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Item 8. Financial Statements and Supplementary Data

2024-04-15 compared with 2023-07-27 · 688 added, 654 removed, 486 unchanged (73% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Operations for the Years ended December 31, 2022 and 2021, and 2020

Consolidated Statements of Stockholders’

Equity for the Years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Cash Flows for the Years ended December 31, 2022 and 2021, and 2020

Consolidated Statements of Operations for the Years ended December 31, 2023, 2022, and 2021

Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2023, 2022 and 2021

Consolidated Statements of Cash Flows for the Years ended December 31, 2023, 2022, and 2021

Notes to Consolidated Financial Statements

Rep ort of Independent Registered Public Accounting Firm

To the shareholders and the Board of Directors of

MSP Recovery, Inc.

To the shareholders and the Board of Directors of MSP Recovery, Inc.

and Subsidiaries:

3 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Emphasis of matter

As discussed in Note 7 to the financial statements, the Company identified potential impairment indicators with respect to its claims cost recovery agreement (“CCRA”) definite-lived intangible assets during 2023.

The Company performed an undiscounted cash flow analysis and determined the carrying value was recoverable.

Basis for Opinion

6 unchanged sentences

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

5 unchanged sentences

Miami, Florida

July 26, 2023

April 12, 2024

We have served as the Company’s auditor since 2021.

4 unchanged sentences

Current assets:

Cash and cash equivalents

Restricted cash

3 unchanged sentences

Total current assets

Property, plant and equipment, net

Property and equipment, net

Intangible assets, net (2)

Right-of-use assets

LIABILITIES AND EQUITY

3 unchanged sentences

Commission payable

Deferred service fee income

Derivative liability

4 unchanged sentences

Claims financing obligation and notes payable (1)

Lease liabilities

Loan from related parties (1)

2 unchanged sentences

Commitments and contingencies (Note 13)

Class A common stock subject to possible redemption, 1,129,589 shares at redemption value as of December 31, 2022.

Class A common stock subject to possible redemption, 45,183 shares at redemption value as of December 31, 2022 ( No ne as of December 31, 2023).

Stockholders’ Equity (Deficit):

1 unchanged sentence

5,500,000,000 shares authorized;

74,605,284 issued and outstanding as of December 31, 2022

14,659,794 and 2,984,212 issued and outstanding as of December 31, 2023 and 2022, respectively

Class V common stock, $ 0.0001 par value;

3,250,000,000 shares authorized;

3,147,979,494 issued and outstanding as of December 31, 2022

124,132,398 and 125,919,180 issued and outstanding as of December 31, 2023 and 2022, respectively

Additional paid-in capital

Members' equity

Accumulated deficit

Total Stockholders' Equity (Deficit)

Total Stockholders’ Equity

Non-controlling interest

Total liabilities and equity

As of December 31, 2022 and 2021, the total affiliate receivable, affiliate payable, guaranty obligation and loan from related parties balances are with related parties.

As of December 31, 2023 and 2022, the total affiliate receivable, affiliate payable, other current liabilities, guaranty obligation and loan from related parties balances are with related parties.

In addition, the prepaid expenses and other current assets, claims financing obligation and notes payable, and interest payable includes balances with related parties.

See Note 14, Related Party, for furthe r details.

As of December 31, 2022 , intangible assets, net included $ 2.3 billion related to a consolidated VIE.

See Note 15, Related Party Transactions, for furthe r details.

As of December 31, 2023 and 2022 , intangible assets, net included $ 2.2 billion and $ 2.3 billion related to a consolidated VIE.

See Note 10, Variable Interest Entities , for further details.

14 unchanged sentences

Professional fees - legal (4)

Allowance for credit losses

Depreciation and amortization

6 unchanged sentences

Provision for income tax expense

Net (income) loss attributable to non-controlling members

Net loss attributable to controlling members

Net (income) loss attributable to non-controlling interests

Net loss attributable to MSP Recovery, Inc.

Basic and diluted weighted average shares outstanding, Class A Common Stock (6)

Basic and diluted net income per share, Class A Common Stock (6)

For th e years ended December 31, 2022, 2021 and 2020, Claims recovery service income included $ 10.6 million , $ 11.5 million , and $ 13.1 million, respectively, of Claims recovery service income from VRM MSP.

See Note 14, Related Party, for further details.

For the year ended December 31, 2022, cost of Claim recoveries included $ 405 thousand of related party expenses.

For th e years ended December 31, 2022 and 2021, Claims recovery service income included $ 10.6 million , and $ 11.5 million, respectively, of Claims recovery service income from VRM MSP.

There was no claims recovery service income from VRM MSP for the year ended December 31, 2023.

See Note 15, Related Party Transactions , for further details.

For the years ended December 31, 2023 and 2022, cost of Claim recoveries included $ 0.3 million and $ 0.4 million of related party expenses.

This relates to contingent legal expenses earned from Claims recovery income pursuant to legal service agreements with the La Ley con John H.

Ruiz P.A., d/b/a MSP Recovery Law Firm (the “Law Firm”).

See Note 14, Related Party, for further details.

For the years ended December 31, 2021 and 2020, the expenses related to contingent legal expenses were de minimis.

For the year ended December 31, 2022, general and administrative expenses included $ 400 thousand of related party expenses.

For the years ended December 31, 2021 and 2020 , the amounts were de minimis.

See Note 14, Related Party, fo r further details.

For the year ended December 31, 2022, professional fees - legal included $ 29.7 million of related party expenses related to the Law Firm.

For the year ended December 31, 2021 and 2020, the amounts were de minimis, respectively, of related party expenses related to the Law Firm.

See Note 14, Related Party, for further details.

Earnings pe r share information has not been presented for periods prior to the Business Combination (as defined in Note 1, Description of Business ), as it resulted in values that would not be meaningful to the users of these consolidated financial statements.

Refer to Note 16 , Net Loss Per Common Share for further information.

See Note 15, Related Party Transactions , for further details.

For the year ended December 31, 2021 , the expenses related to contingent legal expenses were de minimis.

For the years ended December 31, 2023 and 2022, general and administrative expenses included $ 0.2 million and $ 0.4 million of related party expenses, respectively.

For the year ended December 31, 2021, the amount was de minimis.

See Note 15, Related Party Transactions , fo r further details.

For the year ended December 31, 2023 and 2022, Professional Fees - Legal included $ 19.2 million and $ 29.7 million of related party expenses related to the Law Firm.

For the year ended December 31, 2021, the amount of related party expenses related to the Law Firm was de minimis.

See Note 15, Related Party Transactions , for further details.

For the year ended December 31, 2023 and 2022, Interest expense included $ 226.5 million and $ 84.7 million , respectively, of interest expense to related parties.

For the year ended December 31, 2021 the interest expense to related parties was de minimis.

Earnings pe r share information has not been presented for any period prior to the Business Combination (as defined in Note 1, Description of Business ), as it resulted in values that would not be meaningful to the users of these consolidated financial statements.

See Note 17, Net Loss Per Common Share , for further information.

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

Consolidated Statements of Cha nges in Equity

Year Ended December 31, 2022

Years Ended December 31, 2023 and December 31, 2022

Class A Common Stock

1 unchanged sentence

(In thousands except shares)

Additional Paid-in Capital

Paid-in Capital

Members' Deficit

Accumulated Deficit

Non- Controlling Interests

Non-Controlling

Balance at December 31, 2021

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Cumulative effect of recapitalization transaction

3,154,473,292

Opening net assets of Lionheart II Holdings, LLC acquired

3 unchanged sentences

Balance at December 31, 2022

3,147,979,494

Year Ended December 31, 2021

(In thousands)

Members' Deficit

Non- Controlling Interests

Balance at December 31, 2020

Contributions

Distributions

Conversion of Warrants

Class A Issuances

Balance at December 31, 2023

The accompanying notes are an integral part of these consolidated financial statements.

MSP RECOVERY, INC.

and Subsidiaries

Consolidated Statements of Changes in Equity

Year Ended December 31, 2021

(In thousands)

Members' Deficit

Non- Controlling Interests

14 unchanged sentences

Paid-in-kind interest (1)

Allowance for credit losses

Change in fair value of warrant liability

Gain on sale of intangibles

Gain on debt extinguishment

Mark-to-market gain on liability payable in stock

Professional fees settled in shares

Change in fair value of derivatives

Deferred income taxes

Non-cash lease expense

Share based compensation

Change in fair value of warrant liability

Deferred income taxes

PPP loan forgiveness

Realized gain on equity securities

Unrealized losses on investments - short position

Gain on debt extinguishment

Change in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other assets

Affiliate receivable (1)

Affiliate payable (1)

Prepaid expenses and other assets

Commission payable

Accounts payable and accrued liabilities

Accounts payable, commission payable and accrued liabilities

Deferred service fee income

1 unchanged sentence

Cash flows from investing activities:

Additions to property, plant, and equipment

Additions to intangible assets

Proceeds from short sale of short positions

Purchases of property and equipment

Purchases of intangible assets

Proceeds from sale of intangible assets

Proceeds from sale of equity securities

1 unchanged sentence

Purchase of securities to cover short position

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Proceeds from debt financing

Deferred financing costs

Debt issuance costs

Proceeds from related party loan (1)

Release of temporary equity

Repayment of the Claims financing obligation

Proceeds from Business Combination

Transaction costs incurred for the Business Combination

Proceeds from related party loan (1)

Issuance of common stock

2 unchanged sentences

Distributions to members

Proceeds from debt financing

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents and restricted cash

Cash and cash equivalents and restricted cash at beginning of year

Cash and cash equivalents and restricted cash at end of period

Supplemental cash flow information:

(Decrease) increase in cash and restricted cash

Cash and restricted cash at beginning of year

Cash and restricted cash at end of period

Balances include related party transactions.

