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Loans Payable | 9 Months Ended
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Sep. 30, 2022
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Loans Payable | 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 |
|  |  |  |  |  |  |  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2022 |  |  | December 31, 2021 |  |  | September 30, 2022 |  |  | September 30, 2021 |  |  | September 30, 2022 |  |  | September 30, 2021 |
MINOSA 1 |  | $ | 14,750,001 |  |  | $ | 14,750,001 |  |  |  | 297,435 |  |  | $ | 297,424 |  |  | $ | 882,585 |  |  | $ | 882,574 |
MINOSA 2 |  |  | 5,050,000 |  |  |  | 5,050,000 |  |  |  | 127,296 |  |  |  | 127,287 |  |  |  | 377,720 |  |  |  | 377,711 |
Litigation financing |  |  | 24,204,704 |  |  |  | 18,323,097 |  |  |  | 3,160,329 |  |  |  | 1,927,179 |  |  |  | 8,618,349 |  |  |  | 5,187,181 |
Emergency Injury Disaster Loan |  |  | 149,900 |  |  |  | 149,900 |  |  |  | 1,462 |  |  |  | 2,192 |  |  |  | 4,384 |  |  |  | 8,641 |
Vendor note payable |  |  | 484,009 |  |  |  | 484,009 |  |  |  | 14,637 |  |  |  | 14,640 |  |  |  | 43,440 |  |  |  | 43,443 |
Monaco |  |  | — |  |  |  | 2,500,000 |  |  |  | 74,000 |  |  |  | — |  |  |  | 222,000 |  |  |  | — |
37North |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 300,000 |  |  |  | — |
|  | $ | 44,638,614 |  |  | $ | 41,257,007 |  |  |  |  |  |  |  |  |  |  |  |  |
Litigation Financing For the three months ended September 30, 2022 and 2021, we recorded $76,133 and $63,689, respectively, of interest expense from the amortization of the debt discount and $36,724 and $36,724 of interest from the fee amortization, respectively. For the nine months ended September 30, 2022 and 2021, we recorded $216,286 and $174,420, respectively, of interest expense from the amortization of the debt discount and $110,172 and $97,269 of interest from the fee amortization, respectively. The September 30, 2022 and December 31, 2021 carrying value of the debt was $24,204,704 and $18,323,097, respectively, and was net of unamortized debt fees of $183,621 and $293,793, respectively, as well as the net unamortized debt discount of $433,642 and $649,928, respectively, associated with the fair value of the warrant. The total face value of this obligation at September 30, 2022 and December 31, 2021 was $24,821,967 and $19,266,818, respectively. 37North On March 7, 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 was non-interest bearing and matured on June 25, 2022. Anytime from 30 days after the maturity date, 37N had 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 was not to 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 did not approve the issuance of Common Stock upon conversion of the indebtedness. Any time prior to maturity, we had 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 24, 2022), we were permitted to 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 25, 2022), we were permitted to prepay all (but not less than) an amount equal to 125% of the unpaid amount of the indebtedness, however, we were required to provide 37N a prepayment notice at least 10 days prior to repayment. If 37N delivered an exercise notice during this 10-day period, the Note would be converted, rather than prepaid. If 37N delivered an exercise notice and the number of shares issuable is limited by the 19.9% limitation outlined above, then we were permitted to prepay all (but not less than all) an amount equal to 130% of the remaining unpaid amount. On June 29, 2022, the Company paid $2,200,000 of the outstanding amounts payable under the Note Agreement with 37N. On July 6, 2022, the Company paid the remaining $100,000 of the outstanding amounts payable under the Note Agreement with 37N. 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 did not bear interest, it was required to 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 $300,000 of interest expense for the nine months ended September 30, 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. Accrued interest Total accrued interest associated with our financings was $31,585,946 and $21,875,753 as of September 30, 2022 and December 31, 2021, respectively. Accrued interest is included in accrued expenses on the accompanying condensed consolidated balance sheets.

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