in advance of revenue recognition and is recognized as revenue when transfer of control
to customers has occurred or services have been provided. The deferred revenue balance does not represent the total contract value of
annual or multi-year, non-cancelable revenue agreements. Differences between the revenue recognized per the below schedule, and the revenue
recognized per the consolidated statement of operations, reflect amounts not recognized through the deferred revenue process, and which
have been determined to be insignificant. For the three months ended March 31, 2024 and March 31, 2023, the Company recognized $861,496
and $930,436, in revenue that was included in the prior year deferred revenue balance, respectively.
The
change in deferred revenue was as follows for the periods indicated:
| | |
Three Months Ended | | |
Year Ended | |
| | |
March 31, 2024 | | |
December 31, 2023 | |
| Deferred revenue, beginning of period | |
$ | 1,214,096 | | |
$ | 930,436 | |
| Billings | |
| 1,110,682 | | |
| 4,781,924 | |
| Revenue recognized (prior year deferred revenue) | |
| (861,496 | ) | |
| (930,436 | ) |
| Revenue recognized (current year deferred revenue) | |
| (217,976 | ) | |
| (3,567,828 | ) |
| Deferred revenue, end of period | |
$ | 1,245,306 | | |
$ | 1,214,096 | |
The
deferred revenue balance is short-term and included under current liabilities on the accompanying unaudited condensed consolidated balance
sheet.
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% of the issued equity of the Company, through its ownership of Series
A preferred stock. DNX held in excess of 5% of the issued equity of the Company, through its ownership of Series A preferred stock. William
Bryant became a member of the Board of Directors upon completion of the Merger. The Related 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).
During
the quarter ending March 31, 2023, the Company recorded a $707,000 debt discount upon issuance of additional Related Party Convertible
Notes. For the three months ended March 31, 2023, interest expense on the Related Party Convertible Notes totaled $383,284, comprised
of $90,422 of contractual interest and $292,862 for the amortization of the discount.
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 months ended March 31, 2023, interest expense on the Third Party Convertible Notes totaled $151,624, comprised of $34,717 of
contractual interest and $116,907 for the amortization of the discount.
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:
| | |
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 to Alco Investment Company, a related party. Alco held its ownership of over 10% of the issued equity of the Company,
through its ownership of Series A preferred stock. The Alco August Promissory Note bears interest at a rate of 8% per annum. The outstanding
principal and accrued interest are due and payable on April 29, 2024. The Company recorded a $3,711 debt discount upon issuance of the
Alco August Promissory Note. For the three months ended March 31, 2024, interest expense on the Alco August Promissory Note totaled $5,449,
comprised of $2,991 of contractual accrued interest and $2,458 for the amortization of the discount. As of March 31, 2024 and December
31, 2023, $150,000 of principal and $7,035 and $4,044, respectively, of accrued interest is outstanding under the Alco August Promissory
Note recorded in note payable - related party on the balance sheets.
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 to Alco Investment Company, a related party. The Alco September Promissory Note bears interest at
a rate of 8% per annum. The outstanding principal and accrued interest are due and payable on September 30, 2024. The Company recorded
$8,588 of debt issuance costs and a $638,808 debt discount upon issuance of the Alco September Promissory Note, relating to the share
transfer agreements, see below. For the three months ended March 31, 2024, interest expense on the Alco September Promissory Note totaled
$91,563, comprised of $29,918 of contractual accrued interest and $61,645 for the amortization of the discount. As of March 31, 2024
and December 31, 2023, $1,500,000 of principal and $60,493 and $30,575, respectively, of accrued interest is outstanding under the Alco
September Promissory Note recorded in note payable - related party on the balance sheets.
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 to Alco Investment Company, a related party. The Alco November Promissory Note bears interest at a rate of 8%
per annum. The outstanding principal and accrued interest are due and payable on April 13, 2024. The Company recorded a $363,905 debt
discount upon issuance of the Alco November Promissory Note relating to the share transfer agreements, see below. For the three months
ended March 31, 2024, interest expense on the Alco November Promissory Note totaled $248,285, comprised of $14,959 of contractual accrued
interest and $233,326 for the amortization of the discount. As of March 31, 2024 and December 31, 2023, $750,000 of principal and $22,356
and $7,397, respectively, of accrued interest is outstanding under the Alco November Promissory Note recorded in note payable - related
party on the consolidated balance sheets.
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 to Alco Investment Company, a related party. The Alco December Promissory Note bears interest at a rate of
8% per annum. The outstanding principal and accrued interest are due and payable on December 31, 2024. The Company recorded a $1,496,252
debt discount upon issuance of the Alco December Promissory Note, relating to the share transfer agreements, see below. For the three
months ended March 31, 2024, interest expense on the Alco December Promissory Note totaled $232,216, comprised of $39,890 of contractual
accrued interest and $192,326 for the amortization of the discount. As of March 31, 2024 and December 31, 2023, $2,000,000 of principal
and $47,780 and $7,890, respectively, of accrued interest is outstanding under the Alco December Promissory Note recorded in note payable
– related party on the consolidated balance sheets.
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 in principal borrowed under the Alco September and November Promissory Notes, the Sponsor agreed to forfeit one share of
7GC Class B Common Stock held by the Sponsor, in exchange for the right of Alco to receive one New Banzai Class A Share. For each $10.00
in principal borrowed under the December Note, the Sponsor agreed to forfeit three shares of 7GC Class B Common Stock held by the Sponsor,
in exchange for the right of Alco to receive three New Banzai Class A Shares. Such forfeited and issued shares under the Alco September,
November, and December Promissory Notes are capped at an amount equal to 150,000, 75,000, and 600,000, respectively. Pursuant to the
Alco Share Transfer Agreements, the shares are subject to an 180-day lock-up period upon issuance of the shares.
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 was drawn on September 13, 2023, the DLOM was estimated using the put option
models described above and the following assumptions: a holding period for the shares of 272 days (approximately 0.77 years) measured
from the date of issuance of the $1,000,000 of proceeds under the September Note through the issuance of the shares under the Alco October
Share Transfer Agreement on December 14, 2023 at which time the 180-day lock-up period commenced; a re-levered equity volatility estimated
using guideline public companies of 54.0%; and a risk-free rate commensurate with the term of 5.3%. The put option models provided a
DLOM range of 10.7% to 16.0% and the concluded DLOM was estimated to be 12.5%. The Company’s expected percentage of completing
the Merger on this date was 80%.
For
the remaining $500,000 drawn on the Alco September Promissory Note on October 3, 2023, the DLOM was estimated using the put option models
described above and the following assumptions: a holding period for the shares of 252 days (approximately 0.72 years) measured from the
date of issuance of the remaining $500,000 of proceeds under the September Note through the issuance of the shares under the Alco October
Share Transfer Agreement on December 14, 2023 at which time the 180-day lock-up period commenced; a re-levered equity volatility estimated
using guideline public companies of 52.0%; and a risk-free rate commensurate with the term of 5.4%. The put option models provided a
DLOM range of 10.0% to 15.0% and the concluded DLOM was estimated to be 11.5%. The Company’s expected percentage of completing
the Merger on this date was 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 years) measured from the issuance date of the November Note through the
issuance of the shares under the November 2023 Share Transfer Agreement on December 14, 2023 at which time the 180-day lock-up period
commenced; a re-levered equity volatility estimated using guideline public companies of 54.0%; and a risk-free rate commensurate with
the term of 5.2%. The put option models provided a DLOM range of 9.5% to 15.0% and the concluded DLOM was estimated to be 11.5%. The
Company’s expected percentage of completing the Merger on this date was 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 years) measured from the issuance date of the December Note through the
issuance of the shares under the December 2023 Share Transfer Agreement on December 14, 2023 at which time the 180-day lock-up period
commenced; a re-levered equity volatility estimated using guideline public companies of 47.0%; and a risk-free rate commensurate with
the term of 5.2%. The put option models provided a DLOM range of 7.5% to 12.0% and the concluded DLOM was estimated to be 9.0%. The Company’s
expected percentage of completing its Business Combination on this date was 100%.
Promissory
Notes - 7GC
The
Company assumed two promissory notes in connection with the Merger which remained outstanding as of December 31, 2023. On February 9,
2024, the $2,540,091 balance was converted into 890,611 shares the Company’s Class A Common Stock pursuant to the terms in the
7GC Promissory Notes.
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 and the Company was required to make and execute a warrant (“GEM Warrant”). The Company’s
obligation to issue the GEM Warrant remained, granting GEM the right to purchase Class A Common Stock in an amount equal to 3% of the
total number of equity interests outstanding as of the Closing, calculated on a fully diluted basis, at an exercise price on the terms
and conditions set forth therein, in exchange for issuance of a $2.0 million convertible debenture with a five-year maturity and 0% coupon.
Due to the determination of the final terms of the planned $2.0 million convertible debenture having not been finalized, nor the final
agreement related to the convertible debenture having been executed, as of December 31, 2023, the Company recognized, concurrent with
the close of the merger, a liability for the GEM commitment fee, along with a corresponding GEM commitment fee expense, in the amount
of $2.0 million.
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 million in cash within three business days of the GEM Settlement
Agreement and (ii) issued to GEM, on February 5, 2024, an unsecured promissory zero coupon note in the amount of $1.0 million, payable
in monthly installments of $100,000 beginning on March 1, 2024, with the final payment to be made on December 1, 2024 (the “GEM
Promissory Note”). The Company paid GEM the $1.2 million in cash in February 2024.
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 shares of Class A Common Stock that may be issuable under the terms of the GEM Promissory Note. The GEM Promissory
Note contains customary events of default. If an event of default occurs, GEM may, at its option, demand from the Company immediate payment
of any outstanding balance under the GEM Promissory Note.
As
of March 31, 2024, the Company has issued an aggregate of 139,470 shares of Class A Common Stock to GEM in lieu of monthly payment obligations
and the remaining balance of the GEM Promissory Note as of March 31, 2024 is $900,000 recorded in the Convertible Notes line on the Consolidated
Balance Sheets.
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 for further details), Yorkville agreed to advance to the Company, in exchange for convertible promissory notes,
an aggregate principal amount of up to $3,500,000, $2,000,000 of which was funded at the Closing in exchange for the issuance by the
Company of a Convertible Promissory Note (the “December Yorkville Convertible Note”). The Company received net proceeds of
$1,800,000 after a non-cash original issue discount of $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 (the “Additional Pre-Paid Advance
Amount”), for an aggregate principal amount of $4,500,000 to be advanced by Yorkville to the Company in the form of convertible
promissory notes. On February 5, 2024 in exchange for a promissory note in the principal amount of $1,000,000 (the “February Yorkville
Promissory Note”), with the same terms as the December Yorkville Convertible Note, the Company received net proceeds of $900,000
after a non-cash original issue discount of $100,000.
On
March 26, 2024, the Company, in exchange for a convertible promissory note with a principal amount of $1,500,000 (the “March Yorkville
Promissory Note”), together with the December Yorkville Convertible Note and February Yorkville Promissory Note (the” Yorkville
Promissory Notes”), received net proceeds of $1,250,000 after a non-cash original issue discount of $250,000 from Yorkville.
The
Yorkville Convertible Notes have a maturity date of June 14, 2024, and accrue interest at 0% per annum, subject to an increase to 18%
per annum upon events of default as defined in the agreement. As of March 31, 2024, no events of default have occurred.
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 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% of the
total number of shares of Class A common stock outstanding after giving effect to such conversion.
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% prepayment
premium, plus all accrued and unpaid interest; provided that (i) the Company provides Yorkville with no less than ten trading days’
prior written notice thereof and (ii) on the date such notice is issued, the VWAP of the Class A common stock is less than the Fixed
Price.
Upon
the occurrence of certain triggering events, as defined in the Yorkville Convertible Notes agreement (each an “Amortization Event”),
the Company may be required to make monthly repayments of amounts outstanding under the Yorkville Convertible Notes, with each monthly
repayment to be in an amount equal to the sum of (x) $1,000,000, plus (y) 10% in respect of such amount, and (z) all outstanding accrued
and unpaid interest as of each payment date.
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 for five trading days during a period of seven consecutive trading days (an Amortization Event
under the terms of the December Yorkville Convertible Note agreement), thus triggering amortization payments under the terms of the December
Yorkville Convertible Note. On January 24, 2024, Yorkville agreed to waive the Amortization Event trigger, prior to the date upon which
any amortization payment would have been required. As discussed in the definitions below, the Floor Price was reset on February 14, 2024,
in conjunction with the effective date of the Company’s Registration Statement, at a price of $0.294 per share of Common Stock,
thus curing the Amortization Event condition.
During
the three months ending March 31, 2024, $500,000 of principal under the December Yorkville Convertible Note was converted into 788,211
Class A Common stock of the Company and the full principal amount of $1,000,000 under the February Yorkville Convertible Note was converted
into 1,445,524 Class A Common stock of the Company.
As
of March 31, 2024 and December 31, 2023, the principal amount outstanding under the Yorkville Convertible Notes was $3,000,000 and $2,000,000,
respectively. During the three months ended March 31, 2024, the Company recorded interest expense of $0 in connection with the Yorkville
Convertible Notes.
The
Yorkville Convertible Notes are required to be measured at fair value pursuant to ASC 480 Distinguishing Liabilities from Equity
(“ASC 480”) at the date of issuances and in subsequent reporting periods, due to the variable share-settled feature described
above in which, if converted, the value to be received by Yorkville fluctuates based on something other than the fair value of the Company’s
common stock. The fair value of the Yorkville Convertible Notes as of March 31, 2024 and December 31, 2023 was $3,064,000 and $1,766,000,
respectively. The Company used a Monte Carlo simulation model in order to determine the Yorkville Convertible Note’s fair value
at December 31, 2023, with the following inputs: the fair value of the Company’s common stock of $1.88 on December 31, 2023, estimated
equity volatility of 71%, the time to maturity of 0.46 years, a discounted market interest rate of 14%, a risk free rate of 5.28%, and
probability of optional redemption 10.0%.
During
the three months ended March 31, 2024, the Company recorded a loss of $544,000 related to the change in fair value of the Yorkville Convertible
Notes liability. The Company used a Monte Carlo simulation model in order to determine the Yorkville Convertible Note’s fair value
at March 31, 2024, with the following inputs: the fair value of the Company’s common stock of $0.61 on March 31, 2024, estimated
equity volatility of 106%, the time to maturity of 0.21 years, a discounted market interest rate of 16.5%, a risk free rate of 5.46%,
and probability of optional redemption 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% per annum paid monthly and accrued interest payable-in-kind (“PIK”)
cumulatively at 1.5% per annum. The outstanding principal balance of the Term Note together with accrued and unpaid interest thereon,
unpaid fees and expenses and any other Obligations then due, shall be paid on February 19, 2025 (“Loan Maturity Date”). The
Convertible Note accrues PIK interest cumulatively at a rate of 15.5% per annum, and is convertible into Class A Common Stock upon Qualified
Financing (as defined in the agreement), upon a Change of Control (as defined in the agreement), upon Prepayment, or at Maturity at a
fixed conversion price. If not sooner converted or prepaid, the Convertible Note principal together with accrued and unpaid interest
thereon, unpaid fees and expenses and any other Obligations then due, shall be paid on the Loan Maturity Date.
