CENTRE LANE SENIOR SECURED CREDIT FACILITY

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

CENTRE LANE SENIOR SECURED CREDIT FACILITY

CENTRE LANE SENIOR SECURED CREDIT FACILITY

Effective June 1, 2020, the Company entered into a membership interest purchase agreement to acquire 100% of Wild Sky Media, a subsidiary (the “Purchase Agreement”). To finance this acquisition, the Company obtained a first lien senior secured credit facility from Centre Lane Partners Master Credit Fund II, L.P. (“Centre Lane Partners”) in the amount of $16.5 million, comprising of $15.0 million of initial indebtedness, repayment of Wild Sky’s existing accounts receivable factoring facility of approximately $900,000 and approximately $500,000 of expenses.

On April 4, 2023, the Company entered into a commitment letter (the “Commitment Letter”) with Centre Lane Partners, pursuant to which they would provide financing in the form of a senior secured credit facility for the acquisition of the Big Village Entities.

On April 20, 2023, the Company and its subsidiaries entered into the Seventeenth Amendment to the Credit Agreement (the “Seventeenth Amendment”) with Centre Lane Partners. The Credit Agreement was amended, as provided in the Seventeenth Amendment, to provide for an additional term loan amount of $26.3 million to, among other things, finance the Acquisition. This term loan, which was provided by BV Agency, LLC, matures on April 20, 2026 and was issued at a discount of 5% or $1.3 million. Interest of 15% payable under the note is payable-in-kind in lieu of cash payment up to April 30, 2024, then 5% payable quarterly in cash and 10% payable-in-kind in lieu of cash payment until maturity of April 20, 2026.

As part of the Seventeenth Amendment, the Company is required to pay an amendment fee of 2% of the principal amount of the existing First Out and Last Out Terms Loans, totaling $706,000, additionally, an exit fee of $18,000 of the loan to finance the Big Village Acquisition. The outstanding principal on these at April 20, 2023 was $31.0 million and $4.3 million, respectively. These fees total $724,000 and are due and payable at maturity. Additionally, the maturity dates were extended to April 20, 2026.

Also, in connection with the Seventeenth Amendment, on April 20, 2023, the Company issued 21,401,993 shares of common stock of the Company to BV Agency, LLC, an entity beneficially owned by Centre Lane Partners. The shares valued $1.9 million, based on a per share price of $0.09, which was the closing price of the Company’s common stock at close of market on April 19, 2023. The issuance of the shares of common stock were not registered under the Securities Act of 1933, as amended (“Securities Act”), in accordance with Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. As of September 30, 2023, BV Agency, LLC and Centre Lane Partners own approximately 12.4% and 8.8% of the Company’s outstanding common stock, respectively.

On July 28, 2023, the Company and its subsidiaries entered into the Nineteenth Amendment to the Credit Agreement (the “Nineteenth Amendment”) with Centre Lane Partners. The Credit Agreement was amended, as provided in the Nineteenth Amendment, to provide for an additional term loan amount of $2.0 million to, among other things, finance the

integration and further growth of the Company post-Acquisition. This term loan is part of the last in first out loan and matures on June 28, 2024 .

Including the Nineteenth Amendment, Centre Lane Partners subsequently loaned the Company an additional $38.0 million to provide liquidity to fund operations beginning in April 2021 (as amended, the “Centre Lane Senior Secured Credit Facility”). This Centre Lane Senior Secured Credit Facility has been determined to qualify as a related party transaction as shares were issued to Centre Lane Partners as part of the transaction. A related party is a party that can exercise significant influence over the Company in making financial and/or operating decisions.

The original note issued under the Centre Lane Senior Secured Credit Facility initially bore interest at a rate of 6.0% per annum, with payments of 2.5% of outstanding principal beginning on June 30, 2023. The interest rate was increased to 10.0% pursuant to the first amendment to the Centre Lane Senior Secured Credit Facility and interest payable under the note is payable-in-kind (“PIK Interest”) in lieu of cash payment.