See Note 15, Related Party Transactions , f or further details.

The accompanying notes are an integral part of these consolidated financial statements.

MSP RECOVERY, INC.

and Subsidiaries

Consolidated Statements of Cash Flows (continued)

Supplemental disclosure of non-cash investing and financing activities:

Sale of intangible assets

Purchase of intangible asset financed by note payable

Release of temporary equity

Original issue discount

Purchase of intangible asset through issuance of Class A common stock

2 unchanged sentences

Transaction costs incurred included in accounts payable

Non-cash lease liabilities arising from obtaining right-of-use assets

Payment of Cano Health payment in shares

Warrant conversions on a cashless basis

Cash paid during the period for:

Balances include related party transactions.

See Note 14, Related Party , f or further details.

The accompanying notes are an integral part of these consolidated financial statements.

DESCRIPTION OF BUSINESS

On May 23, 2022 (the “Closing Date”), MSP Recovery, Inc.

d/b/a LifeWallet, a Delaware corporation (formerly known as Lionheart Acquisition Corporation II (“LCAP”) consummated the previously announced business combination pursuant to that certain Membership Interest Purchase Agreement, dated as of July 11, 2021 (as amended, the “MIPA”), by and among the Company, Lionheart II Holdings, LLC, a wholly owned subsidiary of the Company, MSP Recovery, LLC and combined and consolidated subsidiaries ("Legacy MSP"), the members of Legacy MSP (the “Members”), and John H.

Ruiz, in his capacity as the representative of the Members (the “Members’

Representative”).

and each pair consisting of one share of Class V Common Stock and one Class B Unit, an “Up-C Unit”) (such transaction, the “Business Combination”).

The Up-C Units are convertible into Class A Common Stock of the Company at the discretion of holder of the Up-C Unit.

DESCRIPTION OF THE BUSINESS

On May 23, 2022 (the “Closing Date”), MSP Recovery, Inc.

d/b/a LifeWallet, a Delaware corporation (formerly known as Lionheart Acquisition Corporation II (“LCAP”)) consummated the previously announced business combination pursuant to that certain Membership Interest Purchase Agreement, dated as of July 11, 2021, as amended (the “MIPA”), by and among the Company, Lionheart II Holdings, LLC, a wholly owned subsidiary of the Company, MSP Recovery, LLC and combined and consolidated subsidiaries (“Legacy MSP”), the members of Legacy MSP (the “Members”), and John H.

Ruiz, in his capacity as the representative of the Members (the “Members’ Representative”).

Pursuant to the MIPA, the Members sold and assigned all of their membership interests in Legacy MSP to the Company in exchange for non-economic voting shares of Class V common stock, par value $ 0.0001 , of the Company (“Class V Common Stock”) and non-voting economic Class B Units of Opco (“Class B Units,” and each pair consisting of one share of Class V Common Stock and one Class B Unit, an “Up-C Unit”) (such transaction, the “Business Combination”).

The Up-C Units are convertible into Class A Common Stock of the Company at the discretion of the holder of the Up-C Unit.

See Note 3, Business Combination , for details.

1 unchanged sentence

The Company is the managing member and therefore consolidates Legacy MSP.

Legacy MSP was organized in 2014 as a Medicaid and Medicare Secondary Pay Act recovery specialist.

The Company utilizes its proprietary internal data analytics platform to review health Claims assigned by secondary payers such as Health Plans, Management Service Organizations (“MSO”), providers of medical services and Independent Physicians Associations.

Legacy MSP was organized in 2014 as a Medicaid and Medicare Secondary Payer Act recovery specialist.

The Company utilizes its proprietary internal data analytics platform to review health Claims assigned by secondary payers such as health plans, MSOs, providers of medical services, and independent physicians associations.

This platform allows the Company to identify Claims cost recovery rights with potential recovery paths where Claims either should not have been paid by the secondary payers or should have been reimbursed by third-party entities.

MSP seeks the assignment of recovery rights from secondary payers by acquiring the recovery rights to Claims from secondary payers via Claims Cost Recovery Agreements (“CCRAs”).

Prior to executing a CCRA, the Company utilizes its proprietary internal data analytics platform to review the set of Claims and identify Claims with probable recovery paths.

MSP’s assets are these irrevocable assignments of health Claims recovery rights that are automatic, all-encompassing and superior to other interests supported by Federal and State laws and regulations.

MSP’s operations are primarily conducted in the U.S.

MSP Recovery is assigned recovery rights to Claims by secondary payers via CCRAs.

Prior to executing a CCRA, MSP Recovery utilizes its proprietary internal data analytics platform to review the set of Claims of a prospective Assignor to identify Claims with probable recovery paths.

MSP Recovery’s assets are these irrevocable broad assignments of health Claims recovery rights that are supported by federal and state laws and regulations.

MSP Recovery’s offices are located in the U.S.

and Puerto Rico.

2023 Reverse Stock Split

Effective at 11:59 PM EDT on October 12, 2023, the Company amended its Second Amended and Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware to effect a 1-for-25 reverse stock split of the Company’s common stock (the “Reverse Split”).

The Company’s Class A Common Stock began trading post split on October 13, 2023 under the same symbol, LIFW.

As a result of the Reverse Split, every 25 shares of the Company’s old common stock were converted into one share of the Company’s new common stock .

Fractional shares resulting from the Reverse Split were rounded up to the nearest whole number.

The Reverse Split automatically and proportionately adjusted, based on the 1-for-25 split ratio, all issued and outstanding shares of the Company’s common stock, as well as the terms of warrants and other derivative securities outstanding at the time of the effectiveness of the Reverse Split.

Proportionate adjustments were made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options and warrants to purchase shares of common stock.

Share and per share data (except par value) for the periods presented reflect the effects of the Reverse Split.

References to numbers of shares of common stock and per share data in the accompanying financial statements and notes thereto for periods ended prior to October 13, 2023 have been adjusted to reflect the Reverse Split on a retroactive basis.

Unless otherwise noted, the share and per share information in this Annual Report have been adjusted to give effect to the one-for-twenty-five ( 1-for-25 ) Reverse Split.

Compliance with Nasdaq Listing Requirements

On April 24, 2023, the Company was notified by Nasdaq Listing Qualifications staff (the “Staff”) that the Company was non-compliant with Nasdaq Listing Rule 5250(c)(1) as a result of not having timely filed its 2022 Form 10-K.

The Company was also deemed non-compliant with Nasdaq’s Bid Price Requirement as the closing bid price for the Company’s Class A Common Stock had fallen below $ 1.00 per share for 30 consecutive business days (March 13, 2023 through April 23, 2023).

Pursuant to Nasdaq Marketplace Rule 5810(c)(3)(A), the Company was provided with a compliance cure period of 180 calendar days, or until October 23, 2023, to regain compliance with the Bid Price Requirement.

On July 27, 2023, the Company filed its 2022 Form 10-K.

On May 24, 2023, the Company was notified by Nasdaq that it was not in compliance with the requirements of Nasdaq Listing Rule 5250(c) as a result of not having timely filed its Form 10-Q for the period ended March 31, 2023 with the SEC.

On August 7, 2023, Nasdaq granted the Company an extension until August 30, 2023 to file its Quarterly Reports on Form 10-Q for the quarters ending March 31, 2023 and June 30, 2023.

On August 16, 2023, the Company was notified by Nasdaq that it was not in compliance with the requirement of Nasdaq Listing Rule 5250(c)(1) as a result of not having timely filed its Form 10-Q for the period ended June 30, 2023 with the SEC.

On August 17, 2023, the Company filed its Quarterly Report on Form 10-Q for the period ending March 31, 2023.

The Company has regained compliance with such rule as a result of the filing of the Quarterly Report on Form 10-Q for the period ended June 30, 2023 on August 30, 2023.

On August 31, 2023, the Company was notified by Nasdaq that it regained compliance with Nasdaq Listing Rule 5250(c)(1) after having filed its 2022 Form 10-K, and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023.

On September 5, 2023, the Company received a determination from the Staff that the Company’s Class A Common Stock had a closing bid price of $ 0.10 or less for 10 consecutive trading days during a compliance period and so, pursuant to Listing Rule

5810(3)(A)(iii), the Staff determined to delist the Company’s securities from The Nasdaq Capital Market (the “Delisting Determination”).

