Loans Payable

3 Months Ended

Mar. 31, 2022

NOTE H – LOANS PAYABLE

The Company’s consolidated notes payable consisted of the following carrying values and related interest expense at:


	Note payable				Interest expense
	March 31, 2022		December 31, 2021		March 31, 2022		March 31, 2021

MINOSA 1	$	14,750,001	$	14,750,001	$	290,959	$	290,959
MINOSA 2		5,050,000		5,050,000		124,520		124,520
Litigation financing		19,334,009		18,323,097		2,412,348		1,505,032
Emergency Injury Disaster Loan		149,900		149,900		1,461		—
Vendor note payable		484,009		484,009		14,322		14,321
Monaco		2,500,000		2,500,000		111,000		—
37North		2,200,000		—		200,000		—
	$	44,467,919	$	41,257,007

Litigation Financing

For the three months ended March 31, 2022 and 2021, we recorded $68,140 and $50,479, respectively, of interest expense from the amortization of the debt discount and $36,724 and $28,982 interest from the fee amortization, respectively. The March 31, 2022 and December 31, 2021 carrying value of the debt

s $19,334,009 and $18,323,097, respectively, and

were

net of unamortized debt fees of $257,069 and $293,793, respectively, as well as the net unamortized debt discount of $581,788 and $649,928, respectively, associated with the fair value of the warrant. The total face value of this obligation at March 31, 2022 and December 31, 2021 was $20,172,866 and 19,266,818, respectively.

37North

On March 17, 2022 we entered into a Note Purchase Agreement (“Note Agreement”) with 37North SPV 11, LLC (“37N”) in which 37N agreed to loan
us up to $2,000,000. These loan proceeds were received in full on March 25, 2022. Pursuant to the

Note

Agreement, the indebtedness is

non-interest

bearing and matures on June 15, 2022. Anytime from 30 days after the maturity date, 37N has the option to convert all or a portion of the outstanding amount of the indebtedness into conversion shares equal to the quotient obtained by dividing (A) 125% of the amount of the indebtedness, by (B) the lower of $5.94 and 70% of the 10-day VWAP. The aggregate maximum number of shares of Common Stock to be issued in connection with conversion
of the

indebtedness

will not exceed i) 19.9% of the outstanding shares of Common Stock prior to the date of the Agreement, ii) 19.9% of the combined voting power of the outstanding voting securities, or iii) exceed the applicable listing rules of the Principal Market if the

stockholders

don’t approve the issuance of Common Stock upon conversion of the

indebtedness

Any time prior to maturity, we have the option to prepay the

indebtedness

at an amount of 110% of the unpaid principal. From the maturity date to 29 days after the maturity date (July 14, 2022), we may prepay all (but not less than) an amount equal to 115% of the unpaid amount of the indebtedness. Anytime, after the 30th day after the maturity date (July 15, 2022), we may prepay all (but not less than) an amount equal to 125% of the unpaid amount of the indebtedness, however, we must provide 37N a

repayment

otice at least 10 days prior to repayment. If 37N delivers an exercise notice during this

10-day

period, the Note will be converted, rather than prepaid.

If 37N delivers an exercise notice and the number of shares issuable is limited by the 19.9% limitation outlined above, then we may prepay all (but not less than all) an amount equal to 130% of the remaining unpaid amount.

Accounting considerations

We evaluated the indebtedness and determined the shares issuable pursuant to the conversion option were determinate due to the cap on the number of issuable shares, and, as such, met the requirements for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity. The optional and contingent prepayment options provide the right to accelerate the settlement of debt; however, the prepayment options can only be exercised by the Company. As such, they are considered clearly and closely related to the debt host instrument and bifurcation was not necessary. We early adopted ASC

2020-06,

so we were not required to analyze the instrument for a beneficial conversion feature, and the instrument was recorded wholly as debt. Although the indebtedness does not bear interest, it must be repaid at amounts greater than the face value. According to ASC

470-10-35-2,

if a debt instrument has a contractual maturity date that can be extended at the issuer’s option, at an increasing rate, the debt discounts and issuance costs must be amortized over the period in which the debt is estimated to be outstanding, even if that period extends beyond the debt’s original contractual maturity date. The difference between the proceeds received and the repayment amount are generally amortized over the expected life of the indebtedness using the effective interest method. Management estimated the expected life to be very limited, so the entire expected repayment amount of

$2.2 million

, representing 110% of the indebtedness, was recorded upon issuance of the Note Agreement. We recognized $200,000 of interest expense for the period ended March 31, 2022.

Certain default put provisions were not considered to be clearly and closely related to the debt host, but management concluded that the value of these default put provisions was de minimis. We reconsider the value of the default put provisions each reporting period to determine if the value is material to the financial statements.

Accrued interest

Total accrued interest associated with our financings was $

24,719,363

and $

21,875,753

as of March 31, 2022 and December 31, 2021, respectively.

Accrued interest is included in accrued expenses on the accompanying condensed consolidated balance sheets.