Commencing with the ninth amendment, the interest rate was increased to 12% on all subsequent draws with 8% payable quarterly in cash and 4% payable-in-kind in lieu of cash payment. These draws are known as the “last in first out loans”, totaling $6.8 million inclusive of exit fees at September 30, 2023, due and payable on April 20, 2026, excluding the Nineteenth Amendment which is due and payable on June 28, 2024.

In connection with the Nineteenth Amendment, adjustments were made to the interest rate for outstanding loans with the exception of the draw under the Seventeenth Amendment as follows:

•The interest rate per annum changed to 7.0% plus the Secured Overnight Financing Rate ("SOFR"). At September 30, 2023, the SOFR was 5.37%, overall interest on these facilities was 12.37% at September 30, 2023;

•The cash pay rate for the last in first out loan was changed to the SOFR plus 3.0%, at September 30, 2023, the rate was 8.37%;

•Effective July 1, 2024, the first in last out loan PIK Rate will be per annum rate of 7.0% and SOFR plus 5.0%.

There is no prepayment penalty associated with this Centre Lane Senior Secured Credit Facility. However, partial or full prepayments of the Centre Lane Senior Secured Credit Facility would be required in the event of certain future capital raises.

Optional Prepayment

The Company may, at any time, voluntarily prepay, in whole or in part, a minimum of $250,000 of the outstanding principal of the loans, plus any accrued but unpaid interest on the aggregate principal amount of the loans being prepaid.

Repayment of Loans

The Company is required to repay in cash to Centre Lane Partners (i) commencing with the fiscal quarter ending on June 30, 2023, in consecutive quarterly installments to be paid on the last day of each fiscal quarter of the Company, an amount equal to 2.5% of the outstanding aggregate principal amount of the original principal plus draws advanced by amendments 2 through 8 along with accrued and unpaid interest (after giving effect to capitalized PIK Interest) and (ii) on the maturity date all outstanding obligations (including, without limitation, all accrued and unpaid principal and interest on the principal amounts of the Loans (including any accrued but uncapitalized PIK Interest)) of the loan parties that are due and payable on such date. The outstanding amount for these draws at September 30, 2023 is $33.1 million, inclusive of interest paid in kind.

On June 30, 2023, the Company and its subsidiaries entered into its Eighteenth Amendment with Centre Lane Partners regarding installment payment which were due on June 30, 2023, and paid in equal monthly installments on July 3, 2023, August 7, 2023 and September 5, 2023, respectively.

In connection with the Nineteenth Amendment, quarterly installments equal to 2.5% of the outstanding aggregate principal are due on the first in last out loan commencing March 31, 2024.

Payment on the principal on the first in last out loan balance during the three and nine months ended September 30, 2023 was $270,000, there was no payment made during the same period for 2022.

During the three and nine months ended September 30, 2023, the Company paid approximately $124,000 and $285,000, respectively, toward outstanding interest payable. Interest for the three and nine months ended September 30, 2022 was $55,000 and $96,000, respectively.

Fees

Under the terms of the Centre Lane Senior Secured Credit Facility, the Company is also required to pay Centre Lane Partners a non-refundable annual administration fee equal to $35,000 for agency services provided under the Credit Agreement. The Credit Agreement provides that this fee shall be in all respects fully earned, due and paid-in-kind by the Company on the effective date (“Effective Date”) of the Credit Agreement and on each anniversary of the Effective Date during the term of this agreement by adding and capitalizing the full amount of such fee to the outstanding principal balance of the loans. The accumulated administrative fee since inception of the facility is $140,000 and is included in outstanding principal. The administrative fee charged during the nine months ended September 30, 2023 and 2022 was $35,000 and $35,000, respectively.