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% for three months ended March 31, 2024 and 2023. For the three months ended March 31,
2024, interest expense on the Term Note totaled $292,327, comprised of $266,348 of contractual interest and $25,979 for the amortization
of the discount. For the three months ended March 31, 2023, interest expense on the Term Note totaled $278,164, comprised of $259,443
of contractual interest and $18,721 for the amortization of the discount. The effective interest rate for the CP BF Convertible Note
and First Amendment Convertible Note was 16% for the three months ended March 31, 2024 and 2023. For the three months ended March 31,
2024, interest expense on the Convertible Notes totaled $116,411, comprised of $108,596 of contractual interest and $7,815 for the amortization
of the discount. For the three months ended March 31, 2023, interest expense on the Convertible Notes totaled $98,432, comprised of $91,860
of contractual interest and $6,572 for the amortization of the discount.
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 March 31, 2024:
| Face value of the CB BF convertible notes | |
$ | 1,821,345 | |
| Debt discount, net | |
| (34,531 | ) |
| Carrying value of the CB BF convertible notes | |
| 1,786,814 | |
| Accrued interest | |
| 1,023,075 | |
| Total CB BF convertible notes and accrued interest | |
$ | 2,809,889 | |
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 March 31, 2024:
| Face value of the CB BF term note | |
$ | 6,500,000 | |
| Debt discount, net | |
| (107,011 | ) |
| Carrying value of the CB BF term note | |
| 6,392,989 | |
| Accrued interest | |
| 555,721 | |
| Total CB BF term note and accrued interest | |
$ | 6,948,710 | |
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 | |
12.
Warrant Liabilities
Public
Warrants
The
Company assumed 11,500,000 Public Warrants in the Merger which remained outstanding as of March 31, 2024. The Public Warrants have an
exercise price of $11.50 per share, subject to adjustments, and will expire five years from the Merger Closing Date. The exercise price
and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including
in the event of a share dividend, or recapitalization, reorganization, merger or consolidation.
The
Company will not be obligated to deliver any shares of Class A Common Stock pursuant to the exercise of a Public Warrant and will have
no obligation to settle such Public Warrant exercise unless a registration statement under the Securities Act with respect to the shares
of Class A Common Stock underlying the Public Warrants is then effective and a prospectus relating thereto is current, subject to the
Company’s satisfying its obligations described below with respect to registration, or a valid exemption from registration is available.
No Public Warrant will be exercisable and the Company will not be obligated to issue a share of Class A Common Stock upon exercise of
a Public Warrant unless the shares of Class A Common Stock issuable upon such Public Warrant exercise has been registered, qualified,
or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Public Warrants. In the event
that the conditions in the two immediately preceding sentences are not satisfied with respect to a Public Warrant, the holder of such
Public Warrant will not be entitled to exercise such Public Warrant and such Public Warrant may have no value and expire worthless. In
no event will the Company be required to net cash settle any Public Warrant. The Resale Registration statement went effective on February
14, 2024. As the Resale Registration Statement was declared effective within the contractual 60-day term upon closing of the Merger,
no “cashless basis” exercises were triggered during the period ended March 31, 2024.
Redemption
of Public Warrants When the price per Share of Class A Common Stock Equals or Exceeds $18.00
Once
the Public Warrants become exercisable, the Company may redeem the outstanding Public Warrants:
| |
● |
in
whole and not in part; |
| |
|
|
| |
● |
at
a price of $0.01 per Warrant; |
| |
|
|
| |
● |
upon
a minimum of 30 days’ prior written notice of redemption (the “30-day redemption period”); and |
| |
|
|
| |
● |
if,
and only if, the closing price per share of Class A Common Stock equals or exceeds $18.00 per share (as adjusted for adjustments
to the number of shares issuable upon exercise or the exercise price of a Public Warrant as described under the heading “-
Warrants—Public Stockholder Warrants—Anti-dilution Adjustments”) for any 20 trading days within a 30-trading day
period ending three trading days before the Company sends the notice of redemption to the warrant holders. |
The
Company will not redeem the Public Warrants as described above unless a registration statement under the Securities Act covering the
issuance of shares of Class A Common Stock issuable upon exercise of the Public Warrants is then effective and a current prospectus relating
to those shares of Class A Common Stock is available throughout the 30-day redemption period. If and when the Public Warrants become
redeemable by the Company, the Company may not exercise its redemption right if the Company is unable to register or qualify the underlying
securities for sale under all applicable state securities laws.
The
Company has established the last of the redemption criterion discussed above to prevent a redemption call unless there is at the time
of the call a significant premium to the Public Warrant exercise price. If the foregoing conditions are satisfied and the Company issues
a notice of redemption of the Public Warrants, each warrant holder will be entitled to exercise his, her or its Public Warrant prior
to the scheduled redemption date. However, the price per share of Class A Common Stock may fall below the $18.00 redemption trigger price
(as adjusted for adjustments to the number of shares issuable upon exercise or the exercise price of a Public Warrant as described under
the heading “-Warrants—Public Stockholder Warrants—Anti-dilution Adjustments”) as well as the $11.50 (for whole
shares) Public Warrant exercise price after the redemption notice is issued.
No
fractional shares of Class A Common Stock will be issued upon exercise. If, upon exercise, a holder would be entitled to receive a fractional
interest in a share, the Company will round down to the nearest whole number of the number of shares of Class A Common Stock to be issued
to the holder.
GEM
Financing Arrangement
In
association with the GEM Letter, see Note 11 - Debt for further details, at Closing, the GEM Warrant automatically became an obligation
of the Company, and on December 15, 2023, the Company issued the GEM Warrant granting GEM the right to purchase 828,533 shares at an
exercise price of $6.49 per share. The exercise price will be adjusted to 105% of the then-current exercise price if on the one-year
anniversary date of the Effective Time, the GEM Warrant has not been exercised in full and the average closing price per share of Class
A Common Stock for the 10 days preceding the anniversary date is less than 90% of the initial exercise price. GEM may exercise the GEM
Warrant at any time and from time to time until December 14, 2026. The terms of the GEM Warrant provide that the exercise price of the
GEM Warrant, and the number of shares of Class A Common Stock for which the GEM Warrant may be exercised, are subject to adjustment to
account for increases or decreases in the number of outstanding shares of New Banzai Common Stock resulting from stock splits, reverse
stock splits, consolidations, combinations and reclassifications. Additionally, the GEM Warrant contains weighted average anti-dilution
provisions that provide that if the Company issues shares of common stock, or securities convertible into or exercisable or exchange
for, shares of common stock at a price per share that is less than 90% of the exercise price then in effect or without consideration,
then the exercise price of the GEM Warrant upon each such issuance will be adjusted to the price equal to 105% of the consideration per
share paid for such common stock or other securities. In the event of a Change of Control, if the Surviving Corporation does not have
registered class of equity securities and common shares listed on a U.S. national securities exchange, then the Holder is entitled to
receive one percent of the total consideration received by the Company’s stockholders and the GEM Warrants will expire upon payment.
The
Warrants were not considered indexed to the issuer’s stock pursuant to ASC 815, as the holder’s ability to receive in lieu
of the Warrant one percent of the total consideration received by the Company’s stockholders in connection with a Change of Control,
where the surviving corporation is not publicly traded, adjusts the settlement value based on items outside the Company’s control
in violation of the fixed-for-fixed option pricing model. As such, the Company recorded the Warrants as liabilities initially measured
at fair value with subsequent changes in fair value recognized in earnings each reporting period.
The
measurement of fair value was determined utilizing a Monte Carlo simulation considering all relevant assumptions current at the date
of issuance (i.e., share price, exercise price, term, volatility, risk-free rate, probability of dilutive term of three years, and expected
time to conversion). As of March 31, 2024 and December 31, 2023, the fair value of the Warrants, as determined by the Monte Carlo simulation
option pricing model, were $233,000 and $641,000, respectively.
If
the per share market value of one share of Class A Common Stock is greater than the then-current exercise price, then GEM will have the
option to exercise the GEM Warrant on a cashless basis and receive a number of shares of Class A Common Stock equal to (x) the number
of shares of Class A Common Stock purchasable upon exercise of all of the GEM Warrant or, if only a portion of the GEM Warrant is being
exercised, the portion of the GEM Warrant being exercised, less (y) the product of the then-current exercise price and the number of
shares of Class A Common Stock purchasable upon exercise of all of the GEM Warrant or, if only a portion of the GEM Warrant is being
exercised, the portion of the GEM Warrant being exercised, divided by the per share market value of one share of Class A Common Stock.
The
GEM Warrant may not be exercised if such exercise would result in the beneficial ownership of the holder and its affiliates in excess
of 9.99% of the then-issued and outstanding shares of Common Stock.
13.
Simple Agreements for Future Equity
Simple
Agreements for Future Equity - Related Party
During
2021, the Company entered into Simple Agreements for Future Equity (SAFE) arrangements with related parties Alco, DNX and William Bryant
(See Note 11 - Debt, for a description of the related party relationship with these entities) (the “Related Party SAFEs”)
pursuant to which the Company received gross proceeds in the amount of $3,567,000. In the event of an Equity Financing (as defined in
the SAFEs agreements), the Related Party SAFEs will automatically convert into shares of the Company’s common or preferred stock
at a discount of 15% of the per share price of the shares offered in the Equity Financing (the “Discount Price”). In the
event of a Liquidity Event, SPAC Transaction or Dissolution Event (all terms as defined in the SAFEs agreements), the holders of the
Related Party SAFEs will be entitled to receive cash or shares of the Company’s common or preferred stock. The Related Party SAFEs
were recorded as a liability in accordance with the applicable accounting guidance as they are redeemable for cash upon contingent events
that are outside of the Company’s control. The initial fair value of the Related Party SAFE liability was $3,567,000. Subsequent
changes in fair value at each reporting period are recognized in the consolidated statement of operations. For the three months ended
March 31, 2023, the Company recognized a loss of $303,139 for the change in fair value of the Related Party SAFE liability.
The
Company utilizes a combination of scenario-based methods and Monte Carlo simulation to determine the fair value of the Related Party
SAFE liability as of the valuation dates. 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.
On
December 14, 2023, all outstanding principal related to the Related Party SAFEs at a carrying value of $6,049,766 converted into 551,949
shares the Company’s Class A Common Stock pursuant to the close of the Merger Agreement and application of the exchange ratio.
Simple
Agreements for Future Equity - Third Party
During
2021, the Company entered into Simple Agreements for Future Equity (SAFE) arrangements with third party investors (the “Third Party
SAFEs”) pursuant to which the Company received gross proceeds in the amount of $269,000. In the event of an Equity Financing (as
defined in the SAFEs agreements), the Third Party SAFEs will automatically convert into shares of the Company’s common or preferred
stock at a discount of 15% of the per share price of the shares offered in the Equity Financing (the “Discount Price”). In
the event of a Liquidity Event, SPAC Transaction or Dissolution Event (all terms as defined in the SAFEs agreements), the holders of
the Third Party SAFEs will be entitled to receive cash or shares of the Company’s common or preferred stock. The Third Party SAFEs
were recorded as a liability in accordance with the applicable accounting guidance as they are redeemable for cash upon contingent events
that are outside of the Company’s control. The initial fair value of the Third Party SAFE liability was $269,000. Subsequent changes
in fair value at each reporting period are recognized in the Consolidated Statement of Operations. For the three months ended March 31,
2023, the Company recognized a loss of $22,861 for the change in fair value of the Third Party SAFE liability.
The
Company utilizes a combination of scenario-based methods and Monte Carlo simulation to determine the fair value of the Third Party SAFE
liability as of the valuation dates. 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.
On
December 14, 2023, all outstanding principal related to the Third Party SAFEs at a carrying value of $456,234 converted into 41,626 shares
the Company’s Class A Common Stock pursuant to the close of the Merger Agreement and application of the exchange ratio.
14.
Commitments and Contingencies
Leases
The
Company has operating leases for its real estate across multiple states. The operating leases have remaining lease terms of approximately
0.51 years as of March 31, 2024 and consist primarily of office space.
The
lease agreements generally do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate
incremental borrowing rate to discount remaining lease payments.
Leases
with an initial term of twelve months or less are not recorded on the balance sheet. There are no material residual guarantees associated
with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease
agreements. Certain leases include variable payments related to common area maintenance and property taxes, which are billed by the landlord,
as is customary with these types of charges for office space. The Company has not entered into any lease arrangements with related parties.
The
Company’s existing leases contain escalation clauses and renewal options. The Company is not reasonably certain that renewal options
will be exercised upon expiration of the initial terms of its existing leases.
The
Company entered into a sublease which it has identified as an operating lease prior to the adoption of ASC 842 Leases. The Company
remains the primary obligor to the head lease lessor, making rental payments directly to the lessor and separately billing the sublessee.
The sublease is subordinate to the master lease, and the sublessee must comply with all applicable terms of the master lease. The Company
subleased the real estate to a third-party at a monthly rental payment amount that was less than the monthly cost that it pays on the
headlease with the lessor.
The
components of lease expense, are as follows:
| | |
For the Three Months Ended March 31, | |
| Components of lease expense: | |
2024 | | |
2023 | |
| Operating lease cost | |
$ | 47,244 | | |
$ | 51,448 | |
| Sublease income | |
| (52,542 | ) | |
| (51,083 | ) |
| Total lease (income) cost | |
$ | (5,298 | ) | |
$ | 366 | |
Supplemental
cash flow information related to leases are as follows:
| | |
For the Three Months Ended March 31, | |
| Supplemental cash flow information: | |
2024 | | |
2023 | |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| | | |
| | |
| Non-cash lease expense (operating cash flow) | |
$ | 43,705 | | |
$ | 43,086 | |
| Change in lease liabilities (operating cash flow) | |
| (75,078 | ) | |
| (68,373 | ) |
Supplemental
balance sheet information related to leases was as follows:
| Operating leases: | |
March 31, 2024 | | |
December 31, 2023 | |
| Operating lease right-of-use assets | |
$ | 90,308 | | |
$ | 134,013 | |
| Operating lease liability, current | |
| 158,965 | | |
| 234,043 | |
| Total operating lease liabilities | |
$ | 158,965 | | |
$ | 234,043 | |
| Weighted-average remaining lease term: | |
March 31, 2024 | | |
December 31, 2023 | |
| Operating leases (in years) | |
| 0.51 | | |
| 0.76 | |
| Weighted-average discount rate: | |
March 31, 2024 | | |
December 31, 2023 | |
| Operating leases | |
| 6.78 | % | |
| 6.76 | % |
| | |
| | | |
| | |
Future
minimum lease payments under non-cancellable lease as of March 31, 2024, are as follows:
| Maturities of lease liabilities: | |
| |
| Year Ending December 31, | |
| | |
| Remainder of 2024 | |
$ | 162,202 | |
| Total undiscounted cash flows | |
| 162,202 | |
| Less discounting | |
| (3,237 | ) |
| Present value of lease liabilities | |
$ | 158,965 | |
Cantor
Fee Agreement
In
connection with the Merger, 7GC previously agreed to pay Cantor an Original Deferred Fee of $8,050,000 as deferred underwriting commissions.