Pursuant to the procedures set out in the Nasdaq Listing Rules, the Company appealed the Delisting Determination to a hearing panel (the “Hearing”), which suspended the Delisting Determination until the Hearing, which was scheduled for November 2, 2023.

The Company effected the Reverse Stock Split on October 13, 2023, which caused the price of its Class A Common Stock to trade at a level sufficient to regain compliance with Listing Rule 5810(3)(A)(iii), and Listing Rule 5450(a)(1).

On October 27, 2023, the Company was notified by the Staff that it had regained compliance with all applicable listing standards, the Hearing was canceled, and that the Company’s stock will continue to be listed and traded on the Nasdaq Stock Market.

On January 10, 2022, the Company announced the launch of LifeWallet, LLC (“LifeWallet”).

As of December 31, 2023, the Company’s investment related to LifeWallet included in the consolidated statement of operations was limited to activity and expenses incurred during the years ended December 31, 2023 and 2022 which amounted to $ 4.4 million and $ 3.9 million, respectively.

Yorkville Purchase Agreement and Yorkville Standby Equity Purchase Agreement

On January 6, 2023 , the Company entered into a Company Common Stock Purchase Agreement (the “Yorkville Purchase Agreement”) with YA II PN, Ltd., a Cayman Island exempted company (“Yorkville”), which replaced the CF Agreement discussed below in “ Committed Equity Facility ” within Note 11, Claims Financing Obligations and Notes Payable .

Pursuant to the Yorkville Purchase Agreement, the Company has the right to sell to Yorkville from time to time at its option up to $ 1 billion in shares of the Company’s Class A Common Stock, subject to the terms, conditions and limitations set forth in the Yorkville Purchase Agreement.

On November 14, 2023, the Company entered into the Standby Equity Purchase Agreement (“Yorkville SEPA”) with Yorkville, which replaced the Yorkville Purchase Agreement described above.

Pursuant to the Yorkville SEPA, the Company has the right to sell to Yorkville up to $ 250 million of its shares of common stock, subject to certain limitations and conditions set forth in the Yorkville SEPA, from time to time during the term of the Yorkville SEPA.

Sales of the shares of common stock to Yorkville under the Yorkville SEPA, and the timing of any such sales, are at the Company’s option, and the Company is under no obligation to sell any shares of common stock to Yorkville under the Yorkville SEPA except in connection with notices that may be submitted by Yorkville, in certain circumstances as described below.

Upon the satisfaction of the conditions to Yorkville’s purchase obligation set forth in the Yorkville SEPA, including having a registration statement registering the resale of the shares of common stock issuable under the Yorkville SEPA declared effective by the SEC, the Company will have the right, but not the obligation, from time to time at its discretion until the Yorkville SEPA is terminated to direct Yorkville to purchase a specified number of shares of common stock (“Advance”) by delivering written notice to Yorkville (“Advance Notice”).

While there is no mandatory minimum amount for any Advance, it may not exceed an amount equal to 100 % of the average of the daily traded amount during the five consecutive trading days immediately preceding an Advance Notice.

The shares of common stock purchased pursuant to an Advance delivered by the Company will be purchased at a price equal to (i) 98 % of the VWAP of the shares of common stock on the applicable date of delivery of the Advance Notice during regular trading hours on such date or (ii) 97 % of the lowest daily VWAP of the shares of common stock during the three consecutive trading days commencing on the date of the delivery of the Advance Notice, other than the daily VWAP on a day in which the daily VWAP is less than a minimum acceptable price as stated by the Company in the Advance Notice or there is no VWAP on the subject trading day.

The Company may establish a minimum acceptable price in each Advance Notice below which the Company will not be obligated to make any sales to Yorkville.

“VWAP” is defined as the daily volume weighted average price of the shares of common stock for such trading day on the Nasdaq Stock Market during regular trading hours as reported by Bloomberg L.P.

In connection with the Yorkville SEPA, and subject to the condition set forth therein, Yorkville agreed to advance to the Company in the form of convertible promissory notes (the “Convertible Notes”) an aggregate principal amount of $ 15.0 million.

On November 14, 2023, we issued a Convertible Note to Yorkville in the principal amount of $ 5.0 million, resulting in net proceeds to us of $ 4.73 million.

On December 11, 2023 , we issued a Convertible Note to Yorkville in the principal amount of $ 5.0 million, resulting in net proceeds to us of $ 4.75 million.

On April 8, 2024, we issued a third Convertible Note to Yorkville in the principal amount of $ 5.0 million, resulting in net proceeds to us of $ 4.75 million.

On April 8, 2024, the Company and Yorkville agreed to an amendment to the Yorkville SEPA and Convertible Notes in which:

(1) the Floor Price Trigger was reduced from $ 1.28 to $ 1.00 ;

(2) the Floor Price Trigger for the 10-day period ending February 5, 2024 has been cured and the monthly payment of $ 1.5 million that would have been due, was waived;

and (3) the maturity date of the Convertible Notes was extended to September 30, 2025 .

In addition, the third Convertible Note for $ 5.0 million was issued on April 8, 2024.

On April 12, 2024, Yorkville further agreed that, to the extent that it holds Class A Common Stock in such quantities that would prevent the Company from utilizing the SEPA solely due to the Ownership Limitation, Yorkville commits to fund an additional advance in the principal amount of $ 13,000,000 on the same terms and conditions as the previous advances pursuant to the Yorkville SEPA.

As required pursuant to the Amended and Restated Nomura Promissory Note, 50 % of the aggregate proceeds under the Yorkville SEPA will be used to pay amounts outstanding under the Amended and Restated Nomura Promissory Note (first towards accrued and unpaid interest, if any, then towards principal) and the remaining 50 % of such proceeds will be used to pay amounts due under the

Convertible Notes, if any, or be paid to the Company after the Convertible Notes are fully repaid.

Pursuant to the Third Virage MTA Amendment, 25 % of the Company’s portion of any net proceeds from the Yorkville SEPA would be used to pay down the VRM Full Return after the Convertible Notes are fully satisfied.

Interest shall accrue on the outstanding balance of any Convertible Notes at an annual rate equal to 5.0 %, subject to an increase to 18 % upon an event of default as described in the Convertible Notes, and is payable upon maturity or upon the occurrence of a Trigger Event.

The maturity date of each Convertible Note will be September 30, 2025, and may be extended at the option of Yorkville.

Yorkville may convert the Convertible Notes into shares of the Company’s common stock at a conversion price equal to the lower of 120 % of VWAP the day prior to the date of the closing of each tranche (the “Fixed Price”) or 95 % of the lowest daily VWAP during the seven consecutive trading days immediately preceding the conversion (the “Conversion Price”), which in no event may the Conversion Price be lower than 20 % of the closing price the trading day immediately prior to the signing of the definitive documents.

In addition, upon the occurrence and during the continuation of an event of default, the Convertible Notes shall become immediately due and payable and the Company shall pay to Yorkville the principal and interest due thereunder.

Events of default include, among others:

(i) the Class A Common Stock shall cease to be quoted or listed for trading, as applicable, on any primary market for a period of ten (10) consecutive Trading Days (the Company is currently in compliance with NASDAQ listing requirements and has not been issued a reverse stock split warning since regaining compliance upon the Reverse Split) and (ii) failure to timely file with the SEC any periodic report on or before the due date of such filing as established by the SEC, including extensions under Rule 12b-25 under the Exchange Act.

In no event shall Yorkville be allowed to effect a conversion if such conversion, along with all other shares of common stock beneficially owned by Yorkville and its affiliates would exceed 9.99 % of the outstanding shares of the common stock of the Company.

If any time on or after November 14, 2023 (i) the daily VWAP is less than $ 1.00 (the “Floor Price”) for ten consecutive trading days (“Floor Price Trigger”), (ii) the Company has issued substantially all of the shares available under the Exchange Cap (as defined below) (“Exchange Cap Trigger”) or (iii) the Parent is in material breach of the Registration Rights Agreement, dated as of the date hereof, by and between Yorkville and the Company (the “Registration Rights Agreement”) and such breach remains uncured for a period of twenty trading days, or the occurrence of an “Event” (as defined in the Registration Rights Agreement) (“Registration Event Trigger” and collectively with the Floor Price Trigger and the Exchange Cap Trigger, the “Trigger”), then the Company shall make monthly payments to Yorkville beginning on the seventh trading day after the Trigger and continuing monthly in the amount of $ 1,500,000 plus an 5.0 % premium and accrued and unpaid interest.

The Exchange Cap Trigger will not apply in the event the Company has obtained the approval from its stockholders in accordance with the rules of Nasdaq Stock Market for the issuance of shares of common stock pursuant to the transactions contemplated in the Convertible Note and the Yorkville SEPA in excess of 19.99 % of the aggregate number of shares of common stock issued and outstanding as of the effective date of the Yorkville SEPA (the “Exchange Cap”).