The below table summarizes the loan balances and accrued interest for the periods ended September 30, 2023, and December 31, 2022:

(in thousands)	September 30, 2023		December 31, 2022
Note payable – Centre Lane Senior Secured Credit Facility – related party (current portion)	$	4,716	$	4,860
Note payable – Centre Lane Senior Secured Credit Facility – net of discount, related party	56,723		25,101
Net principal	61,439		29,961
Add: debt discount	6,597		3,148
Outstanding principal	$	68,036	$	33,109

The below table summarizes the movement in the outstanding principal for the periods ended September 30, 2023, and December 31, 2022:

(in thousands)	September 30, 2023		December 31, 2022
Opening balance	$	33,109	$	26,334
Add:
Draws	29,816		3,050
Exit and other fees	918		621
Interest capitalized	4,463		3,104
	35,197		6,775
Less: Payment	(270)		—
Outstanding principal	$	68,036	$	33,109

Amendments to Centre Lane Senior Secured Credit Facility

Commencing April 2021, the Company and certain of its subsidiaries entered into various amendments to the Credit Agreement between itself and Centre Lane Partners. The Company and its subsidiaries are parties to a credit agreement between itself and Centre Lane Partners as Administrative Agent and Collateral Agent. The Credit Agreement was

amended to provide for additional loans used for working capital. In addition, and as part of the transaction, there are exit fees (the "Exit Fees"), which will be added and capitalized to the principal amount of the original loan. As of September 30, 2023, there were eighteen amendments to the Credit Agreement.

Consistent with FASB ASC Topic 470 Debt, (“ASC 470”), the Company is required to perform an analysis of the change in each amendment to determine whether the change is a modification or an extinguishment of debt. Under a modification, no gain or loss is recorded, and a new effective interest rate is established based on the carrying value of the debt and revised cash flow. If the debt is extinguished, the old debt is derecognized and the new debt is recorded as fair value, which becomes the new carrying value. A gain or loss is recorded for the difference between the net carrying value or the original debt and the fair value of the new debt. Interest expense is recorded based on the effective interest rate of the new debt. A debt is considered extinguished if the present value of the new cash flows under the term of the new debt is at least 10% different from the present value of the remaining cash flows under the terms of the old debt.

In connection with the Seventeenth Amendment, the Company determined that the change was an extinguishment consistent with ASC 470, Debt, the old debt of $35.5 million was derecognized and the new debt of $62.7 million was recognized at estimated fair value. A gain on extinguishment was recognized against additional paid in capital of $670,000, as Centre Lane Partners is a related party.

On June 30, 2023, the Company and its subsidiaries entered into its Eighteenth Amendment with Centre Lane Partners regarding installment payment due on June 30, 2023, to be paid in equal monthly installments on July 3, 2023, August 7, 2023 and September 5, 2023, respectively. There was no impact on principal or interest and no fees incurred by the Company for this amendment.

The below table summarizes the amendments to the Credit Agreement that impacted principal, interest and fees that were executed by the Company since the inception of the facility to September 30, 2023, (in thousands, except for share data):

Number	Date	Draw $’000		Repayment Date	Interest Rate (PIK) (D)		Interest Rate (Cash)		Agency Fee		Exit Fee (A)		Common Stock Issued	Accounting Impact
1	04/26/21	$	—	April 20, 2026	12.37	%	—		$	—	$	—	150,000	Extinguishment	B
2	05/26/21	1,500		April 20, 2026	12.37	%	—		—		750		3,000,000	Modification	F
3	08/12/21	500		April 20, 2026	12.37	%	—		—		250		2,000,000	Modification	F
4	08/31/21	1,100		April 20, 2026	12.37	%	—		—		550		—	Modification	F
5	10/08/21	725		April 20, 2026	12.37	%	—		—		363		—	Extinguishment	F
6	11/05/21	800		April 20, 2026	12.37	%	—		—		800		7,500,000	Modification	F
7	12/23/21	500		April 20, 2026	12.37	%	—		70		500		—	Modification	F
		$	5,125						$	70	$	3,213	12,650,000
8	01/26/22	350		April 20, 2026	12.37	%	—		—		350		—	Modification
9	02/11/22	250		April 20, 2026	4.00	%	8.37	%	—		13		—	Modification	F
10	03/11/22	300		April 20, 2026	4.00	%	8.37	%	—		15		—	Modification	F
11	03/25/22	500		April 20, 2026	4.00	%	8.37	%	—		25		—	Modification	F
12	04/15/22	450		April 20, 2026	4.00	%	8.37	%	—		23		—	Modification	F
13	05/10/22	500		April 20, 2026	4.00	%	8.37	%	35		25		—	Modification	F
14	06/10/22	350		April 20, 2026	4.00	%	8.37	%	—		18		—	Modification	F
15	07/08/22	350		April 20, 2026	4.00	%	8.37	%	—		18		—	Modification	F
		$	3,050						$	35	$	487	—
16	02/10/23	1,500		April 20, 2026	4.00	%	8.37	%	—		75		—	Modification	F
17	04/20/23	26,316		April 20, 2026	15.00	%	—	%	35		708		21,401,993	Extinguishment	C
19	07/28/23	2,000		June 28, 2024	4.00	%	8.37	%	—		$	100	—	Modification	F
		$	37,991						$	140	$	4,583	34,051,993