On November 8, 2023, Cantor and 7GC entered into a Fee Reduction Agreement, pursuant to which Cantor agreed to forfeit $4,050,000 of
the $8,050,000 Original Deferred Fee, with the remaining $4,000,000 Reduced Deferred Fee payable by Banzai to Cantor following the Closing
of the Merger.
Pursuant
to the Fee Reduction Agreement, the Company agreed to use its reasonable best efforts to have the registration statement declared effective
by the SEC by the 120th calendar day after December 29, 2023, the date of the initial filing thereof, and to maintain the effectiveness
of such registration statement until the earliest to occur of (i) the second anniversary of the date of the effectiveness thereof, (ii)
the Cantor Fee Shares shall have been sold, transferred, disposed of or exchanged by Cantor, and (iii) the Cantor Fee Shares issued to
Cantor may be sold without registration pursuant to Rule 144 under the Securities Act (such obligations, the “Cantor Registration
Rights Obligations”).
Although
the Company issued the Cantor Fee Shares, as of March 31, 2024, the Company has not satisfied its Cantor Registration Rights Obligations.
As such, the Company cannot conclude that it has settled its outstanding obligations to Cantor. Therefore, neither criteria under ASC
405 for extinguishment and derecognition of the liability were satisfied and the $4,000,000 Reduced Deferred Fee remained outstanding
as a current liability on the Company’s March 31, 2024 condensed consolidated balance sheet.
At
each interim and annual period after December 31, 2023, the Company will monitor its compliance with the Cantor Registration Rights Obligations
to determine whether the entire amount of the Reduced Deferred Fee has become due and payable in cash, or the Company’s obligations
have been satisfied and the remaining liability should be derecognized. At such time as the Company’s obligations under the Fee
Reduction Agreement have been satisfied the relief of the liability will be recorded through equity.
Roth
Addendum to Letter Agreements
On
October 13, 2022, Roth Capital Partners, LLC (“Roth”) and Legacy Banzai entered into the Roth Engagement Letter, pursuant
to which Legacy Banzai engaged Roth as a financial advisor in connection with the Merger and, on October 14, 2022, MKM and 7GC entered
into the MKM Engagement Letter, pursuant to which 7GC engaged MKM as a financial advisor in connection with the Merger. In February 2023,
Roth acquired MKM. On December 8, 2023, the Company received an invoice from Roth for an advisory fee in the amount of $1,100,000 as
well as transaction expenses reimbursable to Roth amounting to $6,813. As of December 31, 2023, the Company recorded a liability for
the total advisory fee of $1,106,813 to accrued expenses.
On
February 2, 2024, the Company and Roth entered into an addendum to (i) the engagement letter, dated October 13, 2022, by and between
Roth and Legacy Banzai, and (ii) the engagement letter, dated October 14, 2022, by and between Roth (as successor to MKM Partners, LLC)
and 7GC (such engagement agreements, collectively, the “Roth Engagement Agreements,” and such addendum, the “Roth Addendum”).
Pursuant to the Roth Addendum, in lieu of payment in cash of the full amount of any advisory fees or other fees or expenses, incurred
in 2024, and owed under the Roth Engagement Agreements (collectively, the “Roth Fee”), the Company (i) issued to Roth 175,000
shares (the “Roth Shares”) of the Company’s Class A Common Stock on February 2, 2024, and (ii) on or before June 30,
2024, will pay to Roth an amount in cash equal to $300,000 or, if the Company determines that such payment should not be made in cash
due to the Company’s cash position at such time, issue to Roth a number of shares of Class A Common Stock equal to $300,000 divided
by the daily VWAP for the trading day immediately preceding June 30, 2024 (any such shares, the “Additional Roth Shares”).
The Company registered the Roth Shares and 600,000 shares of Class A Common Stock (in addition to the Roth Shares) on a registration
statement to cover any issuances of Additional Roth Shares (which may be more or less than 600,000) that may occur pursuant to the Roth
Addendum. This registration statement became effective on February 14, 2024. The $300,000 cash payment has not yet been made as of the
date of filing of these condensed consolidated financial statements.
On
February 2, 2024, the Company issued the 175,000 Roth Shares with a fair value of $278,833 on the date of issuance. As neither the remaining
$300,000 cash payment, nor any Additional Roth Shares had been paid or issued to Roth, as of March 31, 2024, $300,000 will remain as
an accrued expense on the Company’s condensed consolidated balance sheet, payable to Roth on or before June 30, 2024. Therefore,
the 175,000 shares are determined to settle $806,813 of the obligation recognized as of December 31, 2023, resulting in gain of $577,513
that has been recognized as a gain on extinguishment of liability on the Company’s condensed consolidated statement of operations.
Legal
Matters
In
the regular course of business affairs and operations, the Company is subject to possible loss contingencies arising from third-party
litigation and federal, state, and local environmental, labor, health and safety laws and regulations. The Company assesses the probability
that they may incur a liability in connection with certain of these lawsuits. The Company’s assessments are made in accordance
with generally accepted accounting principles, as codified in ASC 450-20, and is not an admission of any liability on the part of the
Company or any of its subsidiaries. In certain cases that are in the early stages and in light of the uncertainties surrounding them,
the Company does not currently possess sufficient information to determine a range of reasonably possible liability.
15.
Equity
Class
A and B Common Stock
The
Company is authorized to issue up to 275,000,000 shares, consisting of 250,000,000 Class A Common Stock, and 25,000,000 shares of Class
B Common Stock par value $0.0001 per share.
As
discussed in Note 4 - Reverse Merger Capitalization with 7GC & Co. Holdings Inc., the Company has retroactively adjusted the
shares issued and outstanding prior to December 14, 2023 to give effect to the Exchange Ratio to determine the number of shares of Company
Common Stock into which they were converted.
The
Class A Common Stock and Class B Common Stock entitle their holders to one vote per share and ten votes per share, respectively, on each
matter properly submitted to the stockholders entitled to vote thereon. The holders of shares of Common Stock shall be entitled to receive
dividends declared by the Board of Directors, on a pro rata basis based on the number of shares of Common Stock held by each such holder,
assuming conversion of all Class B Common Stock into Class A Common Stock at a one to one conversion ratio.
There
were 20,221,589 shares (17,910,455 Class A common stock and 2,311,134 Class B common stock) issued and outstanding at March 31, 2024
and 16,019,256 shares (13,708,122 Class A common stock and 2,311,134 Class B common stock) issued and outstanding at December 31, 2023.
Preferred
Stock
The
Company is authorized to issue 75,000,000 shares of preferred stock with a par value of $0.0001 per share. The board of directors of
the Company (the “Board”) has the authority to issue preferred stock and to determine the rights, privileges, preferences,
restrictions, and voting rights of those shares. As of March 31, 2024 and December 31, 2023, no shares of preferred stock were outstanding.
Yorkville
Standby Equity Purchase Agreement (“SEPA”)
On
December 14, 2023, the Company entered into the SEPA with YA II PN, LTD, a Cayman Islands exempt limited partnership managed by
Yorkville Advisors Global, LP (“Yorkville”) in connection with the Merger. Pursuant to the SEPA, subject to certain conditions,
the Company shall have the option, but not the obligation, to sell to Yorkville, and Yorkville shall subscribe for, an aggregate amount
of up to up to $100,000,000 of the Company’s shares of Class A common stock, par value $0.0001 per share, at the Company’s
request any time during the commitment period commencing on December 14, 2023 and terminating on the 36-month anniversary of the SEPA
(the “SEPA Option”).
Each
advance (each, an “Advance”) the Company requests under the SEPA (notice of such request, an “Advance Notice”)
may be for a number of shares of Class A common stock up to the greater of (i) 500,000 shares or (ii) such amount as is equal to 100%
of the average daily volume traded of the Class A common stock during the five trading days immediately prior to the date the Company
requests each Advance; provided, in no event shall the number of shares of Class A common stock issued cause the aggregate shares of
Class A common stock held by Yorkville and its affiliates as of any such date to exceed 9.99% of the total number of shares of Class
A common stock outstanding as of the date of the Advance Notice (less any such shares held by Yorkville and its affiliates as of such
date) (the “Exchange Cap”). The shares would be purchased, at the Company’s election, at a purchase price equal to
either:
| |
(i) |
95%
of the average daily Volume Weighted Average Price (“VWAP”) of the Class A Common Stock on the Nasdaq Stock Market (“Nasdaq”),
subject to certain conditions per the SEPA (the “Option 1 Pricing Period; or |
| |
|
|
| |
(ii) |
96%
of the lowest daily VWAP of the Class A Common Stock during the three trading days commencing on the Advance Notice date, subject
to certain conditions per the SEPA (the “Option 2 Pricing Period”). |
Any
purchase under an Advance would be subject to certain limitations, including that Yorkville shall not purchase or acquire any shares
that would result in it and its affiliates beneficially owning more than 9.99% of the then outstanding voting power or number of shares
of Class A common stock or any shares that, aggregated with shares issued under all other earlier Advances, would exceed 19.99% of all
shares of Class A common stock and Class B common stock of the Company, par value $0.0001 per share, outstanding on the date of the SEPA,
unless Company shareholder approval was obtained allowing for issuances in excess of such amount.
The
SEPA Option was determined to be a freestanding financial instrument which did not meet the criteria to be accounted for as a derivative
instrument or to be recognized within equity. Pursuant to ASC 815 Derivatives and Hedging (“ASC 815”), the Company
will therefore recognize the SEPA Option as an asset or liability, measured at fair value at the date of issuance, December 14, 2023,
and in subsequent reporting periods, with changes in fair value recognized in earnings. The SEPA Option was determined to have a fair
value of $0 on the date of issuance as well as at December 31, 2023 and March 31, 2024.
In
connection with the execution of the SEPA, the Company agreed to pay a commitment fee of $500,000 to Yorkville at the earlier of (i)
March 14, 2024 or (ii) the termination of the SEPA, which will be payable, at the option of the Company, in cash or shares of Class A
common stock through an Advance (the “Deferred Fee”). In March 2024 the Company issued 710,025 Class A common stock as payment
for the Deferred Fee.
Pursuant
to the terms of the SEPA, at any time that there is a balance outstanding under the Yorkville Convertible Note, Yorkville has the right
to receive shares to pay down the principal balance, and may select the timing and delivery of such shares (via an “Investor Notice”),
in an amount up to the outstanding principal balance on the Yorkville Convertible Note at a purchase price equal to the lower of (i)
$10.00 per share of Class A common stock (the “Fixed Price”), or (ii) 90% of the lowest daily Volume Weighted Average Price
(“VWAP”) of the Class A common stock on Nasdaq during the 10 consecutive Trading Days immediately preceding the Investor
Notice date or other date of determination (the “Variable Price”). The Variable Price shall not be lower than $2.00 per share
(the “Floor Price”). The Floor Price shall be adjusted (downwards only) to equal 20% of the average VWAP for the five trading
days immediately prior to the date of effectiveness of the initial Registration Statement. Notwithstanding the foregoing, the Company
may reduce the Floor Price to any amount via written notice to Yorkville, provided that such amount is no more than 75% of the closing
price on the Trading Day immediately prior to the time of such reduction and no greater than $2.00 per share of Class A common stock
(the “Conversion Price”). At any time that there is a balance outstanding under the Yorkville Convertible Note, the Company
is not permitted to issue Advance Notices under the SEPA unless an Amortization Event has occurred under the terms of the Yorkville Convertible
Note agreement.
There
were no Advance Notices issued pursuant to the SEPA during the three months ended March 31, 2024 or as of the date that these financial
statements were issued.
16.
Stock-Based Compensation
During
2023, the Company adopted the 2023 Equity Incentive Plan (the “Plan”). The Plan permits the granting of incentive stock options,
nonstatutory stock options, SARs, restricted stock awards, RSU awards, performance awards, and other awards. to employees, directors,
and consultants. The aggregate number of shares of common stock that may be issued will not exceed approximately 12.5% of the fully diluted
common stock determined at the Close of the Merger. In addition, the aggregate number of shares of common stock will automatically increase
on January 1 of each year for a period of ten years commencing on January 1, 2024 and ending on January 1, 2033, in an amount equal to
5% of the total number of shares of the fully diluted common stock determined as of the day prior to such increase. The aggregate maximum
number of shares of common stock that may be issued pursuant to the exercise of incentive stock options is approximately three times
the total number of shares of common stock initially reserved for issuance. As of March 31, 2024 and December 31, 2023, 2,848,823 and
572,172 stock options remain available to be awarded under the Plan, respectively.
The
Company accounts for stock-based payments pursuant to ASC 718 Stock Compensation and, accordingly, the Company records compensation
expense for stock-based awards based upon an assessment of the grant date fair value for options using the Black-Scholes option pricing
model. The Company has concluded that its historical share option exercise experience does not provide a reasonable basis upon which
to estimate expected term. Therefore, the expected term was determined according to the simplified method, which is the average of the
vesting tranche dates and the contractual term. Due to the lack of company specific historical and implied volatility data, the estimate
of expected volatility is primarily based on the historical volatility of a group of similar companies that are publicly traded. For
these analyses, companies with comparable characteristics were selected, including enterprise value and position within the industry,
and with historical share price information sufficient to meet the expected life of the share-based awards. The Company computes the
historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent periods of the
calculated expected term of its share-based awards. The risk-free interest rate is determined by reference to the U.S. Treasury zero-coupon
issues with remaining maturities similar to the expected term of the options. Expected dividend yield is zero based on the fact that
the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The
following table summarizes assumptions used to compute the fair value of options granted:
| | |
March 31, 2024 | | |
March 31, 2023 | |
| Stock price | |
$ | 0.61 | | |
$ | 8.22 - 8.58 | |
| Exercise price | |
$ | 0.61 | | |
$ | 11.98 | |
| Expected volatility | |
| 75.0 - 76.0 | % | |
| 80.00 - 81.13 | % |
| Expected term (in years) | |
| 5.75 - 6.08 | | |
| 5.25 - 6.08 | |
| Risk-free interest rate | |
| 4.2 | % | |
| 4.28 - 4.31 | % |
A
summary of stock option activity under the Plan is as follows:
| | |
Shares Underlying Options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term (in years) | | |
Intrinsic Value | |
| Outstanding at December 31, 2023 | |
| 748,086 | | |
$ | 5.87 | | |
| 8.43 | | |
$ | 103,662 | |
| Granted | |
| 54,000 | | |
| 0.61 | | |
| 10.00 | | |
| | |
| Exercised | |
| — | | |
| — | | |
| | | |
| | |
| Expired | |
| — | | |
| — | | |
| | | |
| | |
| Forfeited | |
| (714 | ) | |
| 2.82 | | |
| | | |
| | |
| Outstanding at March 31, 2024 | |
| 801,372 | | |
$ | 5.52 | | |
| 8.31 | | |
$ | 13,245 | |
| Exercisable at March 31, 2024 | |
| 344,304 | | |
$ | 4.23 | | |
| 7.31 | | |
$ | 13,191 | |
In
connection with issuances under the Plan, the Company recorded stock-based compensation expense of $252,967 and $402,448, which is included
in general and administrative expense for the three months ended March 31, 2024 and 2023, respectively. The weighted-average grant-date
fair value per option granted during the three months ended March 31, 2024 and 2023 was $0.61 and $8.48, respectively. As of March 31,
2024 and 2023, $2,364,604 and $2,644,032 of unrecognized compensation expense related to non-vested awards is expected to be recognized
over the weighted average period of 1.37 and 3.14 years, respectively. The aggregate intrinsic value is calculated as the difference
between the fair value of the Company’s stock price and the exercise price of the options.