Yorkville, at its discretion and providing that there is a balance remaining outstanding under the Convertible Notes, may deliver a notice under the Yorkville SEPA requiring the issuance and sale of shares of common stock to Yorkville at the Conversion Price in consideration of an offset of the Convertible Notes (“Yorkville Advance”).

Yorkville, in its sole discretion, may select the amount of any Yorkville Advance, provided that the number of shares issued does not cause Yorkville to exceed the 9.99 % ownership limitation, does not exceed the Exchange Cap or the amount of shares of common stock that are registered.

As a result of a Yorkville Advance, the amounts payable under the Convertible Notes will be offset by such amount subject to each Yorkville Advance.

The Company will control the timing and amount of any sales of shares of common stock to Yorkville, except with respect to Yorkville Advances.

Actual sales of shares of common stock to Yorkville as an Advance under the Yorkville SEPA will depend on a variety of factors to be determined by the Company from time to time, which may include, among other things, market conditions, the trading price of the Company’s common stock and determinations by the Company as to the appropriate sources of funding for our business and operations.

The Yorkville SEPA will automatically terminate on the earliest to occur of (i) the first day of the month following the 36-month anniversary of the date of the Yorkville SEPA or (ii) the date on which Yorkville shall have made payment of Advances pursuant to the Yorkville SEPA for shares of common stock equal to $ 250 million.

The Company has the right to terminate the Yorkville SEPA at no cost or penalty upon five (5) trading days’ prior written notice to Yorkville, provided that there are no outstanding Advance Notices for which shares of common stock need to be issued and the Company has paid all amounts owed to Yorkville pursuant to the Convertible Notes.

The Company and Yorkville may also agree to terminate the Yorkville SEPA by mutual written consent.

Neither the Company nor Yorkville may assign or transfer the Company’s respective rights and obligations under the Yorkville SEPA, and no provision of the Yorkville SEPA may be modified or waived by the Company or Yorkville other than by an instrument in writing signed by both parties.

The Yorkville SEPA contains customary representations, warranties, conditions and indemnification obligations of the parties.

The representations, warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.

The net proceeds under the Yorkville SEPA to the Company will depend on the frequency and prices at which the Company sells its shares of common stock to Yorkville.

The Company expects that any proceeds received from such sales to Yorkville will be used for working capital and general corporate purposes.

Certain features of the Yorkville SEPA have been identified and classified as an embedded derivatives, which are classified as a liability in accordance with ASC 815 and valued in accordance with ASC 470, Debt .

These features classified as embedded derivatives include payment and redemption premiums, increase in interest rate in the event of default and accelerated payments as a result of Trigger events.

Per ASC 815, in circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, combined derivative instrument.

The fair value of the combined embedded derivative was $ 37.0 thousand as of December 31, 2023, and the impact in the Statement of Operations for the year-ended December 31, 2023 was $ 23.0 thousand.

On July 7, 2023, the Company issued 7,960,001 unregistered shares of Class A Common Stock (after giving effect to the Reverse Split) to Cano Health, LLC (“Cano”) as payment for $ 61.7 million in deferred compensation related to the following agreements, which the Company had the option to pay in cash or in stock and has elected to pay in stock, of which (i) 3,225,807 shares of Common Stock were issued as a deferred consideration for the assignment of certain claims pursuant to that certain Purchase Agreement, effective as of September 30, 2022, as amended to date, by and between MSP Recovery and Cano, and (ii) 4,734,194 shares of Common Stock were issued as deferred consideration for the assignment of certain claims pursuant to that certain Amended and Restated Claims Recovery and Assignment Agreement effective as of December 31, 2021, as amended to date, by and between MSP Recovery and Cano.

See summary in “ Cano Health ” in Note 13, Commitments and Contingencies .

Warrant Agreement with Brickell Key Investments, LP

On October 12, 2022, MSP Recovery, Inc., a Delaware corporation (the “Company”), finalized an Amendment to the Claim Proceeds Investment Agreement (the “Amendment”) and a Warrant Agreement (the “Warrant Agreement”) with Brickell Key Investments LP (the “Holder”), pursuant to which the parties have agreed to amend the original Claims Proceeds Investment Agreement (“CPIA”) and required payment terms.

The Amendment and Warrant Agreement were agreed effective September 30, 2022.

Pursuant to the agreements, the Company grants to the Holder the right to purchase Class A common shares in the Company (the “Class A Shares”) in accordance with the terms and conditions of the Agreement.

The maximum amount of Class A shares that the holder may purchase from the Company is 2,666,667 (the “Amount”) for a purchase price equal to $ 6,666.67 ($ 0.0025 per Class A Share) (the “Exercise Price”) and is payable in cash.

This Warrant (the “Warrant”) will expire at 5:00 p.m.

(Eastern Time), on September 30, 2027 and may be exercised in whole or in part by Holder at any time prior to such date.

The Holder can only sell a maximum of 15 % per month of the Class A Shares obtained through the Warrant.

In exchange for the Company issuing the Warrant, the amounts owed to the Holder pursuant to CPIA was reduced from approximately $ 143 million to equal $ 80 million (the “Reduced Obligation”), and no further interest will accrue.

The Holder has the right to receive the $ 80 million owed through (1) proceeds as outlined in the CPIA, (2) cash paid by the Company or (3) monetization of the Warrant (through the sale of the Warrant or sale of the underlying Class A Shares).

If the Holder monetizes the Warrant, the amount owed will be reduced at a measure of $ 30.00 per Class A Share (five-day volume weighted average price as of September 30, 2022).

Investment Capacity Agreement

On September 27, 2021, the Company entered into an Investment Capacity Agreement (the “ICA”) providing for potential future transactions regarding select healthcare Claims recovery interests with its investment partner, Virage, which transactions may include the sale of Claims by MSP.

The ICA provides that the maximum value of such Claims will be $ 3 billion.

When the Company takes an assignment, the Company takes an assignment of the entire recovery but often has a contractual obligation to pay the Assignor 50% of any recoveries.

This 50 % interest typically is retained by the assignor (the “Retained Interest”), although in some cases, the Company has acquired all of the recoveries, and the applicable assignor has not kept any Retained Interest.

This 50 % interest typically is retained by the Assignor (the “Retained Interest”), although in some cases, the Company has acquired all of the recoveries, and the applicable Assignor has not kept any Retained Interest.

The Retained Interest is not an asset of the Company, but an obligation to pay these Assignors, with the Company keeping the other 50 % interest of any recoveries.

Virage’s funding in connection with future transactions generally will be used to purchase Retained Interests from existing assignors or new MSP assignors, although its funds can also be used to buy 50% of the recoveries from the Company, in the event the applicable assignor did not retain any Retained Interest.

Virage’s funding in connection with future transactions generally will be used to purchase Retained Interests from existing Assignors or new MSP Assignors, although its funds can also be used to buy 50% of the recoveries from the Company, in the event the applicable Assignor did not retain any Retained Interest.

In connection with transactions consummated under the ICA, the Company may receive certain fees, including a finder’s fee for identifying the recoveries and a servicing fee for servicing the Claims.

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To date, there have been no transactions in connection with this ICA, and the Company does not anticipate any in the foreseeable future.

On January 10, 2022, the Company announced the launch of LifeWallet, LLC (“LifeWallet”).

As of December 31, 2022, the Company’s investment related to LifeWallet included in the consolidated balance sheets was limited to activity and expenses incurred during the year ended December 31, 2022.

Through the date the financial statements were issued, LifeWallet has executed agreements for advertising costs within the next 12 months of approximately $ 5.5 million.

A portion of these contracts are cancellable with a 30-day notice period.

For the aforementioned agreements that do not have a 30-day cancellation at will provision, the parties have mutually agreed to terminate said agreements prior to the filing of this Annual Report on Form 10-K.

Committed Equity Facility

On May 17, 2022, the Company entered into a Company Common Stock Purchase Agreement (the “Purchase Agreement”) with an affiliate of Cantor Fitzgerald (“CF”).

Pursuant to the Purchase Agreement, after the closing of the Business Combination, the Company will have the right to sell to CF from time to time at its option up to $ 1 billion in Class A common stock shares, subject to the terms, conditions and limitations set forth in the Purchase Agreement.

Pursuant to the Yorkville Purchase Agreement, the Company has the right to sell to Yorkville from time to time at its option up to $ 1 billion in shares of the Company’s Common Stock, subject to the terms, conditions and limitations set forth in the Yorkville Purchase Agreement.

Sales of the shares of the Common Stock to Yorkville under the Yorkville Purchase Agreement, and the timing of any such sales, will be determined by the Company from time to time in its sole discretion and will depend on a variety of factors, including, among other things, market conditions, the trading price of the common stock, as well as determinations by the Company about the use of proceeds of such Common Stock sales.

The net proceeds from any such sales under the Yorkville Purchase Agreement will depend on the frequency with, and the price at, which the shares of Common Stock are sold to Yorkville.

