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Convertible Promissory Notes
 6 Months Ended
Jun. 30, 2024
Convertible Promissory Notes [Abstract]  
Convertible Promissory Notes

Note 9 - Convertible Promissory Notes

 

Promissory Note Exchange 

 

Prior to the execution of the Credova Merger Agreement, Credova, PSQ and certain holders of outstanding subordinated notes (“Subdebt Notes”) issued by Credova (the “Participating Noteholders”) entered into a Note Exchange Agreement (the “Note Exchange Agreement”) pursuant to which, immediately prior to the Closing, the Participating Noteholders delivered their Subdebt Notes of Credova for cancellation, in exchange for newly-issued replacement notes issued by PSQ, convertible into shares of Class A Common Stock (the “Replacement Notes”). The Replacement Notes have 9.75% simple interest per annum and 10-year maturity dates.

 

Pursuant to the terms of the Replacement Notes, at any time after the Closing, Participating Noteholders may elect to convert their Replacement Notes into a number of shares of Class A Common Stock equal to the quotient obtained by dividing (x) the outstanding principal amount of the Replacement Note to be converted plus accrued and unpaid interest by (y) 4.63641, subject to adjustment for stock splits and other similar transactions (the “Conversion Price”). At any time, the Company may call the Replacement Notes for a cash amount equal to accrued interest plus (i) between the Closing and the first anniversary of the Closing, 120% of the then outstanding principal amount, (ii) between the first anniversary and the second anniversary of the Closing, 105% of the then outstanding principal amount and (iii) after the second anniversary of the Closing, the then outstanding principal amount of the Replacement Note. Further, the Replacement Notes permit the Company, in its discretion, to require conversion of the Replacement Notes into shares of Class A Common Stock if the daily volume-weighted average trading price of the Company Class A Common Stock exceeds 140% of the Conversion Price on each of at least ten consecutive trading days during the twenty trading day period prior to notice of such required conversion. The Company determined the embedded derivatives did not require bifurcation. 

 

Credova Subdebt Notes not exchanged for Replacement Notes at Closing were canceled following payment in full in cash.

 

As of June 30, 2024, the convertible promissory notes payable was $8,449,500.

 

Convertible Promissory Notes – Related Party

 

On March 13, 2024, the Company entered into a note purchase agreement for a 9.75% private placement convertible note for $10,000,000 invested by a board member and his affiliates. Terms for the note were priced based on notes exchanged as part of the Credova Merger described above. The Company’s stockholders have approved the issuance of the underlying shares as part of the annual stockholder meeting in April 2024 and the funds were received May 3, 2024 (see Note 12).

 

Convertible Promissory Notes

 

As of June 30, 2023, the Company had issued convertible promissory notes (the “Note” or “Notes”) in the total amount of $22,500,000 that accrue interest at the rate of 5% per annum until converted or paid in full upon maturity being December 31, 2024.

 

As described in Note 1, on July 19, 2023, the Company consummated the Business Combination and became a publicly-traded company at which time the balance under each Note converted automatically into shares of PSQ Common Stock at a conversion price per share based upon an implied $100 million fully diluted pre-money valuation, excluding the Notes.

 

The Notes are required to be recorded at their initial fair value on the date of issuance under ASC 480-10-25-14, and each balance sheet date thereafter. Changes in the estimated fair value of the Notes are recognized as non-cash gains or losses in the condensed consolidated statements of operations.

 

The change in the fair value of the Notes measured with Level 3 inputs for the three and six months ended June 30, 2023 are summarized as follows: 

 

   Convertible
Promissory
Notes		 
Fair value as of January 1, 2023  $
-
 
Principal balance of convertible notes issued   2,050,000 
Change in valuation inputs or other assumptions   1,147,905 
Fair value as of March 31, 2023   3,197,905 
Principal balance of convertible notes issued   20,450,000 
Change in valuation inputs or other assumptions   13,423,204 
Fair value as of June 30, 2023  $37,071,109 

 

The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates:

 

Exercise Price  $
-
 
Risk-Free Rate   4.1%
Maturity (in years)   1.8 
Volatility   75.0%