RSUs
During
the three months ended March 31, 2024, the Company began issuing RSUs to non-employee directors. Each RSU entitles the recipient to one
share of Class A Common Stock upon vesting. We measure the fair value of RSUs using the stock price on the date of grant. Stock-based
compensation expense for RSUs is recorded ratably over their vesting period.
A
summary of the activity with respect to, and status of, RSUs during the three months ended March 31, 2024 is presented below:
| | |
Units | | |
Weighted Average Grant Date Fair Value | |
| Outstanding at December 31, 2023 | |
| — | | |
$ | — | |
| Granted | |
| 673,253 | | |
| 0.61 | |
| Vested | |
| — | | |
| — | |
| Forfeited | |
| — | | |
| — | |
| Outstanding at March 31, 2024 | |
| 673,253 | | |
$ | 0.61 | |
As
of March 31, 2024, unrecognized compensation cost related to the grant of RSUs was $411,358. Unvested outstanding RSUs as of March 31,
2024 had a weighted average remaining vesting period of 1 year.
17.
Income Taxes
The
Company estimates an annual effective tax rate of 0% for the year ended December 31, 2024 as the Company incurred losses for the three
months ended March 31, 2024 and 2023 and is forecasting an estimated net loss for both financial statement and tax purposes for the year
ended December 31, 2024. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes
have been accounted for using the liability method in accordance with FASB ASC 740.
Due
to the Company’s history of losses since inception, there is not enough evidence at this time to support that the Company will
generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred
tax assets have been reduced by a full valuation allowance, since the Company cannot currently support that realization of its deferred
tax assets is more likely than not.
At
March 31, 2024 and 2023, the Company had no unrecognized tax benefits that would reduce the Company’s effective tax rate if recognized.
18.
Subsequent Events
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.
On
May 1, 2024, the Company issued 260,443 shares of the Company’s Class A common stock to GEM pursuant to the Unsecured Promissory
Note, dated February 5, 2024, between the Company and GEM.
On
May 2, 2024, the Company received Investor Notice No. 4 under the SEPA to purchase $100,000 shares of the Company’s Class A common
stock. Pursuant to receipt of the Investor Notice, the Company issued 334,336 shares of the Company’s Class A common stock to Yorkville
at a purchase price of $0.2991. The issuance amounted to an offset of $100,000 against the Company’s outstanding principal under
the then-outstanding Promissory Notes.
On
May 3, 2024, the Company and Yorkville entered into a Debt Repayment Agreement (the “Debt Repayment Agreement”) acknowledging
as of the effective date of the Debt Repayment Agreement, that the February Promissory Note had been fully repaid and as of the effective
date, $2,800,000 of principal remains outstanding under the Yorkville Promissory Notes. Pursuant to the Debt Repayment Agreement, Yorkville
shall not (i) deliver any Investor Notice (as defined above pursuant to the SEPA), or (ii) exercise its right to convert all or any portion
of any outstanding Promissory Notes after the effective date, for the duration of the standstill period (the “Standstill”).
The Standstill is such that within three (3) business days upon the closing of a registered offering, the Company shall (i) pay to Yorkville
certain repayment proceeds against outstanding Promissory Notes then-outstanding, and (ii) deliver to Yorkville an Advance Notice. Yorkville
has agreed that on the date of such a closing of a registered offering, for ninety (90) days after the closing, (A) it will (i) deliver
to the Company and Investor Notice pursuant to the SEPA, or (ii) exercise its Conversion Right and (B) any obligation of the Company
to make any monthly payments of the Promissory Notes shall be suspended for the duration of the Standstill period. Additionally, the
Company and Yorkville have agreed that upon commencement of the Standstill period, the Floor Price pursuant to the then-outstanding Promissory
Notes, shall be adjusted to a price to be mutually agreed between the Company and Yorkville, and upon commencement of the Standstill
period, the maturity date of each of the then-outstanding Promissory Notes shall be extended by one hundred and twenty (120) days after
the closing of such a registered offering.
On
May 6, 2024, the Company issued 320,000 shares of the Company’s Class A common stock as compensation pursuant to a business development
and general consulting services agreement entered into in April 2024.
In
May, 2024, Yorkville submitted a Conversion Notice, related to the purchase of common shares of the Company, with the aggregate purchase
price of those shares offset against amounts outstanding by the Company under the Pre-Paid Yorkville Convertible Notes. Once issued,
Yorkville will have purchased 360,136 shares, for a total aggregate purchase consideration of $100,000. The conversion prices applicable
to this purchase is approximately $0.28 per share.
On
May 14, 2024, the Compensation Committee of the Board of Directors (the “Compensation Committee”) of the Company approved
the grant of options for the purchase of up to 1,200,000 shares of the Company’s Class A common stock, to various executive employees
of the Company, under the Company’s 2023 Equity Incentive Plan (the “Plan”). These options vest immediately as of the
grant date, have a term of 10 years and have exercise prices ranging from $1 to $5. On this same date, the Compensation Committee approved
the issuance of further options for the purchase of up to 144,500 shares of the Company’s Class A common stock, to various employees
and outside contractors, under the Plan. These options vest over a period of four years, have a term of 10 years and with an exercise
price equal to the closing market price of the Company’s Class A common stock, on the grant date. Further, on this same date, the
Compensation Committee approved the issuance of 219,290 RSU’s covering shares of Company’s Class A common stock, to various
employees and outside contractors, under the Plan. These RSU’s vest over a period of four years.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited
condensed consolidated financial statements and related notes that are included elsewhere in this Form 10-Q. In addition to historical
condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates
and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause
or contribute to these differences include those discussed below and elsewhere particularly in the section titled “Risk Factors”
and elsewhere in this Form 10-Q.
Certain
figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage
figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such
amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the
same calculations using the figures in our condensed consolidated financial statements or in the associated text. Certain other amounts
that appear in this section may similarly not sum due to rounding.
Overview
Banzai
is a Marketing Technology (MarTech) company that produces data-driven marketing and sales solutions for businesses of all sizes. Our
mission is to help our customers accomplish their mission - by enabling better marketing, sales, and customer engagement outcomes. Banzai
endeavors to acquire companies strategically positioned to enhance our product and service offerings, increasing the value provided to
current and prospective customers.
Banzai
was founded in 2015. The first product Banzai launched was Reach, a SaaS and managed services offering designed to increase registration
and attendance of marketing events, followed by the acquisition of Demio, a SaaS solution for webinars designed for marketing, sales,
and customer success teams, in 2021 and the launch of Boost, a SaaS solution for social sharing designed to increase attendance for Demio-hosted
events by enabling easy social sharing by event registrants, in 2023. Our customer base included over 2,767 customers as of March 31,
2024 and comes from a variety of industries, including (among others) healthcare, financial services, e-commerce, technology and media,
in over 86 countries. Our customers range in size from solo entrepreneurs and small businesses to Fortune 500 companies. No single customer
represents more than 10% of our revenue. Since 2021, we have focused on increasing mid-market and enterprise customers for Demio. Progress
towards this is reflected in our increase in multi-host Demio customers from 14 on January 1, 2021 to 119 on March 31, 2024.
We
sell our products using a recurring subscription license model typical in SaaS businesses. Pricing tiers for our main product, Demio,
are based on the number of host-capable users, desired feature sets, and maximum audience size. Boost pricing tiers are based on the
Demio plan to which the customer subscribes. Reach pricing is based on the number of event campaigns a customer has access to run simultaneously
or the maximum number of registrations a customer is allowed to generate per subscription period. Banzai’s customer contracts vary
in term length from single months to multiple years.
Banzai
generated revenue of approximately $1.1 million and $1.2 million in the three months ended March 31, 2024 and 2023, respectively. Banzai
has incurred significant net losses since inception, including net losses of $4.5 million and $3.8 million for the three months ended
March 31, 2024 and 2023, respectively. Banzai had an accumulated deficit of $51.3 million and of $46.8 million as of March 31, 2024 and
December 31, 2023, respectively.
Summary
of our Merger
On
December 14, 2023, we consummated the Business Combination with Legacy Banzai. Pursuant to the terms of the Merger Agreement, the Business
Combination was effected through (a) the merger of First Merger Sub with and into Legacy Banzai, with Legacy Banzai surviving as a wholly-owned
subsidiary of 7GC and (b) the subsequent merger of Legacy Banzai with and into Second Merger Sub, with the Second Merger Sub being the
surviving entity of the Second Merger, which ultimately resulted in Legacy Banzai becoming a wholly-owned direct subsidiary of 7GC. Upon
closing the Business Combination, we changed our name from 7GC & Co. Holdings Inc. to Banzai International, Inc.
A
description of the Business Combination and the material terms of the Merger Agreement are included in the Proxy Statement/Prospectus,
filed by the Company with the SEC in the section entitled “Stockholder Proposal No. 1 - The Business Combination Proposal”
beginning on page 92 of the Proxy Statement/Prospectus.
Operating
Metrics
In
the management of our businesses, we identify, measure, and evaluate a variety of operating metrics, as described below. These key performance
measures and operating metrics are not prepared in accordance with GAAP and may not be comparable to or calculated in the same way as
other similarly titled measures and metrics used by other companies. Measurements are specific to the group being measured, i.e. total
customers, new customers, or other cohorts. We currently use these operating metrics with our Demio product. We do not track and use
these operating metrics with prior products.
The
following table presents the percentage of Banzai’s revenue generated from Demio for three months ended March 31, 2024 and 2023
as compared to our other SaaS products.
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | |
| Revenue % | |
2024 | | |
2023 | |
| Reach | |
| 1.0 | % | |
| 7.0 | % |
| Demio | |
| 99.0 | % | |
| 93.0 | % |
| Other | |
| 0.0 | % | |
| 0.0 | % |
| Total | |
| 100.0 | % | |
| 100.0 | % |
Net
Revenue Retention (“NRR”)
NRR
is a metric Banzai uses to measure the revenue retention of its existing customer base. NRR calculates the change in revenue from existing
customers by cohort over a period of time, after taking into account revenue lost due to customer churn and downgrades, and revenue gained
due to upgrades and reactivations.
The
formula for calculating NRR is: NRR = (Revenue at the beginning of a period - Revenue lost from churn, and downgrades + Revenue gained
from expansion and reactivation) / Revenue at the beginning of the period.
The
following table presents average monthly NRR for Demio for the three months ended March 31, 2024 and 2023.
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | |
| Product: Demio | |
2024 | | |
2023 | |
| Average Monthly NRR | |
| 97.2 | % | |
| 96.3 | % |
Average
Customer Value (“ACV”)
ACV
is a metric Banzai uses to calculate the total revenue that it can expect to generate from a customer in a year. ACV is commonly used
in the SaaS industry to measure the value of a customer to a subscription-based company over a 12-month period. Banzai uses ACV to segment
its customers and to determine whether the value of new customers is growing or shrinking relative to the existing customer base. Banzai
uses this information to make strategic decisions about pricing, marketing, and customer retention.
The
formula for calculating ACV is: ACV = Total Annual Recurring Revenue (ARR) / Total Number Customers, where ARR is defined as annual run-rate
revenue of subscription agreements from all customers measured at a point in time.
The
following table presents new customer ACV and total average ACV for Demio for the three months ended March 31, 2024 and 2023.
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | |
| Product: Demio | |
2024 | | |
2023 | |
| New Customer ACV | |
$ | 1,484 | | |
$ | 1,376 | |
| Total Average ACV | |
$ | 1,499 | | |
$ | 1,289 | |
Customer
Acquisition Cost (“CAC”)
CAC
is a financial metric Banzai uses to evaluate the average cost of acquiring a new customer. It includes marketing, sales, and other related
expenses incurred while attracting and converting prospects into paying customers. CAC is a critical metric for Banzai to understand
the efficiency and effectiveness of its marketing and sales efforts, as well as to ensure sustainable growth.
The
formula for calculating CAC is: CAC = Total Sales & Marketing Cost / Number of Customers Acquired.
The
following table presents CAC for Demio for the three months ended March 31, 2024 and 2023.
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | |
| Product: Demio | |
2024 | | |
2023 | |
| Customer Acquisition Cost (CAC) | |
$ | 1,220 | | |
$ | 884 | |
Customer
Churn %
Customer
Churn % is the rate of customers who deactivate in a given period relative to the number of active customers at the beginning of such
period or end of the prior period. Understanding drivers of churn allows Banzai to take measures to reduce the number of customers who
deactivate and increase the overall rate of customer retention. There are two types of Churn % measured: Revenue churn and Customer (or
logo) churn.
The
formula for calculating Churn % is: Churn % = [# or $ value of] Deactivations / [# or $ value of] Active Customers (Beginning of period).
The
following table presents revenue Churn and new customer (or logo) Churn for Demio for the three months ended March 31, 2024 and 2023.
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | |
| Product: Demio | |
2024 | | |
2023 | |
| Average Monthly Churn - Revenue | |
| 5.2 | % | |
| 8.1 | % |
| Average Monthly Churn - Customer (Logo) | |
| 6.3 | % | |
| 8.8 | % |
Churn
- Customer (Logo) represents the number of customers, whereas the non-Logo Churn is based on sales dollars.
Customer
Lifetime Value (“LTV”)
LTV
is a financial metric Banzai uses to estimate the total revenue it can expect to generate from a customer throughout their entire relationship.
LTV helps Banzai understand the long-term value of each customer, enabling it to make informed decisions about marketing, sales, customer
support, and product development strategies. It also helps Banzai allocate resources more efficiently by identifying high-value customer
segments to focus on growth and retention.
The
formula for calculating LTV is comprised of two metrics: Monthly Recurring Revenue (MRR) and Customer Life represented in # of months.
Calculations for these metrics on a per-customer basis, as follows:
MRR
= ACV / 12
Customer
Life (# of months) = 1 / Churn %
LTV
= MRR * Customer Life (# of months)
MRR
is calculated by aggregating, for all customers from customer base or the group being measured during that month, monthly revenue from
committed contractual amounts. For customers on annual contracts, this represents their ACV divided by 12.
The
following table presents MRR, Customer Life, and LTV for Demio for the three months ended March 31, 2024 and 2023.
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | |
| Product: Demio | |
2024 | | |
2023 | |
| MRR (New Customers) | |
$ | 125 | | |
$ | 107 | |
| Customer Life (months) | |
| 19.2 | | |
| 12.4 | |
| LTV (New Customers) | |
$ | 2,376 | | |
$ | 1,423 | |
LTV
/ CAC Ratio
LTV
/ CAC ratio is a culminating metric measuring the efficiency of Sales and Marketing activities in terms of the dollar value of new business
generated versus the amount invested in order to generate that new business. This provides a measurement of ROI for Sales and Marketing
activities. A segmented view of LTV / CAC ratio gives additional insight into the profitability of various business development activities.