Upon the initial satisfaction of the conditions to Yorkville’s obligation to purchase shares of Common Stock set forth under the Yorkville Purchase Agreement (the “Commencement”), including that a registration statement registering the resale by Yorkville of the shares of Common Stock under the Securities Act, purchased pursuant to the Yorkville Purchase Agreement (the “Resale Registration Statement”) is declared effective by the SEC and a final prospectus relating thereto is filed with the SEC, the Company will have the right, but not the obligation, from time to time, at its sole discretion and on the terms and subject to the limitations contained in the Yorkville Purchase Agreement, until no later than the first day of the month following the 36 month anniversary of the date that the Resale Registration Statement is declared effective, to direct Yorkville to purchase up to a specified maximum amount of Common Stock as set forth in the Yorkville Purchase Agreement by delivering written notice to Yorkville prior to the commencement of trading on any trading day.

The purchase price of the common stock that the Company elects to sell to Yorkville pursuant to the Yorkville Purchase Agreement will be 98 % of the volume-weighted average price ("VWAP") of the Common Stock during the applicable purchase date on which the Company has timely delivered a written notice to Yorkville, directing it to purchase common stock under the Yorkville Purchase Agreement.

The purchase agreement that the Company entered into on May 17, 2022 with CF has been terminated.

Assignment and Sale of Proceeds Agreement

On June 30, 2022, the Company entered into an Assignment and Sale of Proceeds Agreement (the “Assignment Agreement”) and a Recovery Services Agreement (the “Services Agreement”

and collectively, the “Agreements”) with the Prudent Group (“Prudent”) in order to monetize up to $ 250 million of the value of the Company’s net recovery interest in Claim demand letters that the Company has commenced sending to insurers who admitted they had primary payer responsibility for the underlying accidents to the federal government (“Net Recovery Proceeds”).

Pursuant to the Agreements, at the Company’s sole and absolute discretion, the Company has the right to direct Prudent to acquire, on a non-recourse basis, a percentage of the Company's Net Recovery Proceeds, up to an aggregate of $ 250 million, at a purchase price of 90 % of the Net Recovery Proceeds of such Claim.

Prudent Assignment and Sale of Proceeds Agreement

On June 30, 2022, the Company entered into an Assignment and Sale of Proceeds Agreement (the “Assignment Agreement”) and a Recovery Services Agreement (the “Services Agreement” and collectively, the “Agreements”) with the Prudent Group (“Prudent”) in order to monetize up to $ 250 million of the value of the Company’s net recovery interest in Claim demand letters that the Company has commenced sending to insurers who admitted they had primary payer responsibility for the underlying accidents to the federal government (“Net Recovery Proceeds”).

Pursuant to the Agreements, at the Company’s sole and absolute discretion, the Company has the right to direct Prudent to acquire, on a non-recourse basis, a percentage of the Company’s Net Recovery Proceeds, up to an aggregate of $ 250 million, at a purchase price of 90 % of the Net Recovery Proceeds of such Claim.

Under the Services Agreement, the Company will service and recover on the demand letters and will retain any revenues generated in excess of the amount received from Prudent, plus up to an 18 % annual return on the amount Prudent paid for the Net Recovery Proceeds.

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While the Prudent Agreements are still in effect as of the date of these financial statements, it is uncertain if or when the Company would transact on the agreements.

Warrant Agreement with Brickell Key Investments, LP

On October 12, 2022, MSP Recovery, Inc., a Delaware corporation (the “Company”), finalized an Amendment to the Claim Proceeds Investment Agreement (the "Amendment") and a Warrant Agreement (the "Warrant Agreement") with Brickell Key Investments LP (the “Holder”), pursuant to which the parties have agreed to amend the original Claims Proceeds Investment Agreement ("CPIA") and required payment terms.

The Amendment and Warrant Agreement were agreed effective September 30, 2022.

Pursuant to the agreements, the Company grants to the Holder the right to purchase Class A common shares in the Company (the "Class A Shares") in accordance with the terms and conditions of the Agreement.

The maximum amount of Class A shares that the holder may purchase from the Company is 66,666,666 (the “Amount”) for a purchase price equal to $ 6,666.67 ($ 0.0001 per Class A Share) (the “Exercise Price”) and is payable in cash.

This Warrant (the “Warrant”) will expire at 5:00 p.m.

(Eastern Time), on September 30, 2027 and may be exercised in whole or in part by Holder at any time prior to such date.

The Holder can only sell a maximum of 15 % per month of the Class A Shares obtained through the Warrant.

In exchange for the Company issuing the Warrant, the amounts owed to the Holder pursuant to CPIA are reduced from approximately $ 143 million to equal $ 80 million (the "Reduced Obligation"), and no further interest will accrue.

If the Holder monetizes the Warrant, the amount owed will be reduced at a measure of $ 1.20 per Class A Share (five-day volume weighted average price as of September 30, 2022).

Going Concern

As an early-stage growth company, the Company has incurred substantial net losses since inception.

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For the year ended December 31, 2023, the Company used approximately $ 40.0 million of cash in operations.

The Company's liquidity will depend on the ability to generate substantial Claims recovery income and Claims recovery services income in the near future, the timing of which is uncertain, as well as its ability to secure funding from capital sources.

The Company's principal liquidity needs have been capital expenditures, working capital, debt service and Claims financing obligations.

The Company anticipates sources of liquidity to include the Hazel Working Capital Facility as disclosed in Note 19, Subsequent Events .

The Company anticipates having funding through this source and has taken several actions to address liquidity concerns, including:

On April 12, 2023, the Company entered into the Virage MTA Amendment, which extended the due date for the payment obligations to Virage to September 30, 2024.

See summary in Note 19, Subsequent Events .

On April 12, 2023, the Company entered into an amended and restated promissory note with Nomura, which extended the due date to September 30, 2024.

See summary in Note 19, Subsequent Events .

On March 29, 2023, the Company entered into the Working Capital Credit Agreement consisting of commitments to fund up to $ 48 million in proceeds.

See summary in Note 19, Subsequent Events .

Given the uncertainty with regard to the timing and amount of claims recovery income, management implemented a reduction of operating costs in 2023 through the reduction or elimination of certain controllable expenses particularly within the budgeted costs to expand and develop new solutions through LifeWallet platform, advertising expenses and non-contingent legal fees.

The Company anticipates that the reductions would contribute approximately $ 21.5 M in savings to operating expenses over the next twelve months.

The Company’s liquidity will depend on the ability to generate substantial Claims recovery income and Claims recovery services income in the near future, the timing and amount of which is uncertain, as well as its ability to secure funding from capital sources.

The Company’s principal liquidity needs have been working capital, debt service, and Claims financing obligations.

The Company anticipates sources of liquidity to include the Working Capital Credit Facility and the Yorkville SEPA as disclosed in Note 11, Claims Financing Obligations and Notes Payable , and has taken several actions to address liquidity concerns, including:

On March 29, 2023, Subrogation Holdings and its parent MSP Recovery entered into the Working Capital Credit Facility consisting of commitments to fund up to $ 48 million in proceeds.

Certain terms were amended to the Working Capital Credit Facility, which were memorialized in the Second Amended and Restated First Lien Credit Agreement dated November 10, 2023.

See summary in “ Hazel Transactions ” in Note 11, Claims Financing Obligations and Notes Payable, within the notes to the consolidated financial statements as of and for the year ended December 31, 2023 appearing elsewhere in this Annual Report.

On November 13, 2023, the Company entered into the MTA Amendment No.

2 and Amendment to the Amended and Restated Security Agreement (“Second Virage MTA Amendment”), which extended the due date for the payment obligations to Virage to December 31, 2024.

See summary in Note 4, Asset Acquisitions, within the notes to the consolidated financial statements as of and for the year ended December 31, 2023 appearing elsewhere in this Annual Report.

On April 1, 2024, the Company entered into the MTA Amendment No.

3 and Amendment No.

2 to the Amended and Restated Security Agreement (“Third Virage MTA Amendment”), which:

(i) extended the VRM Full Return payment due date to September 30, 2025, subject to acceleration upon certain triggering events;

(ii) the Company agreed that, after the Convertible Notes are fully satisfied, 25 % of the Company’s portion of any net proceeds from the Yorkville SEPA would be used to pay down the VRM Full Return;

and (iii) commence the sale of certain reserved shares of Messrs.

Ruiz and Frank C.

Quesada, and the delivery of the resulting net cash proceeds thereof to VRM.

On November 13, 2023, the Company entered into the Amended and Restated Nomura Promissory Note, which extended the due date to December 31, 2024.

See summary in Note 11, Claims Financing Obligations and Notes Payable, within the notes to the consolidated financial statements as of and for the year ended December 31, 2023 appearing elsewhere in this Annual Report.

On March 26, 2024, the maturity date of the Amended and Restated Nomura Promissory Note was extended to September 30, 2025 .

On November 14, 2023, the Company entered into the Yorkville SEPA, which included the issuance of Convertible Notes to Yorkville having aggregate principal amounts of up to $ 15.0 million in connection with the purchase of Class A Common Stock.

