Note 6 - Debt

Outstanding as of September 30, 2024

Revenue Loan and Security Agreement

On September 28, 2022, the Company entered into a Revenue Loan and Security Agreement (the “Loan Agreement”) with Decathlon Alpha V, L.P. The Company was advanced $4,000,000 upon execution of the Loan Agreement. The Loan Agreement requires monthly payments, calculated as a percentage of the Company’s revenue from the previous month (subject to an annual payment cap) with all outstanding advances and the interest (as defined in the Loan Agreement) being due at maturity on June 13, 2027 (unless accelerated upon a change of control or the occurrence of other events of default). Interest does not accrue on advance(s) pursuant to the Loan Agreement, rather a minimum amount of interest (as defined in the Loan Agreement) is due pursuant to the terms of the Loan Agreement. The Loan Agreement further provides for the payment of fees by the Company and includes customary representations and warranties, indemnification provisions, covenants and events of default. Subject in some cases to cure periods, amounts outstanding and otherwise due under the Loan Agreement may be accelerated for typical defaults including, but not limited to, the failure to make when due payments, the failure to perform any covenant, the inaccuracy of representations and warranties, and the occurrence of debtor-relief proceedings. The advances are secured by all property of the Company and is guaranteed by the Company and certain of the Company’s Subsidiaries.

The Company has accounted for the loan facility as debt in accordance with ASC 470-10-25-2 and use the effective interest rate method to estimate the timing and amount of future cash flows in accordance with ASC 835-30. The current effective interest rate is 12.2%. As of September 30, 2024 and December 31, 2023, the balance on this loan was $3,748,091 and $3,864,175, respectively. The Company recognized $150,167 and $382,006 in interest expense for the three and nine months ended September 30, 2024, respectively. The Company recognized $130,273 and $357,936 in interest expense for the three and nine months ended September 30, 2023, respectively. No amount remained available under the Loan Agreement.

2023 Promissory Notes

On April 19, 2023, the Company issued an aggregate of $4,089,000 in principal amount of secured promissory notes (the “Notes”) to select accredited investors (the “Lenders”). The aggregate principal amount of the Notes is inclusive of $1,175,000 from related parties (the "Related Party Notes"). The Notes accrue interest annually at a rate of 12% and are secured by a security interest on substantially all the assets of the Company that is subordinate to the security interests of the Company’s existing first and second lien lenders. Each Lender that purchased Notes received a warrant (the “Warrants”) to purchase 1/15th of one share of the Company’s Class A common stock for each $0.5134 of principal amount of the Notes, for an aggregate of 7,964,550 warrants convertible to 530,970 shares of Class A common stock. The aggregate amount of the Warrants is inclusive of 2,288,664 warrants convertible to 152,577 shares of Class A common stock associated with the Related Party Notes.

The Company has accounted for the Notes as debt in accordance with ASC 470-10-25 and uses the effective interest rate method to estimate the timing and amount of future cash flows in accordance with ASC 835-30. The current effective interest rate is 12.0%. As of September 30, 2024 and December 31, 2023, the outstanding balance on the Notes was $4,089,000 of which $1,175,000 was due to related parties. In accordance with ASC 470-20-25-2, the Company allocated the proceeds between the Notes and Warrants based on

their relative fair values. The allocation resulted in a discount to the Notes of $1,374,631 that was amortized over the initial term of the Notes.

During January 2024, the Notes were amended to extend the maturity date of the Notes from December 31, 2023 to the earlier of (i) December 31, 2024, or (ii) the closing of the next sale or series of related sales by the Company of its equity securities from which the Company receives gross proceeds of not less than $3.0 million, excluding proceeds from the warrants held by the Lenders and the Company’s at the market equity facility with Craig-Hallum Capital Group LLC. As consideration for the Final Lender’s entry into the Amendment, the Company (i) reduced the exercise price on the outstanding warrants issued to the lenders in April 2023 from $0.5134 per 1/15th of one share to $0.1833 per 1/15th of one share and (ii) agreed to issue shares of Class A common stock as payment in full for interest accrued on the Notes held through December 31, 2023 (at a value of $2.75 per share). The Company issued an aggregate of 53,559 shares of Class A common stock (at a value of $2.75 per share) to certain electing lenders as payment in full for interest accrued through December 31, 2023 on the Notes held by the electing lenders. The value of the accrued interest satisfied by the payment of 53,559 shares of Class A common stock to the electing lenders was $147,287.

The Company evaluated the amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension of the maturity date and modification of the exercise price of the Warrants resulted in significant and consequential changes to the economic substance of the debt and thus resulted in accounting for these modifications as an extinguishment of the debt. There were no unamortized deferred debt costs or debt discount at the time of the amendment. This Company recorded a loss on the extinguishment of the debt in the amount of $334,511 during the nine months ended September 30, 2024.

The Company recognized approximately $123,678 and $368,346 in interest expense for the three and nine months ended September 30, 2024, respectively. The Company recognized approximately $681,040 and $1,214,027 in interest expense inclusive of debt discount amortization of $494,008 and $880,623 for the three and nine months ended September 30, 2023.

2024 Convertible Promissory Notes

During the nine months ended September 30, 2024, the Company issued an aggregate of $3,409,091 in principal amount of unsecured convertible promissory notes (the “Convertible Notes”) to select accredited investors. The aggregate principal amount of the Convertible Notes is inclusive of $1,702,020 from related parties. The Convertible Notes were issued with an original issue discount of 1%, accrue interest annually at a rate of 12% and will mature on December 31, 2024. Convertible Notes totaling $1,792,929 will automatically convert into the securities issued in the next sale (or series of related sales) by the Company of its equity securities, following the date of the Convertible Notes, from which the Company receives gross proceeds of not less than $3,000,000. During the first nine months of 2024, the Company issued an aggregate of $606,061 in the automatically convertible notes and amended $1,010,101 of the original notes to automatically convert upon maturity.

The Company has accounted for the Convertible Notes as debt in accordance with ASC 470-10-25 and uses the effective interest rate method to estimate the timing and amount of future cash flows in accordance with ASC 835-30. The current effective interest rate is 12.0%. As of September 30, 2024, the outstanding balance on the Convertible Notes was $3,395,026 of which $1,695,386 was due to related parties.

The Company recognized approximately $112,121 and $176,018 in interest expense for the three and nine months ended September 30, 2024.

2024 Nonconvertible Promissory Note

During the third quarter of 2024, the Company issued $761,421 in principal amount of an unsecured promissory note (the “Nonconvertible Note”) to a related party. The Nonconvertible Note was issued with an original issue discount of 1.5%, accrue interest annually at a rate of 15% and will mature at the earlier of the next sale (or series of related sales) by the Company of its equity securities, following the date of the Nonconvertible Note, from which the Company receives gross proceeds of not less than $5,000,000, or December 23, 2024.

The Company has accounted for the Nonconvertible Note as debt in accordance with ASC 470-10-25 and uses the effective interest rate method to estimate the timing and amount of future cash flows in accordance with ASC 835-30. The current effective interest rate is 15.0%. As of September 30, 2024, the outstanding balance on the Nonconvertible Note was $750,808.

The Company recognized approximately $2,965 in interest expense for the three and nine months ended September 30, 2024.