The
formula for calculating LTV / CAC ratio is: LTV / CAC for the segment or activity being measured.
The
following table presents the LTV / CAC ratio for Demio for the three months ended March 31, 2024 and 2023.
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | |
| Product: Demio | |
2024 | | |
2023 | |
| LTV / CAC Ratio | |
| 2.0 | | |
| 1.5 | |
Analysis
of the Impact of Key Business Drivers on Financial Performance
Banzai
strives to maximize revenue growth within a reasonable cost structure through optimizing and continuous monitoring of the key business
metrics described above relative to SaaS industry benchmarks, Banzai’s direct competition, and historical company performance.
This is accomplished through a combination of increased revenue per customer (higher ACVs and NRR) on an increasing customer base, generated
through efficient customer acquisition (LTV / CAC ratio) and improved customer retention (lower churn, higher customer life). Other business
activities contribute to improved performance and metrics, including but not limited to the following:
| |
● |
Customer
Success and Onboarding, leading to maximum customer satisfaction and retention. |
| |
|
|
| |
● |
Product
Development and Support, maximizing customer value, supporting usage and expansion revenue. |
| |
|
|
| |
● |
Company
Initiatives, designed to improve trial experience and conversion rates, on-demand adoption, and emphasis on data to position our
products as a system of automation and a system of record for our customers, supporting growth and retention. |
Identification
of Operational Risk Factors
There
are a number of key internal and external operational risks to the successful execution of Banzai’s strategy.
Internal
risks include, among others:
| |
● |
Management
and leadership issues: ineffective leadership, poor decision-making, or lack of direction. |
| |
|
|
| |
● |
Operational
inefficiencies: inadequate processes and poor resource allocation may lead to decreased productivity or insufficient ROI. |
| |
|
|
| |
● |
Financial
mismanagement: inadequate financial planning, improper accounting practices, or excessive debt can lead to financial instability. |
| |
|
|
| |
● |
Employee-related
challenges: high turnover, lack of skilled staff, or internal conflicts can impact morale and productivity. |
| |
|
|
| |
● |
Technological
obsolescence: failing to develop (or adapt) to new technologies in anticipation or response to changes in market trends can lead
to competitive disadvantages. |
External
risks include, among others:
| |
● |
Economic
factors: including economic downturns, inflation, or currency fluctuations impacting business spending and overall market conditions. |
| |
|
|
| |
● |
Competition:
from established industry players to new entrants, eroding market share and profitability. |
| |
|
|
| |
● |
Legal
and regulatory: changes in laws or regulations that impact operations or increase compliance costs. |
| |
|
|
| |
● |
Technological
disruptions: from advancements in technology leading to obsolescence of existing products. |
| |
|
|
| |
● |
Unforeseen
events: including natural disasters, geo-political instability, and pandemics, potentially impacting market demand, operational or
supply chain disruption. |
Analysis
of the Impact of Operational Risks on Financial Performance
The
risk factors described above could have significant impacts on Banzai’s financial performance. These or other factors, including
those risk factors summarized in the section titled “Risk Factors” could impact Banzai’s ability to generate and grow
revenue, contain costs, or inhibit profitability, cash flow, and overall financial performance:
| |
● |
Revenue
and Sales: Internal risks from operating inefficiency or external factors, including economic downturns or increased competition,
could lead to lower sales, impaired unit economics, and reduced revenue. |
| |
|
|
| |
● |
Costs
and Expenses: Internal operating mismanagement or external factors, including supplier issues, may cause increased cost relative
to revenue generation, resulting in insufficient return on investment or profit margins. |
By
continuing to conduct comprehensive risk monitoring and analysis on financial performance, Banzai can optimize its ability to make informed
decisions and improve its ability to navigate internal and external challenges. Such activities include: identification and categorization
of risks, quantification and analysis of potential severity, and development of risk mitigation strategies. It is also important for
Banzai to ensure financial reports and disclosures accurately reflect the potential impact of risks on financial performance, essential
for transparent communication with investors and stakeholders.
The
Business Combination and Public Company Costs
The
Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, 7GC was treated as the acquired
company for financial statement reporting purposes. Accordingly, for accounting purposes, the financial statements of Banzai represent
a continuation of the financial statements of Legacy Banzai with the Business Combination treated as the equivalent of Legacy Banzai
issuing stock for the net assets of 7GC, accompanied by a recapitalization. The net assets of 7GC were stated at historical cost, with
no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Legacy Banzai in this and
future reports of Banzai.
As
a consequence of the Business Combination, we became the successor to an SEC-registered and Nasdaq-listed company, which required Banzai
to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.
We incurred and expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’
liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased
audit and legal fees. We are qualified as an “emerging growth company.” As a result, we have been provided certain disclosure
and regulatory relief. Our future results of operations and financial position may not be comparable to Legacy Banzai’s historical
results of operations and financial position as a result of the Business Combination.
Results
of Operations
| | |
Three Months Ended March 31, | | |
Three Months Ended March 31, | | |
Period-over- | | |
Period-over- | |
| ($ in Thousands) | |
2024 | | |
2023 | | |
Period $ | | |
Period % | |
| Operating income: | |
| | | |
| | | |
| | | |
| | |
| Revenue | |
$ | 1,079 | | |
$ | 1,177 | | |
$ | (98 | ) | |
| -8.3 | % |
| Cost of revenue | |
| 381 | | |
| 412 | | |
| (31 | ) | |
| -7.5 | % |
| Gross profit | |
| 698 | | |
| 765 | | |
| (67 | ) | |
| -8.8 | % |
| Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| General and administrative expenses | |
| 4,309 | | |
| 3,170 | | |
| 1,139 | | |
| 35.9 | % |
| Depreciation expense | |
| 2 | | |
| 2 | | |
| — | | |
| 0.0 | % |
| Total operating expenses | |
| 4,311 | | |
| 3,172 | | |
| 1,139 | | |
| 35.9 | % |
| Operating loss | |
| (3,613 | ) | |
| (2,407 | ) | |
| (1,206 | ) | |
| 50.1 | % |
| Other expenses (income): | |
| | | |
| | | |
| | | |
| | |
| GEM commitment fee expense | |
| 200 | | |
| — | | |
| 200 | | |
| nm | |
| Other income, net | |
| (4 | ) | |
| (63 | ) | |
| 59 | | |
| -93.7 | % |
| Interest income | |
| — | | |
| — | | |
| — | | |
| nm | |
| Interest expense | |
| 451 | | |
| 538 | | |
| (87 | ) | |
| -16.2 | % |
| Interest expense - related party | |
| 578 | | |
| 383 | | |
| 195 | | |
| 50.9 | % |
| Gain on extinguishment of debt | |
| (528 | ) | |
| — | | |
| (528 | ) | |
| nm | |
| Loss on debt issuance | |
| 171 | | |
| — | | |
| 171 | | |
| nm | |
| Change in fair value of warrant liability | |
| (408 | ) | |
| — | | |
| (408 | ) | |
| nm | |
| Change in fair value of warrant liability - related party | |
| (115 | ) | |
| — | | |
| (115 | ) | |
| nm | |
| Change in fair value of simple agreement for future equity | |
| — | | |
| 23 | | |
| (23 | ) | |
| -100.0 | % |
| Change in fair value of simple agreement for future equity - related party | |
| — | | |
| 303 | | |
| (303 | ) | |
| -100.0 | % |
| Change in fair value of bifurcated embedded derivative liabilities | |
| — | | |
| 32 | | |
| (32 | ) | |
| -100.0 | % |
| Change in fair value of bifurcated embedded derivative liabilities - related party | |
| — | | |
| 137 | | |
| (137 | ) | |
| -100.0 | % |
| Change in fair value of convertible promissory notes | |
| 544 | | |
| — | | |
| 544 | | |
| nm | |
| Total other expenses (income) | |
| 889 | | |
| 1,353 | | |
| (464 | ) | |
| -34.3 | % |
| Loss before income taxes | |
| (4,502 | ) | |
| (3,760 | ) | |
| (742 | ) | |
| 19.7 | % |
| Income tax (benefit) expense | |
| (1 | ) | |
| 3 | | |
| (4 | ) | |
| -133.3 | % |
| Net loss | |
$ | (4,501 | ) | |
$ | (3,763 | ) | |
$ | (738 | ) | |
| 19.6 | % |
The
percentage changes included in the tables herein that are not considered meaningful are presented as “nm”.
Components
of Results of Operations
Revenue
Analysis
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | | |
Period-over- | | |
Period-over- | |
| ($ in Thousands) | |
2024 | | |
2023 | | |
Period $ | | |
Period % | |
| Revenue | |
$ | 1,079 | | |
$ | 1,177 | | |
$ | (98 | ) | |
| -8.3 | % |
For
the three months ended March 31, 2024, Banzai reported total revenue of approximately $1,079 thousand, representing a decrease of approximately
$98 thousand, or approximately 8.3%, compared to the three months for the same period ended March 31, 2023. This decrease is primarily
attributable to lower Reach revenue which declined by approximately $74 thousand due to a shift in Banzai’s focus to its Demio
product and decision, which decision was reversed in 2024, to begin phasing out the Reach product. In 2024 Banzai is revitalizing its
focus on the Reach product through re-engineering and expanded sales efforts. Demio revenue was lower by approximately $25 thousand for
the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 due to churn and lower new sales period-over-period.
Cost
of Revenue Analysis
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | | |
Period-over- | | |
Period-over- | |
| ($ in Thousands) | |
2024 | | |
2023 | | |
Period $ | | |
Period % | |
| Cost of revenue | |
$ | 381 | | |
$ | 412 | | |
$ | (31 | ) | |
| -7.5 | % |
For
the three months ended March 31, 2024 and 2023, Banzai’s cost of revenue totaled approximately $381 thousand and approximately
$412 thousand, respectively. This represents a decrease of approximately $31 thousand, or approximately 7.5%, for the three months ended
March 31, 2024 as compared to the three months ended March 31, 2023, is due primarily to lower customer base and an approximately 4%
lower average cost per customer, driven by lower infrastructure costs of approximately $45 thousand, contracted services of approximately
$34 thousand, subscription payroll of approximately $14 thousand, and merchant fee costs of approximately $3 thousand. The lower contracted
services and data licenses cost described above were offset by the increase of the streaming services costs of approximately $65 thousand.
Gross
Profit Analysis
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | | |
Period-over- | | |
Period-over- | |
| ($ in Thousands) | |
2024 | | |
2023 | | |
Period $ | | |
Period % | |
| Gross profit | |
$ | 698 | | |
$ | 765 | | |
$ | (67 | ) | |
| -8.8 | % |
For
the three months ended March 31, 2024 and 2023, Banzai’s gross profit was approximately $698 thousand and approximately $765 thousand,
respectively. This represents a decrease of approximately $67 thousand, or approximately 8.8% due to the decreases in revenue of approximately
$98 thousand and decreases in cost of revenue of approximately $31 thousand described above.
Operating
Expense Analysis
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | | |
Period-over- | | |
Period-over- | |
| ($ in Thousands) | |
2024 | | |
2023 | | |
Period $ | | |
Period % | |
| Total operating expenses | |
$ | 4,311 | | |
$ | 3,172 | | |
$ | 1,139 | | |
| 35.9 | % |
Total
operating expenses for the three months ended March 31, 2024 and 2023, were approximately $4.3 million and approximately $3.2 million,
respectively, an increase of approximately $1.1 million, or 35.9%. This increase was due primarily to an overall increase in salaries
and related expenses by approximately $0.1 million, marketing expenses by approximately $0.1 million, costs associated with audit, technical
accounting, and legal and other professional services of approximately $0.7 million.
Other
Expense Analysis
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | | |
Period-over- | | |
Period-over- | |
| ($ in Thousands) | |
2024 | | |
2023 | | |
Period $ | | |
Period % | |
| Total other expenses (income) | |
$ | 889 | | |
$ | 1,353 | | |
$ | (464 | ) | |
| -34.3 | % |
For
the three months ended March 31, 2024, Banzai reported total other expenses of approximately $0.9 million. This represents a decrease
of approximately $0.5 million from the three months ended March 31, 2023, when the Company reported total other expenses of approximately
$1.4 million. The change in other expenses (income), net was primarily driven by the following:
| |
● |
GEM
settlement commitment fee expense of approximately $0.2 million. |
| |
|
|
| |
● |
Gain
on extinguishment of debt of approximately $0.5 million. |
| |
|
|
| |
● |
There
were no changes in fair value of the simple agreement for future equity (“SAFEs”) during the three months ended March
31, 2024 relative to a loss of approximately $0.3 million, approximately $0.3 million of which related to related party SAFEs. |
| |
|
|
| |
● |
Changes
in fair value of warrant liability was a gain of approximately $0.4 million during the three months ended March 31, 2024, with a
gain of approximately $0.1 million related to related party warrant liabilities. These warrants, both third party and related party,
were issued and assumed in December 2023, and as such, there was no equivalent gain or loss on warrant liabilities during the three
months ended March 31, 2023. |
| |
● |
Interest
expense increased by approximately $0.1 million period-over-period to approximately $1.0 million for the three months ended March
31, 2024 due to the company raising additional interest bearing debt. |
| |
|
|
| |
● |
There
were no changes in fair value of bifurcated embedded derivative liabilities during the three months ended March 31, 2024 relative
to a loss of approximately $0.2 million during the three months ended March 31, 2023. |
Provision
for Income Taxes
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | | |
Period-over- | | |
Period-over- | |
| ($ in Thousands) | |
2024 | | |
2023 | | |
Period $ | | |
Period % | |
| Income tax (benefit) expense | |
$ | (1 | ) | |
$ | 3 | | |
$ | (4 | ) | |
| -133.3 | % |
For
the three months ended March 31, 2024 and 2023, Banzai’s reported provision for income tax benefit was $1 thousand and expense
was $3.0 thousand, respectively.
Due
to Banzai’s history of losses since inception, there is not enough evidence at this time to support that Banzai will generate future
income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets
have been reduced by a full valuation allowance, since Banzai cannot currently support that realization of its deferred tax assets is
more likely than not.
At
March 31, 2024, Banzai had no unrecognized tax benefits that would reduce Banzai’s effective tax rate if recognized.
Net
Loss Analysis
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | | |
Period-over- | | |
Period-over- | |
| ($ in Thousands) | |
2024 | | |
2023 | | |
Period $ | | |
Period % | |
| Net loss | |
$ | (4,501 | ) | |
$ | (3,763 | ) | |
$ | (738 | ) | |
| 19.6 | % |
For
the three months ended March 31, 2024 and 2023, Banzai reported net losses of approximately $4.5 million and approximately $3.8 million,
respectively. The greater net loss is primarily due to a reduction in total other expenses of approximately $0.5 million during the three
months ended March 31, 2024 compared to the three months ended March 31, 2023, offset by an increase in operating expenses of approximately
$1.1 million and a decrease in gross profit of approximately $0.1 million.