See summary in “ Committed Equity Facility ” within Note 1, Description of the Business, and Note 11, Claims Financing Obligations and Notes Payable, within the notes to the consolidated financial statements as of and for the year ended December 31, 2023 appearing elsewhere in this Annual Report .

On April 8, 2024, the maturity date of the Convertible Notes was extended to September 30, 2025 .

Refer to Note 1, Description of the Business , for additional information.

The Company has concluded that such actions alleviate the substantial doubt about the Company’ s ability to continue as a going concern beyond one year from the date these financial statements are issued.

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These statements have been prepared pursuant to the rules and regulations of the SEC and in accordance with GAAP.

In the opinion of management, the consolidated financial statements (the “Financial Statements”) reflect all adjustments, which consist only of normal recurring adjustments, necessary to state fairly the results of operations, financial condition and cash flows for the periods presented herein.

Prior to the Business Combination, the consolidated interim financial statements reflect Legacy MSP.

In the opinion of management, the consolidated financial statements reflect all adjustments, which consist only of normal recurring adjustments, necessary to state fairly the results of operations, financial condition and cash flows for the periods presented herein.

Prior to the Business Combination, the consolidated financial statements reflect Legacy MSP.

All intercompany transactions and balances are eliminated from the consolidated financial statements.

Principles of consolidation

The Company consolidates all entities that it controls through a majority voting interest or otherwise and the accompanying consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries and these entities for which the Company has a controlling interest in.

The Company also consolidates all entities that it controls as the primary beneficiary of a variable interest entity (“VIE”).

The Company consolidates all entities that it controls through a majority voting interest or otherwise and the accompanying financial statements include the accounts of the Company’s wholly owned subsidiaries and these entities for which the Company has a controlling interest in.

The Company also consolidates all entities that it controls as the primary beneficiary of a variable interest entity (“VIE”).

Under the VIE model, management first assesses whether the Company has a variable interest in an entity, which would include an equity interest.

If the Company has a variable interest in an entity, management further assesses whether that entity is a VIE, and if so, whether the Company is the primary beneficiary under the VIE model.

Generally, entities that are organized similar to a limited partnership, in which a general partner (or managing member) make the most relevant decisions that affect the entity’s economic performance, are considered to be VIEs which would require consolidation, unless the limited partners have substantive kickout or participating rights.

Entities that do not qualify as VIEs are assessed for consolidation under the voting interest model.

Under the VIE model, an entity is deemed to be the primary beneficiary of a VIE if it holds a controlling financial interest.

A controlling financial interest is defined as (a) the power to direct the activities of a VIE that most significantly affect the entity’s economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE.

Management determines whether the Company is the primary beneficiary of a VIE at the time it

becomes involved with a VIE and reconsiders that conclusion at each reporting date.

This analysis includes an evaluation of the Company’s control rights, as well as the economic interests that the Company holds in the VIE, including indirectly through related parties.

As a result of the Business Combination, the Company consolidates MSP Recovery, LLC under the VIE model.

Management determines whether the Company is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion at each reporting date.

This analysis includes an evaluation of the Company’s control rights, as well as the economic interests that the Company holds in the VIE, including indirectly through related parties.

As a result of the Business Combination, the Company consolidates MSP Recovery under the VIE model.

Estimates and Assumptions

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from the Company’s estimates.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from the Company’s estimates.

Estimates are periodically reviewed considering changes in circumstances, facts and experience.

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Significant estimates and assumptions reflected in these consolidated financial statements include but are not limited to Claims recovery income and Claims recovery service income recognition, recoverability of long-lived assets and cost of Claims recoveries.

Operating segments are defined as components of an entity for which separate financial information is available and regularly reviewed by the chief operating decision maker (“CODM”).

The Company manages its operations as a single segment for the purposes of assessing performance and making decisions.

The Company’s CODM is its Chief Executive Officer.

The Company has determined that it operates in one operating segment and one reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

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Concentration of credit risk and Off-Balance Sheet Risk

Cash and cash equivalents and affiliate receivable are financial instruments that are potentially subject to concentrations of credit risk.

See Note 14, Related Party , fo r disclosure of affiliate receivables.

The Company’s cash and cash equivalents and restricted cash are deposited in accounts at large financial institutions, and amounts may exceed federally insured limits.

Cash and affiliate receivable are financial instruments that are potentially subject to concentrations of credit risk.

See Note 15, Related Party Transactions , fo r disclosure of affiliate receivables.

The Company’s cash and restricted cash are deposited in accounts at large financial institutions, and amounts may exceed federally insured limits.

The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash and cash equivalents are held.

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The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Restricted Cash consists of cash held in escrow related to the Prepaid Forward Agreement with CF.

There are no cash equivalents as of December 31, 2023 or 2022.

Restricted Cash as of December 31, 2022 consists of cash held in escrow related to the Prepaid Forward Agreement with CF.

See Note 18, Derivative Liability , for more info rmation on the Prepaid Forward Agreement.

Fair Value Measurements

The Company applies the provisions of Accounting Standards Codification ("ASC") 820, Fair Value Measurements , for fair value measurements of financial assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the financial statements on a recurring basis.

The Company applies the provisions of ASC 820, Fair Value Measurements , for fair value measurements of financial assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the financial statements on a recurring basis.

The Company also applied the provisions of the subtopic to fair value measurements of non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis.

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Quoted prices for similar assets and liabilities in active markets or inputs that are observable.

Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

The Company has determined the estimated fair value of its financial instruments based on appropriate valuation methodologies;

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The methods and assumptions used in estimating the fair values of financial instruments are based on carrying values and future cash flows.

As of December 31, 2022 and December 31, 2021 , the Company did no t hold any Level 2 or Level 3 assets or liabilities.

Cash and cash equivalents and restricted cash are stated at cost, which approximates their fair value.

As of December 31, 2022 , the Company did no t hold any Level 2 or Level 3 assets or liabilities.

See Note 14, Fair Value Measurements , for additional information on Level 3 assets and liabilities as of December 31, 2023.

Cash and restricted cash are stated at cost, which approximates their fair value.

The carrying amounts reported in the balance sheets for affiliate receivable, accounts payable, affiliate payable and accrued liabilities approximate fair value, due to their short-term maturities.

Outstanding borrowings that qualify as financial instruments are carried at cost, which approximates their fair value as of December 31, 2022 and December 31, 2021 .

Outstanding borrowings that qualify as financial instruments are carried at cost, which approximates their fair value as of December 31, 2023 and 2022 , due to their short duration.

Equity Method Investments

Equity investments that are not consolidated, but over which the Company exercises significant influence, are accounted for in accordance with ASC 323, “Investments—Equity Method and Joint Ventures”

(“ASC 323”).

Wh ether or not the Company exercises significant influence with respect to an investee company depends on an evaluation of several factors including, among others, representation on the investee company’s board of directors and ownership level.

An entity is presumptively assumed to have significant influence in a corporation when it holds 20 % or more of the voting stock of the investee company, or at a lower level (e.g., 3 % to 5 %) for entities that track separate members capital accounts.

Under the equity method of accounting, an investee company’s accounts are not reflected within the Company’s consolidated balance sheets and statements of operations;

however, the Company’s share of the earnings or losses of the investee company is reflected in the caption “Other income”

in the consolidated statements of operations.

The Company’s carrying value in equity method investee companies is not reflected in the Company’s consolidated balance sheets as of December 31, 2022 or December 31, 2021 as the carryin g value is zero .

When the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company has guaranteed obligations of the investee company or has committed additional funding.

Under the equity method of accounting, an investee company’s accounts are not reflected within the Company’s consolidated balance sheets and statements of operations;

however, the Company’s share of the earnings or losses of the investee company is reflected in the caption “Other income” in the consolidated statements of operations.

The Company’s carrying value in equity method investee companies is not reflected in the Company’s consolidated balance sheets as of December 31, 2023 or 2022 as the carryin g value is de minimis.

When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

Property, Plant and Equipment

Property and Equipment

Property and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses, if any.

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The Company recognizes intangible assets for costs incurred up front to acquire Claims recovery rights from various Assignors.

The Company amortizes capitalized costs associated with CCRAs over 8 years, based on the typical expected timing to pursue recovery through litigation, including through potential appeals.

The Company amortizes capitalized costs associated with CCRAs over eight years , based on the typical expected timing to pursue recovery through litigation, including through potential appeals.

As part of the Business Combination, the Company acquired rights to Claims recovery cash flows.

As a result of this purchase and the guarantee obligation as noted in Note 10, Variable Interest Entities , the Company consolidated the entity which holds these Claim rights.

As a result of this purchase and the guaranty obligation as noted in Note 10, Variable Interest Entities , the Company consolidated the entity which holds these Claim rights.

Upon consolidation, these Claims rights were accounted for under ASC 350 similar to other CCRAs the Company holds.

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If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset group are less than the carrying value, a write-down would be recorded to reduce the related asset group to its estimated fair value.

There were no impairment indicators in the years ended December 31, 2022, 2021 and 2020.

Leases entered into by the Company, in which substantially all the benefits and risk of ownership are transferred to the Company, are recorded as obligations under leases.