(A)	Added and capitalized to the principal amount of the original loan and the original loan terms apply.
(B)	The Centre Lane Senior Secured Credit Facility was amended to permit the Company to raise up to $6.0 million of total cash proceeds from the sale of its preferred stock prior to December 31, 2021, without having to make a mandatory prepayment of the loans. Additionally, the Company may issue up to $800,000 in dividends from the previous limit of $500,000 per annum.
(C)	15% PIK until April 20, 2024, then 5% cash and 10% PIK thereafter.
(D)	New rates in effect in connection with amendment nineteen, Amendment 1 through 8 PIK rate was 10%
(E)	New rates in effect in connection with amendment nineteen, Amendment 9 through 16 cash rate was 8%
(F)	Last In First Out Loans

Draws advanced by amendments 2 through 8 totaling $5.5 million and exit fees totaling $3.6 million, were due for full repayment on February 28, 2022. Prior to this date, the loan agreement allowed the Company to waive the accrual of interest on these amounts. There was no repayment of these amounts, and as a result, on March 11, 2022, amendment 10 was executed, changing the repayment date of the outstanding principal and commencing interest accrual on the exit fees.

All amounts advanced for amendments 9 through 16 were due on June 30, 2023 along with accrued and unpaid interest, however, the maturity date was changed to April 20, 2026 with amendment 17. The outstanding amount at September 30, 2023 is $6.8 million, inclusive of interest paid in kind.

As of September 30, 2023 and December 31, 2022, of the Centre Lane Senior Secured Credit Facility was $61.4 million and $30.0 million, respectively, net of unamortized debt discount of $6.6 million and $3.1 million, respectively. The discount is being amortized over the remaining life of the Centre Lane Senior Secured Credit facility using the effective interest method.

Interest expense for the three and nine months ended September 30, 2023, and 2022 consisted of the following:

	Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Interest expense	$	2,179	$	745	$	4,748	$	2,137
Amortization	590		305		1,428		913
Total interest expense	$	2,769	$	1,050	$	6,176	$	3,050

10% CONVERTIBLE PROMISSORY NOTES

On November 30, 2018, the Company issued 10% convertible promissory notes ("Convertible Notes") in the amount of $80,000 to the Chairman of the Board, a related party. The Convertible Notes are unsecured and mature five years from issuance and are convertible at the option of the holder into shares of common stock at any time prior to maturity at a conversion price of $0.40 per share. A beneficial conversion feature exists on the date the Convertible Notes were issued whereby the fair value of the underlying common stock to which the Convertible Notes are convertible is in excess of the face value of the Convertible Notes of $80,000.

The principal balance of these Convertible Notes payable was $80,000 at September 30, 2023 and December 31, 2022. The total Convertible Notes payable was $78,000 and $68,000, net of discount of $2,000 and $12,000, at September 30, 2023 and December 31, 2022, respectively.

Interest expense for the Convertible Notes was $6,000 inclusive of interest of $2,000 and discount amortization of $4,000 for the three months ended September 30, 2023, and 2022. Interest expense for the Convertible Notes was $17,000 inclusive of interest of $7,000 and discount amortization of $10,000 for the nine months ended September 30, 2023 and 2022.

The outstanding principal and interest of the Convertible Notes is due and payable November 2023.