Critical
Accounting Estimates
Our
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States. The preparation of these condensed consolidated financial statements requires us to make judgments and estimates that affect
the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in our financial
statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
On a recurring basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects
of material revisions in an estimate, if any, will be reflected in the condensed consolidated financial statements prospectively from
the date of the change in the estimate.
We
believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our
financial statements.
Impairment
of goodwill
Goodwill
represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill
is reviewed for impairment at least annually, in December, or more frequently if a triggering event occurs between impairment testing
dates. As of March 31, 2024, the Company had one operating segment, which was deemed to be its reporting unit, for the purpose of evaluating
goodwill impairment to be evaluated at the year end.
The
Company’s impairment assessment begins with a qualitative assessment to determine whether it is more likely than not that the fair
value of the reporting unit is less than its carrying value. Qualitative factors may include, macroeconomic conditions, industry and
market considerations, cost factors, and other relevant entity and Company specific events. If, based on the qualitative test, the Company
determines that it is “more likely than not” that the fair value of a reporting unit is less than its carrying value, then
we evaluate goodwill for impairment by comparing the fair value of our reporting unit to its respective carrying value, including its
goodwill. If it is determined that it is not likely that the fair value of the reporting unit is less than its carrying value, then no
further testing is required.
The
selection and assessment of qualitative factors used to determine whether it is more likely than not that the fair value of a reporting
unit exceeds the carrying value involves significant judgment and estimates. Fair values may be determined using a combination of both
income and market-based approaches.
Recognition
and measurement of convertible and Simple Agreement for Future Equity (SAFE) notes, including the associated embedded derivatives
The
Company accounts for Simple Agreements for Future Equity (“SAFE”) at fair value in accordance with ASC 480 Distinguishing
Liabilities from Equity. The SAFEs are subject to revaluation at the end of each reporting period, with changes in fair value recognized
in the accompanying Consolidated Statement of Operations.
The
Company evaluates all its financial instruments to determine if such instruments contain features that qualify as embedded derivatives.
Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment
of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded
derivatives are recognized at fair value, with changes in fair value recognized in the statement of operations each period. Bifurcated
embedded derivatives are classified with the related host contract in the Company’s balance sheet.
Determination
of the fair value of the warrant liabilities
The
Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates
all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain
features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC
815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as
equity, is reassessed at the end of each reporting period.
Public
Warrants
The
Public Warrants are recognized as derivative liabilities in accordance with ASC 815. Accordingly, the Company recognizes the warrant
instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are subject
to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s consolidated
statements of operations.
The
Public Warrants were initially measured at fair value using a Monte Carlo simulation model and have subsequently been measured based
on the listed market price of such warrants. The determination of the fair value of the warrant liabilities may be subject to change
as more current information becomes available and accordingly the actual results could differ significantly. Warrant liabilities are
classified as current liabilities on the Company’s consolidated balance sheets.
GEM
Warrants
The
GEM Warrants were not considered indexed to the issuer’s stock as the holder’s ability to receive one percent of the total
consideration received by the Company’s stockholders in connection with a Change of Control in lieu of the Warrant, where the surviving
corporation is not publicly traded, adjusts the settlement value based on items outside the Company’s control in violation of the
fixed-for-fixed option pricing model. As such, the Company recorded the Warrants as liabilities initially measured at fair value with
subsequent changes in fair value recognized in earnings each reporting period.
The
measurement of fair value was determined utilizing a Monte Carlo simulation considering all relevant assumptions current at the date
of issuance (i.e., share price, exercise price, term, volatility, risk-free rate, probability of dilutive term of three years, and expected
time to conversion). The Company determined the Warrants were share issuance costs associated with an aborted offering. Aborted offering
costs may not be deferred and charged against proceeds of a subsequent offering. As such, the Company recorded an expense for the corresponding
fair value.
Recognition
and measurement of stock compensation
The
Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date
fair value of the awards in accordance with ASC 718, Stock Compensation. The Company accounts for forfeitures as they occur. The Company
estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating
the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application
of management’s judgment.
Non-GAAP
Financial Measures
Adjusted
EBITDA
In
addition to our results determined in accordance with U.S. GAAP, we believe that Adjusted EBITDA, a non-GAAP measure as defined below,
is useful in evaluating our operational performance distinct and apart from certain irregular, non-cash, and non-operational expenses.
We use this information for ongoing evaluation of operations and for internal planning purposes. We believe that non- GAAP financial
information, when taken collectively with results under GAAP, may be helpful to investors in assessing our operating performance and
comparing our performance with competitors and other comparable companies.
Non-GAAP
measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. We endeavor to
compensate for the limitation of Adjusted EBITDA, by also providing the most directly comparable GAAP measure, which is net loss, and
a description of the reconciling items and adjustments to derive the non-GAAP measure. Some of these limitations are:
| |
● |
Adjusted
EBITDA does not consider the potentially dilutive impact of stock-based compensation. |
| |
|
|
| |
● |
Although
depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future,
and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditures
or contractual commitments. |
| |
|
|
| |
● |
Adjusted
EBITDA does not reflect impairment and restructuring costs. |
| |
|
|
| |
● |
Adjusted
EBITDA does not reflect interest expense or other income. |
| |
|
|
| |
● |
Adjusted
EBITDA does not reflect income taxes. |
| |
|
|
| |
● |
Adjusted
EBITDA does not reflect audit, legal, incremental accounting and other expenses tied to M&A or the Business Combination. |
| |
|
|
| |
● |
Other
companies, including companies in our own industry, may calculate Adjusted EBITDA differently from the way we do, limiting its usefulness
as a comparative measure. |
Because
of these limitations, Adjusted EBITDA should only be considered alongside results prepared in accordance with GAAP, including various
cash-flow metrics, net income (loss) and our other GAAP results and financial performance measures.
Adjusted
EBITDA Analysis
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | | |
Period-over- | | |
Period-over- | |
| ($ in Thousands) | |
2024 | | |
2023 | | |
Period $ | | |
Period % | |
| Adjusted EBITDA (Loss) | |
$ | (1,508 | ) | |
$ | (626 | ) | |
$ | (882 | ) | |
| 141.1 | % |
For
the three months ended March 31, 2024, Banzai’s Adjusted EBITDA was approximately $1,508 thousand, reflecting a decrease in the
earnings of approximately $882 thousand compared to a loss of approximately $626 thousand for the three months ended March 31, 2023.
This period-over-period decrease in earnings is primarily attributable to an increase in interest expense - related party and transaction
related expenses.
Net
Income/(Loss) to Adjusted EBITDA Reconciliation
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | | |
Period-over- | | |
Period-over- | |
| ($ in Thousands) | |
2024 | | |
2023 | | |
Period $ | | |
Period % | |
| Net loss | |
$ | (4,501 | ) | |
$ | (3,763 | ) | |
$ | (738 | ) | |
| 19.6 | % |
| Other income, net | |
| (4 | ) | |
| (63 | ) | |
| 59 | | |
| -93.7 | % |
| Depreciation expense | |
| 2 | | |
| 2 | | |
| — | | |
| 0.0 | % |
| Stock based compensation | |
| 253 | | |
| 402 | | |
| (149 | ) | |
| -37.1 | % |
| Interest expense | |
| 451 | | |
| 538 | | |
| (87 | ) | |
| -16.2 | % |
| Interest expense - related party | |
| 578 | | |
| 383 | | |
| 195 | | |
| 50.9 | % |
| Income tax (benefit) expense | |
| (1 | ) | |
| 3 | | |
| (4 | ) | |
| -133.3 | % |
| GEM commitment fee expense | |
| 200 | | |
| — | | |
| 200 | | |
| nm | |
| Gain on extinguishment of debt | |
| (528 | ) | |
| — | | |
| (528 | ) | |
| nm | |
| Loss on debt issuance | |
| 171 | | |
| — | | |
| 171 | | |
| nm | |
| Change in fair value of warrant liability | |
| (408 | ) | |
| — | | |
| (408 | ) | |
| nm | |
| Change in fair value of warrant liability - related party | |
| (115 | ) | |
| — | | |
| (115 | ) | |
| nm | |
| Change in fair value of simple agreement for future equity | |
| — | | |
| 23 | | |
| (23 | ) | |
| -100.0 | % |
| Change in fair value of simple agreement for future equity - related party | |
| — | | |
| 303 | | |
| (303 | ) | |
| -100.0 | % |
| Change in fair value of bifurcated embedded derivative liabilities | |
| — | | |
| 32 | | |
| (32 | ) | |
| -100.0 | % |
| Change in fair value of bifurcated embedded derivative liabilities - related party | |
| — | | |
| 137 | | |
| (137 | ) | |
| -100.0 | % |
| Change in fair value of convertible promissory notes | |
| 544 | | |
| — | | |
| 544 | | |
| nm | |
| Transaction related expenses* | |
| 1,842 | | |
| 1,251 | | |
| 591 | | |
| 47.2 | % |
| Adjusted EBITDA (Loss) | |
$ | (1,508 | ) | |
$ | (626 | ) | |
$ | (882 | ) | |
| 141.1 | % |
*
Transaction related expenses include
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | | |
Period-over- | | |
Period-over- | |
| ($ in Thousands) | |
2024 | | |
2023 | | |
Period $ | | |
Period % | |
| Professional fees - audit | |
$ | 344 | | |
$ | 277 | | |
$ | 67 | | |
| 24.2 | % |
| Professional fees - legal | |
| 597 | | |
| 68 | | |
| 529 | | |
| 777.9 | % |
| Incremental accounting | |
| 680 | | |
| 808 | | |
| (128 | ) | |
| -15.8 | % |
| Market study, M&A support | |
| 221 | | |
| 98 | | |
| 123 | | |
| 125.5 | % |
| Transaction related expenses | |
$ | 1,842 | | |
$ | 1,251 | | |
$ | 591 | | |
| 47.2 | % |
Liquidity
and Capital Resources
Going
Concern
Since
inception, Banzai has financed its operations primarily from the sales of redeemable convertible preferred stock and convertible promissory
notes, and proceeds from senior secured loans. As of March 31, 2024, Banzai had cash of approximately $1.0 million.
Banzai
has incurred losses since its inception, had a working capital deficit of approximately $33.1 million as of March 31, 2024, and had an
accumulated deficit at March 31, 2024 totaling approximately $51.3 million. As of March 31, 2024, Banzai had approximately $10.0 million
and approximately $6.8 million aggregate principal amount outstanding on term/promissory notes and convertible notes, respectively. During
the three months ended March 31, 2024, Banzai has raised additional capital under the SEPA through the issuance of additional convertible
notes for a total of approximately $2.5 million to fund the Company’s operations. Additionally, during the three months ended March
31, 2024, the Company issued non-cash share payments of approximately $1.5 million in partial settlement of the Yorkville Promissory
Note financing; an approximately $0.5 million non-cash share payment to settle the deferred fee liability recognized as of March 31,
2024, and payable to Yorkville in terms of the SEPA. These stock issuances described herein do not represent sources of new capital,
rather the issuances were made to settle existing liabilities in lieu of cash payments, as described above. Banzai has historically used
debt financing proceeds principally to fund operations.
Banzai’s
intends to seek additional funding through the SEPA arrangement and other equity financings in 2024. If Banzai is unable to raise such
funding, Banzai will have to pursue an alternative course of action to seek additional capital through other debt and equity financing.
If
Banzai is unable to raise sufficient additional capital, through future debt or equity financings or through strategic and collaborative
ventures with third parties, Banzai will not have sufficient cash flows and liquidity to fund its planned business for 12 months from
the issuance of these financial statements. There can be no assurances that Banzai will be able to secure alternate forms of financing
at terms that are acceptable to management. In that event, Banzai might be forced to limit many of its business plans and consider other
means of creating value for its stockholders. Based on the factors described above, and after considering management’s plans, there
is substantial doubt about Banzai’s ability to continue as a going concern within one year from the date the financial statements
were available to be issued. The accompanying condensed consolidated financial statements have been prepared assuming Banzai will continue
as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
Cash
Flows
The
following table sets forth Banzai’s cash flows for the three months ended March 31, 2024 and 2023:
| | |
Three Months Ended
March 31, | | |
Three Months Ended
March 31, | | |
Period-over- | | |
Period-over- | |
| ($ in Thousands) | |
2024 | | |
2023 | | |
Period $ | | |
Period % | |
| Net loss | |
$ | (4,500 | ) | |
$ | (3,765 | ) | |
$ | (735 | ) | |
| 19.5 | % |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| 2,383 | | |
| 2,286 | | |
| 97 | | |
| 4.2 | % |
| Net cash used in operating activities | |
| (2,117 | ) | |
| (1,479 | ) | |
| (638 | ) | |
| 43.1 | % |
| Net cash provided by financing activities | |
| 1,050 | | |
| 1,506 | | |
| (456 | ) | |
| -30.3 | % |
| Net increase / (decrease) in cash | |
$ | (1,067 | ) | |
$ | 26 | | |
$ | (1,093 | ) | |
| -4203.8 | % |
Cash
Flows for the three months ended March 31, 2024
Net
cash used in operating activities was approximately $2.1 million for the three months ended March 31, 2024. Net cash used in operating
activities consists of net loss of approximately $4.5 million, offset by total adjustments of $2.4 million for non-cash items and the
effect of changes in working capital. Non-cash adjustments included non-cash settlement of the GEM commitment fee of approximately $0.2
million, stock-based compensation expense of approximately $0.3 million, gain on extinguishment of liability of $0.5 million, non-cash
interest expense of approximately $0.5 million (approximately $0.09 million for related party), amortization of debt discount and issuance
costs of approximately $0.5 million (approximately $0.5 million for related party), amortization of operating lease ROU assets of approximately
$0.04 million, fair value adjustment for warrant liabilities gain of approximately $0.5 million (gain of approximately $0.1 million for
related party), and net of change in operating assets and liabilities of approximately $1.2 million.
There
were no net cash investing activities for the three months ended March 31, 2024.
Net
cash provided by financing activities was approximately $1.1 million for the three months ended March 31, 2024, and was primarily related
to proceeds from convertible debt financing of approximately $2.3 million and payment of the GEM commitment fee of approximately $1.2
million.
Cash
Flows for the three months ended March 31, 2023
Net
cash used in operating activities was approximately $1.5 million for the three months ended March 31, 2023. Net cash used in operating
activities consists of net loss of approximately $3.8 million, total adjustments of approximately $2.3 million for non-cash items and
the effect of changes in working capital. Non-cash adjustments include stock-based compensation expense of approximately $0.4 million,
non-cash interest expense of approximately $0.2 million (approximately $0.09 million for related party), amortization of debt discount
and issuance costs of approximately $0.4 million (approximately $0.3 million for related party), amortization of operating lease ROU
assets of approximately $0.04 million, fair value adjustments to simple agreement for future equity of approximately $0.3 million (approximately
$0.3 million for related party), fair value adjustments to bifurcated embedded derivative liabilities of approximately $0.2 million (approximately
$0.1 million for related party), and net of change in operating assets and liabilities of approximately $0.7 million.