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The Company determines if an arrangement is a lease at inception and has made an accounting policy election not to recognize right of use assets and lease liabilities that arise from short term lease as defined as leases with initial terms not in excess of 12 months.

As of December 31, 2022, the Company did not have any leases in excess of 12 months.

See Note 8, Short Term Leases , for more information.

The Company elected not to separate lease and non-lease components for arrangements where the Company is a lessee.

See Note 8, Leases , for more information.

Derivative Instruments

The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging .

The result of this accounting treatment is that the fair value of the embedded derivative, if required to be bifurcated, is marked-to-market at each balance sheet date and recorded as a liability.

The change in fair value is recorded in the Statement of Operations as a component of other income or expense.

Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, combined derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date.

Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

Non-controlling Interests

As part of the Business Combination and described in Note 1, Description of Business , the Company became the managing member of MSP Recovery, LLC, which is consolidated as the Company controls the operating decisions of MSP Recovery, LLC.

As part of the Business Combination and described in Note 1, Description of the Business , the Company became the managing member of MSP Recovery, which is consolidated as the Company controls the operating decisions of MSP Recovery.

The non-controlling interest relates to the Up-C Units that are convertible into Class A Common Stock of the Company at the discretion of the holder of the Up-C Unit.

The Up-C Unit holders retained approximately 99.76 % of the economic ownership percentage of the Company as of the Closing Date.

The non-controlling interest is classified as permanent equity within the consolidated balance sheet of the Company.

As of December 31, 2022, based on the Class A common stock issuances during the period, the non-controlling interest of Class V shareholders w as 97.70 %.

Changes in the Company’s ownership interest in MSP Recovery, LLC, due to Class V shareholders converting their shares to Class A, are accounted for as equity transactions.

Each issuance of the Company's Class A Common Stock requires a corresponding issuance of MSP Recovery, LLC units to the Company.

The non-controlling interest is classified as permanent equity within the consolidated balance sheet of the

As of December 31, 2023, based on the Class A common stock issuances during the period, the non-controlling interest of Class V shareholders was 89.44 % .

Changes in the Company’s ownership interest in MSP Recovery, due to Class V shareholders converting their shares to Class A, are accounted for as equity transactions.

Each issuance of the Company’s Class A Common Stock requires a corresponding issuance of MSP Recovery units to the Company.

The issuance would result in a change in ownership and would reduce the balance of non-controlling interest and increase the balance of additional paid-in capital.

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There were no impairment indicators in the year ended December 31, 2022, 2021 and 2020.

Claims Recover y

The Company’s primary income-producing activities are associated with the pursuit and recovery of proceeds related to Claims recovery rights that the Company obtains through CCRAs, in which it becomes the owner of those rights.

Claims Recovery

As a result, such income is not generated from the transfer of control of goods or services to customers, but from the proceeds realized from perfection of Claims recoveries from rights the Company holds outright.

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Claims recovery income

The Company recognizes Claims recovery income based on a gain contingency model –

that is, when the amounts are reasonably certain of collection.

The Company recognizes Claims recovery income based on a gain contingency model—that is, when the amounts are reasonably certain of collection.

This typically occurs upon reaching a binding settlement or arbitration with the counterparty or when the legal proceedings, including any appellate process, are resolved.

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and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

The Company derives revenues from contracts with customers primarily from Claims recovery services arrangements (“Claims recovery services”).

Claims recovery services include services to related parties or third parties to assist those entities with pursuit of Claims recovery rights.

The Company has determined it has a single performance obligation for the series of daily activities that comprise Claims recovery services, which are recognized over time using a time-based progress measure and are typically based on (1) budgeted expenses for the current month with an adjustment for the variance between budget and actual expenses from the prior month or (2) on

a contingent basis dependent on actual settlements or resolved litigation.

Amounts estimated and recognized, but not yet fully settled or resolved as part of litigation are recognized as contract assets.

There were no contract assets on December 31, 2022 or December 31, 2021, as amounts associated with unresolved litigation were fully constrained.

There were no contract assets as of December 31, 2023 or 2022, as amounts associated with unresolved litigation were fully constrained.

Claims recovery services are generally paid in advance on a monthly basis.

The Company did not recognize any material revenue for the year ended December 31, 2022 and 2021 for performance obligations that were fully satisfied in previous periods.

For the year ended December 31, 2022 and 2021, the majority of the Company’s Claims recovery service income was related to a servicing agreement with VRM MSP, which was entered into on March 27, 2018.

The Company did not recognize any material revenue for the years ended December 31, 2023, 2022, or 2021 for performance obligations that were fully satisfied in previous periods.

For the years ended December 31, 2022 and 2021, the majority of the Company’s Claims recovery service income was related to a servicing agreement with VRM MSP, which was entered into on March 27, 2018.

There was no claims recovery service income from VRM MSP for the year ended December 31, 2023.

As part of the Business Combination, the Company acquired rights to cash flows in the assets, after certain required returns to VRM MSP, that had been part of the servicing agreement.

As part of this acquisition, the Company no longer receives service income from this agreement and consolidates the entity in which the Company acquired rights to cash flow in the assets as outlined in Note 4, Asset Acquisitions .

For the year ended December 31, 2022, the Company also recogni zed $ 5.0 million of servicing income related to a specific contract where the performance obligations were completed during the year.

For the year ended December 31, 2022 , the Company also recognized $ 5.0 million of servicing income related to a specific contract where the performance obligations were completed during the year.

The Company does not have material unfulfilled performance obligation balances for contracts with an original length greater than one year in any years presented.

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These arrangements are recognized as debt based on the proceeds received, and are imputed an interest rate based on the expected timing and amount of payments to achieve contractual hurdles.

These are subject to revisions of estimates of that timing and amount based on the contractual provisions and the Company’s assumptions from changes in facts and circumstances.

Such changes are reflected through revision of the imputed interest rate on a cumulative catch-up basis.

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For further details on CCRAs see Note 7, Intangible Assets, Net .

Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid.

As a result of the Business Combination, the Company became the sole

managing member of MSP Recovery, LLC, which is treated as a partnership for U.S.

Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid.

As a result of the Business Combination, the Company became the sole managing member of MSP Recovery, which is treated as a partnership for U.S.

federal, state and local income tax purposes.

As a partnership, MSP Recovery, LLC is not subject to U.S.

As a partnership, MSP Recovery is not subject to U.S.

federal and certain state and local income taxes.

Any taxable income or loss generated by MSP Recovery, LLC is passed through to and included in the taxable income or loss of its partners, including MSP Recovery, Inc.

Any taxable income or loss generated by MSP Recovery is passed through to and included in the taxable income or loss of its partners, including MSP Recovery, Inc.

The Company is subject to U.S.

federal income taxes, in addition to state and local income taxes, with respect to the Company’s allocable share of income of MSP Recovery, LLC.

The Company’s deferred tax balances reflect the impact of temporary differences between the carrying amount of assets and liabilities and the Company’s tax basis.

The balances are stated at the tax rates in effect when the temporary differences are expected to be recovered or settled.

The Company reviewed the anticipated future realization of the tax benefit of the Company's existing deferred tax assets and concluded that it is more likely than not that all of the deferred tax assets will not be realized in the future.

The Company reviewed the anticipated future realization of the tax benefit of the Company’s existing deferred tax assets and concluded that it is more likely than not that all of the deferred tax assets will not be realized in the future and recorded a full valuation allowance.

Comprehensive Income (Loss)

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New Accounting Pronouncements Recently Adopted

In February 2016, the FASB issued ASU 2016-02, Leases , to increase transparency and comparability among organizations by recognizing right of use assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

In July 2018, ASU 2018-10 , Codification Improvements to ASC 2016-02 , Leases , was issued to provide more detailed guidance and additional clarification for implementing ASU 2016-02.

Furthermore, in July 2018, the FASB issued ASU 2018-11, Leases:

Targeted Improvements , which provides an optional transition method in addition to the existing modified retrospective transition method by allowing a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption.

Furthermore, in March 2020, ASU 2020-03, Codification Improvements to Financial Instruments, Leases , was issued to provide more detailed guidance and additional clarification for implementing ASU 2016-02.

Additionally, on June 3, 2020, the FASB deferred by one year the effective date of the new leases standard for private companies, private not-for-profits and public not-for-profits that have not yet issued (or made available for issuance) financial statements reflecting the new standard.

Furthermore, in June 2020, ASU 2020-05, Revenue from Contracts with Customers and Leases , was issued to defer effective dates of adoption of the new leasing standard for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

The Company adopted this guidance utilizing the cumulative catch-up method with an effective date of January 1, 2022 and it had no material impact on our consolidated financial statements.

The Company has made an accounting policy election to not to recognize right of use assets and lease liabilities that arise from short term lease as defined as leases with initial terms not in excess of 12 months.

As of December 31, 2022, the Company did not have any leases in excess of 12 months.

See Note 8, Short Term Leases , for more information.

ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) .

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) .

This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021.