There
were no net cash investing activities for the three months ended March 31, 2023.
Net
cash provided by financing activities was approximately $1.5 million for the three months ended March 31, 2023, and was primarily related
to proceeds from the issuance of convertible note, net of issuance costs of approximately $1.5 million (all amounts for related party).
Capital
Expenditure Commitments and Financing Requirements
| ($ in Thousands) | |
Total | | |
Less than 1 year | | |
1 - 3 Years | |
| Debt principal - 14% CB PF convertible notes | |
$ | 1,821 | | |
$ | 1,821 | | |
$ | — | |
| Debt principal - 14% CB PF term notes | |
| 6,500 | | |
| 6,500 | | |
| — | |
| Debt principal - 8% Alco promissory notes | |
| 4,400 | | |
| 4,400 | | |
| — | |
| Debt principal - Yorkville Convertible promissory note | |
| 3,000 | | |
| 3,000 | | |
| — | |
| Debt principal - GEM promissory note | |
| 900 | | |
| 900 | | |
| — | |
| Interest on debt | |
| 3,365 | | |
| 3,365 | | |
| — | |
| Operating leases | |
| 162 | | |
| 162 | | |
| — | |
| Total capital expenditure commitments and financing requirements at March 31, 2024 | |
$ | 20,148 | | |
$ | 20,148 | | |
$ | — | |
Debt
principal - 14% CB PF convertible and term notes
On
February 19, 2021, the Company entered into a loan agreement with CP BF Lending, LLC (“CP BF”) for $8,000,000 (the “Loan
Agreement”). The Loan Agreement was comprised of a Term Note for $6,500,000 and a Convertible Note for $1,500,000, with the option
upon the request of the Company for Additional Loan (“Additional Loan”) principal amount of up to $7,000,000, evidenced by
additional notes with 81.25% of the principal amount of such Additional Loan being evidenced by a Term Note, and 18.75% of the principal
amount of such an Additional Loan being evidenced by a Convertible Note. The Term Note bears cash interest at a rate of 14% per annum
paid monthly and accrued interest payable-in-kind (“PIK”) cumulatively at 1.5% per annum. The outstanding principal balance
of the Term Note together with accrued and unpaid interest thereon, unpaid fees and expenses and any other Obligations then due, shall
be paid on February 19, 2025 (“Loan Maturity Date”). The Convertible Note accrues PIK interest cumulatively at a rate of
15.5% per annum, and is convertible into Class A Common Stock upon Qualified Financing (as defined in the agreement), upon a Change of
Control (as defined in the agreement), upon Prepayment, or at Maturity at a fixed conversion price. If not sooner converted or prepaid,
the Convertible Note principal together with accrued and unpaid interest thereon, unpaid fees and expenses and any other Obligations
then due, shall be paid on the Loan Maturity Date. Upon the occurrence, and during the continuance, of an Event of Default (as defined
in the agreement), interest on the Term Note will bear cash interest at a per annum rate of 20% (“Default Rate”) and no PIK
interest shall accrue at any time during an Event of Default and the Convertible Note will bear PIK Interest at a per annum at the Default
Rate.
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% of the outstanding principal balance of the Loans, with only the portion of the principal balance
so converted counted for purposes of determining the applicable Exit Fee; and provided further, that, in the event of a partial prepayment
of the Loans, the Exit Fee shall be calculated on the principal amount so repaid and not on the entire outstanding principal balance
thereof, and (iv) all other Obligations, if any, that shall have become due and payable hereunder with respect to the principal amount
so prepaid.
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. The Loan Agreement is secured
by a first-priority Lien (subject to Permitted Liens) on and security interest in the Collateral pursuant to the terms of the Collateral
Documents. The Loan Agreement named Joseph Davy, CEO, as Guarantor, and per the term of the Loan Agreement, he is willing to guarantee
the full payment, performance and collection of all of the Credit Parties’ obligations thereunder and under the Loan Agreement,
all as further set forth therein.
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
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,
which is not considered an Additional Loan as defined above. The First Amendment Convertible Note has the same features as the Convertible
Note described above.
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 “Amendment Fee”) on the execution date to extend the forbearance
period from the four-month anniversary of the closing of the Merger to the six-month anniversary of the closing of the Merger. This amendment
was deemed to be a debt modification in accordance with ASC 470, Debt, which will be accounted for prospectively. Modification does not
result in recognition of a gain or loss in the consolidated statement of operations but does impact interest expense recognized in the
future.
Debt
principal - 8% Alco promissory notes
On
August 30, 2023, the Company issued a subordinate promissory note (“Alco August Promissory Note”) in the aggregate principal
amount of $150,000 to Alco Investment Company, a related party. Alco held its ownership of over 10% of the issued equity of the Company,
through its ownership of Series A preferred stock. The Alco August Promissory Note bears interest at a rate of 8% per annum. The outstanding
principal and accrued interest are due and payable on April 29, 2024. The Company recorded a $3,711 debt discount upon issuance of the
Alco August Promissory Note. For the three months ended March 31, 2024, interest expense on the Alco August Promissory Note totaled $5,449,
comprised of $2,991 of contractual accrued interest and $2,458 for the amortization of the discount. As of March 31, 2024 and December
31, 2023, $150,000 of principal and $7,035 and $4,044, respectively, of accrued interest is outstanding under the Alco August Promissory
Note.
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 to Alco Investment Company, a related party. The Alco September Promissory Note bears interest at
a rate of 8% per annum. The outstanding principal and accrued interest are due and payable on September 30, 2024. The Company recorded
$8,588 of debt issuance costs and a $638,808 debt discount upon issuance of the Alco September Promissory Note, relating to the share
transfer agreements, see below. For the three months ended March 31, 2024, interest expense on the Alco September Promissory Note totaled
$91,563, comprised of $29,918 of contractual accrued interest and $61,645 for the amortization of the discount. As of March 31, 2024
and December 31, 2023, $1,500,000 of principal and $60,493 and $30,575, respectively, of accrued interest is outstanding under the Alco
September Promissory Note.
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 to Alco Investment Company, a related party. The Alco November Promissory Note bears interest at a rate of 8%
per annum. The outstanding principal and accrued interest are due and payable on April 13, 2024. The Company recorded a $363,905 debt
discount upon issuance of the Alco November Promissory Note relating to the share transfer agreements, see below. For the three months
ended March 31, 2024, interest expense on the Alco November Promissory Note totaled $248,285, comprised of $14,959 of contractual accrued
interest and $233,326 for the amortization of the discount. As of March 31, 2024 and December 31, 2023, $750,000 of principal and $22,356
and $7,397, respectively, of accrued interest is outstanding under the Alco November Promissory Note.
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 to Alco Investment Company, a related party. The Alco December Promissory Note bears interest at a rate of
8% per annum. The outstanding principal and accrued interest are due and payable on December 31, 2024. The Company recorded a $1,496,252
debt discount upon issuance of the Alco December Promissory Note, relating to the share transfer agreements, see below. For the three
months ended March 31, 2024, interest expense on the Alco December Promissory Note totaled $232,216, comprised of $39,890 of contractual
accrued interest and $192,326 for the amortization of the discount. As of March 31, 2024 and December 31, 2023, $2,000,000 of principal
and $47,780 and $7,890, respectively, of accrued interest is outstanding under the Alco December Promissory Note.
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 in principal borrowed under the Alco September and November Promissory Notes, the Sponsor agreed to forfeit one share of
7GC Class B Common Stock held by the Sponsor, in exchange for the right of Alco to receive one New Banzai Class A Share. For each $10.00
in principal borrowed under the December Note, the Sponsor agreed to forfeit three shares of 7GC Class B Common Stock held by the Sponsor,
in exchange for the right of Alco to receive three New Banzai Class A Shares. Such forfeited and issued shares under the Alco September,
November, and December Promissory Notes are capped at an amount equal to 150,000, 75,000, and 600,000, respectively. Pursuant to the
Alco Share Transfer Agreements, the shares are subject to an 180-day lock-up period upon issuance of the shares.
Debt
principal - 7GC Convertible promissory note
The
Company assumed two promissory notes in connection with the Merger which remained outstanding as of March 31, 2024. The promissory notes
were issued on December 21, 2022 for a principal amount of $2,300,000 (“December 2022 7GC Note”) and on October 3, 2023 for
a principal amount of $250,000 (“October 2023 7G Note, together with the December 2022 7GC Note, the “7GC Promissory Notes”).
The 7GC Promissory Notes were issued to the Sponsor, 7GC & Co. Holdings LLC. The 7GC Promissory Notes do not bear interest and were
repayable in full upon the earlier of the consummation of a business combination or the date the Company liquidates the trust account
(the “Trust Account”) established in connection with the Company’s initial public offering (the “IPO”)
upon the failure of the Company to consummate a business combination within the requisite time period. Under the original terms of the
7GC Promissory Notes, the Sponsor has the option, but not the obligation, to convert the principal balance of the Note, in whole or in
part, into that number of shares of Class A common stock, $0.0001 par value per share, of the Company equal to the principal
amount of the Note so converted divided by $10.00.
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 days after
the closing of the Merger (the “Closing”) at a conversion price equal to the average daily VWAP of the Class A Common Stock
for the 30 trading days following the Closing. This amendment was deemed to be a debt modification in accordance with ASC 470, Debt,
which will be accounted for prospectively. Modification does not result in recognition of a gain or loss in the consolidated statement
of operations but does impact interest expense recognized in the future. Pursuant to ASC 470, if the modification or exchange of a convertible
debt instrument is not accounted for as an extinguishment, the accounting for the change in the fair value of the embedded conversion
option which increases the value of the embedded conversion option (calculated as the difference between the fair value of the embedded
conversion option immediately before and after the modification or exchange) is recorded as a reduction to the carrying amount of the
7GC Promissory Notes with a corresponding increase to additional paid in capital. The 7GC Promissory Notes were converted in full and
subsequently cancelled on March 6, 2024.
Debt
principal - Yorkville Convertible promissory note
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 for further details), Yorkville agreed to advance to the Company, in exchange for convertible promissory notes,
an aggregate principal amount of up to $3,500,000, $2,000,000 of which was funded at the Closing in exchange for the issuance by the
Company of a Convertible Promissory Note (the “December Yorkville Convertible Note”). The Company received net proceeds of
$1,800,000 after a non-cash original issue discount of $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 (the “Additional Pre-Paid Advance
Amount”), for an aggregate principal amount of $4,500,000 to be advanced by Yorkville to the Company in the form of convertible
promissory notes. On February 5, 2024 in exchange for a promissory note in the principal amount of $1,000,000 (the “February Yorkville
Promissory Note”), with the same terms as the December Yorkville Convertible Note, the Company received net proceeds of $900,000
after a non-cash original issue discount of $100,000.
On
March 26, 2024, the Company, in exchange for a convertible promissory note with a principal amount of $1,500,000 (the “March Yorkville
Promissory Note”, together with the December Yorkville Convertible Note and February Yorkville Promissory Note (the” Yorkville
Promissory Notes”), received net proceeds of $1,250,000 after a non-cash original issue discount of $250,000 from Yorkville.
The
Yorkville Convertible Notes have a maturity date of June 14, 2024, and accrue interest at 0% per annum, subject to an increase to 18%
per annum upon events of default as defined in the agreement. As of March 31, 2024, no events of default have occurred.
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 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% of the
total number of shares of Class A common stock outstanding after giving effect to such conversion.
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% prepayment
premium, plus all accrued and unpaid interest; provided that (i) the Company provides Yorkville with no less than ten trading days’
prior written notice thereof and (ii) on the date such notice is issued, the VWAP of the Class A common stock is less than the Fixed
Price.
Upon
the occurrence of certain triggering events, as defined in the Yorkville Convertible Notes agreement (each an “Amortization Event”),
the Company may be required to make monthly repayments of amounts outstanding under the Yorkville Convertible Notes, with each monthly
repayment to be in an amount equal to the sum of (x) $1,000,000, plus (y) 10% in respect of such amount, and (z) all outstanding accrued
and unpaid interest as of each payment date.
During
the three months ending March 31, 2024, $500,000 of principal under the December Yorkville Convertible Note was converted into 788,211
Class A Common stock of the Company and the full principal amount of $1,000,000 under the February Yorkville Convertible Note was converted
into 1,445,524 Class A Common stock of the Company.
As
of March 31, 2024 and December 31, 2023, the principal amount outstanding under the Yorkville Convertible Notes was $3 million and $2
million, respectively. During the three months ended March 31, 2024, the Company recorded interest expense of $0 in connection with the
Yorkville Convertible Notes.
Debt
principal - GEM Promissory Note
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 million in cash within three business days of the GEM Settlement
Agreement and (ii) issued to GEM, on February 5, 2024, an unsecured promissory zero coupon note in the amount of $1.0 million, payable
in monthly installments of $100,000 beginning on March 1, 2024, with the final payment to be made on December 1, 2024 (the “GEM
Promissory Note”). The Company paid GEM the $1.2 million in cash in February 2024.
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 shares of Class A Common Stock that may be issuable under the terms of the GEM Promissory Note. The GEM Promissory
Note contains customary events of default. If an event of default occurs, GEM may, at its option, demand from the Company immediate payment
of any outstanding balance under the GEM Promissory Note.
As
of March 31, 2024, the Company has issued an aggregate of 139,470 shares of Class A Common Stock to GEM in lieu of monthly payment obligations
and the remaining balance of the GEM Promissory Note as of March 31, 2024 is $900,000.
Interest
on Debt
Interest
on debt totals $3.4 million for the three months ended March 31, 2024, representing the aggregate interest expenses / payments obligation
to be paid and to be recognized during the rest of the terms of the Loan Agreements and Senior Convertible Notes, described above.
Operating
Leases
Banzai
has an operating lease for its real estate for office use. The lease term expires in October 2024. Banzai adopted ASC 842 Leases by applying
the guidance at adoption date, January 1, 2022. The $158,965 balance recognized as of March 31, 2024 represents the future minimum lease
payments under non-cancellable leases as liabilities.
Debt
Structure and Maturity Profile
| ($ in Thousands) | |
Principal | | |
Debt Discount / Issuance Cost | | |
Carrying Value | | |
Accrued Interest | | |
Carrying Value and Accrued Interest | |
| As of March 31, 2024 | |
| | | |
| | | |
| | | |
| | | |
| | |
| Debt principal - 14% CB PF term notes | |
$ | 6,500 | | |
$ | (107 | ) | |
$ | 6,393 | | |
$ | 556 | | |
$ | 6,949 | |
| Debt principal - 8% Alco promissory notes | |
| 4,400 | | |
| (1,455 | ) | |
| 2,945 | | |
| 138 | | |
| 3,083 | |
| Debt principal - Yorkville Convertible promissory note | |
| 3,000 | | |
| 64 | | |
| 3,064 | | |
| — | | |
| 3,064 | |
| Debt principal - 14% CB PF convertible notes | |
| 1,821 | | |
| (35 | ) | |
| 1,786 | | |
| 1,023 | | |
| 2,809 | |
| Debt principal - GEM promissory note | |
| 900 | | |
| — | | |
| 900 | | |
| — | | |
| 900 | |
| Total debt carrying values at March 31, 2024 | |
$ | 16,621 | | |
$ | (1,533 | ) | |
$ | 15,088 | | |
$ | 1,717 | | |
$ | 16,805 | |
The
Yorkville Convertible promissory note is presented at its fair value on the condensed consolidated balance sheets.
Contractual
Obligations and Commitments
Revenue
Under
ASC 606, revenue is recognized throughout the life of the executed agreement. Banzai measures revenue based on considerations specified
in terms and conditions agreed to by a customer. Furthermore, Banzai recognizes revenue in an amount that reflects the consideration
we expect to be entitled to in exchange for those services. The performance obligation is satisfied by transferring control of the service
to the customer, which occurs over time.
Leases
Banzai’s
existing leases contain escalation clauses and renewal options. Banzai is not reasonably certain that renewal options will be exercised
upon expiration of the initial terms of its existing leases. Prior to adoption of ASU 2016-02 effective January 1, 2022, Banzai accounted
for operating lease transactions by recording lease expense on a straight-line basis over the expected term of the lease.
Banzai
entered into a sublease which it had identified as an operating lease prior to the adoption of ASC 842 Leases. Banzai remains the primary
obligor to the head lease lessor, making rental payments directly to the lessor and separately billing the sublessee. The sublease is
subordinated to the master lease, and the sublessee must comply with all applicable terms of the master lease. Banzai subleased the real
estate to a third-party at a monthly rental payment amount that was less than the monthly cost that it pays on the headlease with the
lessor.
Deferred
underwriting fees
On
December 28, 2023, the Company and Cantor amended the Fee Reduction Agreement to provide that the Reduced Deferred Fee was payable in
the form of 1,113,927 shares of Class A Common Stock and to provide that Cantor is subject to a 12-month lock-up with respect to the
Cantor Fee Shares. On December 28, 2023, the Company issued the Cantor Fee Shares to Cantor, covering the Reduced Deferred Fee in accordance
with the Fee Reduction Agreement. The fair value of the 1,113,927 shares of Class A Common Stock was determined to be $2,450,639 on December
28, 2023 based on the Company’s opening stock price of $2.20. Although the Company issued the Cantor Fee Shares, as of March 31,
2024, the Company has not satisfied its Cantor Registration Rights Obligations. As such, the Company cannot conclude that it has settled
its outstanding obligations to Cantor. Therefore, neither criteria under ASC 405 for extinguishment and derecognition of the liability
were satisfied and the $4,000,000 Reduced Deferred Fee remained outstanding as a current liability on the Company’s March 31, 2024
balance sheet.
GEM
commitment fee liability
In
May 2022, the Company entered into a Share Purchase Agreement with GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (collectively,
“GEM”) (the “GEM Agreement”) pursuant to which, among other things, upon the terms and subject to the conditions
of the GEM Agreement, GEM is to purchase from the Company (or its successor following a Reverse Merger Transaction (as defined in the
GEM Agreement)) up to the number of duly authorized, validly issued, fully paid and non-assessable shares of common stock having an aggregate
value of $100,000,000 (the “GEM Financing”). Further, in terms of the GEM Agreement, on the Public Listing Date, the Company
was required to make and execute a warrant (“GEM Warrant”) granting GEM the right to purchase up to the number of common
shares of the Company that would be equal to 3% of the total equity interests, calculated on a fully diluted basis, and at an exercise
price per share equal to the lesser of (i) the public offering price or closing bid price on the date of public listing or (ii) the quotient
obtained by dividing $650 million by the total number of equity interests.
On
December 13, 2023, the Company and GEM entered into a binding term sheet (the “GEM Term Sheet”) and, on December 14, 2023,
a letter agreement (the “GEM Letter”), agreeing to terminate in its entirety the GEM Agreement by and between the Company
and GEM, other than with respect to the Company’s obligation (as the post-combination company in the Merger) to issue the GEM Warrant
granting the right to purchase Class A Common Stock in an amount equal to 3% of the total number of equity interests outstanding as of
the Closing, calculated on a fully diluted basis, at an exercise price on the terms and conditions set forth therein, in exchange for
issuance of a $2.0 million convertible debenture with a five-year maturity and 0% coupon. Due to the determination of the final terms
of the planned $2.0 million convertible debenture having not been finalized, nor the final agreement related to the convertible debenture
having been executed, as of March 31, 2024, the Company recognized, concurrent with the close of the merger, a liability for the GEM
commitment fee, along with a corresponding GEM commitment fee expense, in the amount of $2.0 million.
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 million in cash within three business days of the GEM Settlement
Agreement and (ii) issued to GEM, on February 5, 2024, an unsecured promissory note in the amount of $1.0 million, payable in monthly
installments of $100,000 beginning on March 1, 2024, with the final payment to be made on December 1, 2024 (the “GEM Promissory
Note”).
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 shares of Class A Common Stock that may be issuable under the terms of the GEM Promissory Note. The GEM Promissory
Note contains customary events of default. If an event of default occurs, GEM may, at its option, demand from the Company immediate payment
of any outstanding balance under the GEM Promissory Note. As of the date of these unaudited condensed consolidated interim financial
statements, we have issued an aggregate of 139,470 shares of Class A Common Stock to GEM in lieu of monthly payment obligations.
Off-Balance
Sheet Arrangements
Banzai
had no off-balance sheet arrangements as of March 31, 2024.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
This
item is not applicable as we are a smaller reporting company.
Item
4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
The
Company conducted an evaluation (pursuant to Rule 13a-15(b) of the Exchange Act), under the supervision and with the participation of
management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the Company’s disclosure
controls and procedures (as defined in Rule 13a-15(e)) as of March 31, 2024.
These
disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company’s reports that
are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms. The Company’s disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal
executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding
required disclosure.
Based
on the evaluation of our disclosure controls and procedures, our Principal Executive Officer and Principal Financial Officer have concluded
that, as a result of the continuing material weaknesses in our internal control over financial reporting noted below, our disclosure
controls and procedures were not effective as of March 31, 2024.
Previously
Identified Material Weaknesses
As
of December 31, 2023, the Company concluded that it had a material weaknesses in its IT General Controls, adherence to the Committee
of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control — Integrated Framework (2013),
and period end financial close and reporting process as described below.
| |
1. |
IT
General Controls - We did not maintain an effective IT control environment because we did not maintain a formal cybersecurity
governance program, sufficient provisioning, deprovisioning, user access reviews, and reviews of service organizations. |
| |
|
|
| |
2. |
COSO
Entity Level Controls - We did not maintain effective controls over the identification and monitoring of related party relationships
and transactions and have not yet implemented a formal delegation of authority process. |
| |
|
|
| |
3. |
Period
end financial close and reporting - Our assessment of internal controls has identified a material weakness whereby the CFO has
unrestricted administrative access to the General Ledger (“GL”) system. Given the concentration of responsibility includes
approval of key transactions, bank account reconciliations, and journal entries, administrative access to the GL system should be
restricted to personnel outside of Accounting and Finance function. |
Remediation
of Material Weaknesses
We
are committed to the remediation of the material weaknesses described above, as well as the continued improvement of our internal control
over financial reporting. We are in the process of taking steps to remediate the identified material weaknesses and continue to evaluate
our internal controls over financial reporting, including the following:
IT
General Controls:
| |
1. |
We
have implemented enhanced segregation of duties and workflow approvals to prevent unauthorized changes in our systems. |
| |
|
|
| |
2. |
We
have begun utilizing the services of external consultants to review our internal controls environment and make recommendations to
remediate the material weaknesses in our financial reporting. |
| |
3. |
We
have begun utilizing the services of external consultants to complete a formal cybersecurity assessment and subsequently identified
remediation plans to address any gaps and weaknesses. |
| |
|
|
| |
4. |
We
utilized the services of external consultants to assist in the development of an incident response plan to mitigate the IT control
risk, which we expect to formalize in 2024. |
COSO
Entity Level Controls:
| |
● |
We
utilized the services of external consultants to assist in the identification and documentation of entity level controls as of March
31, 2024. Additionally, in Q1 2024 we completed a formal COSO mapping document and remediation plans have been drafted where gaps
were identified. |
| |
|
|
| |
● |
We
implemented an Audit Committee, Compensation Committee, Nominating and Governance Committee and Board of Directors immediately post-merger. |
Period
End Financial Close and Reporting:
| |
1. |
We
have begun utilizing the services of external consultants to assess our overall security role design and privileged user access for
each of our in-scope applications, including our general ledger system. We expect to implement certain user access changes during
the second quarter of 2024 and further system-wide changes thereafter. |
As
we continue our evaluation and improve our internal control over financial reporting, management may identify and take additional measures
to address control deficiencies. We cannot assure you that we will be successful in remediating the material weaknesses in a timely manner.
Changes
in Internal Control over Financial Reporting
As
required by Rule 13a-15(d) of the Exchange Act, our management, including our Principal Executive Officer and our Principal Financial
Officer, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the
quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting. Based on that evaluation, our Principal Executive Officer and our Principal Financial Officer concluded that, other
than the changes described above regarding our steps to remediate our material weaknesses, there was no change in the Company’s
internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
PART
II—OTHER INFORMATION
Item
1. Legal Proceedings.
From
time to time, we may be party to litigation and subject to claims incident to the ordinary course of our business. As our growth continues,
we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted
with certainty, and the resolution of these matters could materially affect our future results of operations, cash flows or financial
position. We are not presently party to any legal proceedings that, in the opinion of management, if determined adversely to us, would
individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.
Item
1A. Risk Factors.
You
should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition
or future results set forth under Part I, Item 1A, Risk Factors, contained in our Annual Report on Form 10-K for the year ended
December 31, 2023. There have been no material changes from the risk factors since the filing of the 2023 Annual Report.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
Yorkville
Promissory Notes
On
February 5, 2024, and March 26, 2024, the Company issued convertible promissory notes in the principal amount of $1.0 million and $1.5
million, respectively, to Yorkville pursuant to the SEPA. In February and March 2024, the Company issued 2,233,735 shares of Class A
common stock to Yorkville upon conversion of $1.5 million of the Yorkville Promissory Notes. In addition, on March 18, 2024, the Company
issued 710,025 shares of Class A common stock to Yorkville in satisfaction of a deferred fee payment in the amount of $500,000. The issuance
by the Company of the Yorkville Promissory Notes and the shares of Class A common stock issued to Yorkville have not been registered
under the Securities Act in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.
GEM
Promissory Note
On
February 5, 2024, the Company issued the GEM Promissory Note in the principal amount of $1.0 million to GEM pursuant to the GEM Settlement
Agreement. On March 5, 2024, the Company issued 139,470 shares of Class A common stock to GEM as repayment of $100,000 aggregate principal
amount outstanding under the GEM Promissory Note. The issuance by the Company of the GEM Promissory Note and the shares of Class A common
stock issued to GEM have not been registered under the Securities Act in reliance on the exemption from registration provided by Section
4(a)(2) of the Securities Act.
Roth
Shares
On
February 2, 2024, the Company issued 175,000 shares of Class A common stock to Roth pursuant to the Roth Addendum as consideration for
advisory services provided by Roth in connection with the Business Combination. Such shares were issued in a transaction exempt from
registration in reliance on Section 4(a)(2) of the Securities Act.
Marketing
Agreement Shares
Effective
March 20, 2024, the Company issued to a consultant (the “Marketing Consultant”) 153,492 shares of its Class A common stock,
which shares represented $200,000 of compensation for the Marketing Consultant’s services under a marketing services agreement.
The shares were issued to the Marketing Consultant in a transaction exempt from registration in reliance on Section 4(a)(2) of the Securities
Act.
Item
3. Defaults Upon Senior Securities.
None.
Item
4. Mine Safety Disclosures.
Not
applicable.
Item
5. Other Information.
During
the three months ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement”
or “non-Rule 10b5-1 trading arrangement,” as these terms are defined in Item 408(a) of Regulation S-K.
Item
6. Exhibits.
The
following documents are included as exhibits to this Quarterly Report on Form 10-Q:
Exhibit
Number |
|
Description |
| 4.1 |
|
Unsecured Promissory Note, dated February 5, 2024, issued by Banzai International, Inc. to GEM Global Yield LLC SCS (incorporated by reference to Exhibit 10.4 of the Current Report on Form 8-K filed on February 8, 2024). |
| 4.2 |
|
Promissory Note, dated as of February 5, 2024, issued by Banzai International, Inc. to YA II PN, LTD (incorporated by reference to Exhibit 4.11 of Amendment No. 1 to the Registration Statement on Form S-1 filed on February 5, 2024). |
| 4.3 |
|
Promissory Note, dated as of March 26, 2024, issued by Banzai International, Inc. to YA II PN, LTD (incorporated by reference to Exhibit 4.10 to the Annual Report on Form 10-K filed on April 1, 2024). |
| 10.1 |
|
Supplemental Agreement, dated February 5, 2024, by and between Banzai International, Inc. and YA II PN, LTD (incorporated by reference to Exhibit 10.29 of Amendment No. 1 to the Registration Statement on Form S-1 filed on February 5, 2024). |
| 10.2 |
|
Settlement Agreement, dated February 5, 2024, by and between Banzai International, Inc., GEM Global Yield LLC SCS and GEM Yield Bahamas Limited (incorporated by reference to Exhibit 10.27 of Amendment No. 1 to the Registration Statement on Form S-1 filed on February 5, 2024). |
| 10.3 |
|
Addendum to Letter Agreements, dated February 5, 2024, by and between Banzai International, Inc. and Roth Capital Partners, LLC (incorporated by reference to Exhibit 10.30 of Amendment No. 1 to the Registration Statement on Form S-1 filed on February 5, 2024). |
| 10.4# |
|
Banzai International, Inc. 2023 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed on March 25, 2024). |
| 10.5# |
|
Banzai International, Inc. 2023 Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.2 to the Registration Statement on Form S-8 filed on March 25, 2024). |
| 31.1* |
|
Certification
of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2* |
|
Certification
of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1* |
|
Certifications
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2* |
|
Certifications
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS
*** |
|
Inline
XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded
within the Inline XBRL document. |
| 101.SCH
**** |
|
Inline
XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
| 104
*** |
|
Cover
Page Interactive Data File (embedded within the Inline XBRL document) |
| * |
|
Filed
herewith. |
| # |
|
Indicates
management contract or compensatory plan or arrangement. |
| *** |
|
The
XBRL Instance Document and Cover Page Interactive Data File do not appear in the Interactive Data File because their XBRL tags are
embedded within the Inline XBRL document. |
| **** |
|
Submitted
electronically herewith |
SIGNATURES
Pursuant
to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 15, 2024.
| |
BANZAI
INTERNATIONAL, INC. |
| |
|
|
| Date:
May 15, 2024 |
By: |
/s/
Joseph Davy |
| |
|
Joseph
Davy |
| |
|
Chief
Executive Officer |
| |
|
|
| Date:
May 15, 2024 |
By: |
/s/
Mark Musburger |
| |
|
Mark
Musburger |
| |
|
Chief
Financial Officer |
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