The Company adopted this guidance on January 1, 2022 and it had no material impact on our consolidated financial statements.

ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

The amendments in this Update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

This standard is effective for all entities as of March 12, 2020 through December 31, 2022.

Early adoption is permitted.

The Company adopted this guidance on January 1, 2022 and it had no material impact on our consolidated financial statements.

ASU 2020-06, Debt —

Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging —

Contracts in Entity's Own Equity (Subtopic 815- 40):

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity .

On August 5, 2020, the FASB issued ASU 2020-06, Debt —

Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging —

Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity .

The amendments simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity.

The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021.

Early adoption is permitted.

The Company adopted this guidance on January 1, 2022 and it had no material impact on our consolidated financial statements.

ASU 2022-03, Fair Value Measurement (Topic 820) - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions .

On June 30, 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) - Fair Value Measurement of

Equity Securities Subject to Contractual Sale Restrictions .

The amendment clarifies that contractual sale restrictions should not be considered when measuring the equity security's fair value and prohibits an entity from recognizing a contractual sale restriction as a separate unit of account.

The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024 .

Early adoption is permitted.

The Company adopted this guidance in June 2022 , which resulted in the Company recognizing the assets acquired as part of the Business Combination at values that were not discounted for contractual sale restrictions, which had a material impact on the Company's consolidated financial statements in relation to the asset acquisitions as noted in Note 4, Asset Acquisitions .

New Accounting Pronouncements Issued but Not Yet Adopted

ASU 2016-13, Financial Instruments –

Credit Losses (Topic 326):

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses .

In 2016 and subsequently, the FASB issued ASU 2016-13, Financial Instruments –

Credit Losses (Topic 326):

In 2016 and subsequently, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments including subsequent amendments to the initial guidance :

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This ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

While the Company does not anticipate the implementation would have a material effect on the Company’s consolidated operating results, cash flows, financial condition and related disclosures, the Company is currently evaluating the effect that implementation of this standard will have.

The Company adopted this guidance on January 1, 2023 and it had no material impact on our consolidated financial statements.

New Accounting Pronouncements Issued but Not Yet Adopted

ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

Among other requirements, this update adds specific disclosure requirements for income taxes, including:

(1) disclosing specific categories in the rate reconciliation and (2) providing additional information for reconciling items that meet quantitative thresholds.

The guidance is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years.

Early adoption is permitted.

The Company is currently evaluating the effect that implementation of this standard will have on the Company’s consolidated financial statements and disclosures.

BUSINESS COMBINATION

On May 23, 2022, MSP Recovery, Inc.

consummated the Business Combination pursuant to the MIPA as noted in Note 1.

As a result of the closing of the Business Combination (the “Closing”), the Company is organized in an “Up-C”

structure in which all of the business of Legacy MSP and its subsidiaries is held directly or indirectly by the Company, the Company is the managing member, consolidates Legacy MSP and the Company owns all of the voting economic Class A Units and the Members and their designees own all of the non-voting economic Class B Units in accordance with the terms of the first amended and restated limited liability company agreement of the Company.

Each Up-C Unit may be exchanged for either, at the Company’s option, (a) cash or (b) one share of Class A common stock, par value $ 0.0001 , of the Company (“Class A Common Stock”), subject to the provisions set forth in the LLC Agreement.

On May 23, 2022 (the “Closing Date”), MSP Recovery, Inc.

Ruiz, in his capacity as the representative of the Members (the “Members’ Representative”).

The Up-C Units are convertible into Class A Common Stock of the Company at the discretion of the holder of the Up-C Unit.

Subsequent to the Closing Date, the Company’s sole asset is its equity interest in MSP Recovery, LLC.

The Company is the managing member and therefore consolidates Legacy MSP.

As a result of the closing of the Business Combination (the “Closing”), the Company is organized in an “Up-C” structure in which all of the business of Legacy MSP and its subsidiaries is held directly or indirectly by the Company, the Company is the managing member, consolidates Legacy MSP and the Company owns all of the voting economic Class A Units and the Members and their designees own all of the non-voting economic Class B Units in accordance with the terms of the first amended and restated limited liability company agreement of the Company.

The aggregate consideration paid to the Members (or their designees) at the Closing consisted of (i) 1 30,000,000 Units and (ii) rights to receive payments under the Tax Receivable Agreement (“TRA”).

Of the 3,250,000,000 Units, 3,154,473,292 Units were issued in connection with the Closing and 95,526,708 Units were designated to the Company and Opco for cancellation (“Canceled Units”).

Of the 1 30,000,000 Units, 126,178,932 Units were issued in connection with the Closing and 3,821,068 Units were designated to the Company and Opco for cancellation (“Canceled Units”).

Since the Closing, the Company has issued 2,000,880 Up-C Units to certain designated persons and intends to further issue shares of Class A Common Stock in respect of transaction-related bonuses or certain other designated persons, which together with the 2,000,880 Up-C Units would be equivalent in number to the Canceled Units.

In connection with the Closing, the Company changed its name from “Lionheart Acquisition Corporation II”

to “MSP Recovery, Inc.”

The Business Combination is accounted for as a reverse recapitalization in accordance with GAAP.

Under this method of accounting, the Company is treated as the acquirer for financial statement reporting purposes.

In connection with the Closing, the Company changed its name from “Lionheart Acquisition Corporation II” to “MSP Recovery, Inc.” The Business Combination is accounted for as a reverse recapitalization in accordance with GAAP.

Under this method of accounting, the Company is treated as the acquired for financial statement reporting purposes.

The reverse recapitalization was treated as the equivalent of Legacy MSP issuing stock for the net assets of LCAP, accompanied by a recapitalization.

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Pursuant to the terms of the Existing Warrant Agreement, and after giving effect to the issuance of the New Warrants, as defined below, the exercise price of the Public Warrants decreased to $ 0.0025 per share of Class A Common Stock.

During the period from the Closing Date to December 31, 2022, approximately 8.5 million warrants of the orig inal 11.8 million warrants had been exercised.

For the year ended December 31, 2022, the fair value of the warrants increased resulting in other expense of $ 2.9 million.

F ollowing anti-dilution adjustments made in connection with the Business Combination, the Public Warrants have an exercise price of $ 0.0001 per share, which have become exercisable as of 10 days after closing of the Business Combination, on a cashless basis.

During the period from the Closing Date to December 31, 2023 , approximately 8.9 million war rants of the orig inal 11.8 million warrants had been exercised.

For the year ended December 31, 2023, the fair value of the remaining unexercised warrants decreased resulting in other income of $ 4.8 million, which is recorded within change in fair value of warrant and derivative liabilities in the consolidated statements of operations.

F ollowing anti-dilution adjustments made in connection with the Business Combination, the Public Warrants have an exercise price of $ 0.0025 per share, which have become exercisable as of 10 days after closing of the Business Combination, on a cashless basis in lots of 25.

Additionally, in connection with the Business Combination, the Company declared the New Warrant Dividend comprising approximately 1,028 million New Warrants payable to the holders of record of the Class A Common Stock as of the close of business on the Closing Date, after giving effect to the waiver of the right, title and intere st in, to or under, participation in any such dividend by the Members, on behalf of themselves and any of their designees.

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Pursuant to the terms of the LLC Agreement, at least twice a month, to the extent any New Warrants have been exercised in accordance with their terms, the Company is required to purchase from the MSP Principals, proportionately, the number of Up-C Units or shares of Class A Common Stock owned by such MSP Principal equal to the Aggregate Exercise Price divided by the Warrant Exercise Price in exchange for the Aggregate Exercise Price.

The Company determined that the New Warrants instruments meet the equity scope excepti on in ASC 815 to be classified in stockholders’

equity, and as the repurchase right noted above has a mirrored value designed to offset the New Warrants, if exercised would be an equity only transaction.

The New Warrants are each exercisable for one share of Class A Common Stock at an exercise price of $ 11.50 per share and will be subject to certain anti-dilution adjustments and become exercisable 30 days following the Closing, expiring five years from the date of Closing.

Public Warrants and New Warrants are currently listed on Nasdaq under the symbols “LIFWZ”

and “LIFWW”, respectively.

The Company determined that the New Warrants instruments meet the equity scope excepti on in ASC 815 to be classified in stockholders’ equity, and as the repurchase right noted above has a mirrored value designed to offset the New Warrants, if exercised would be an equity only transaction.

The New Warrants are each exercisable in lots of 25 for one whole share of Class A Common Stock at a Reverse Split adjusted exercise price $ 287.50 per whole share.

The New Warrants must be exercised in lots of 25, as no fractional shares will be issued as a result of their exercise.

The New Warrants are subject to certain anti-dilution adjustments.

Public Warrants and New Warrants are currently listed on Nasdaq under the symbols “LIFWZ” and “LIFWW,” respectively.

Tax Receivable Agreement

In connection with the Business Combination, the Company also entered into a TRA.

Pursuant to the TRA, the Company is required to pay the sellers 85 % of the amount of tax benefits that the Company actually realizes as a result of (i) the Company’s direct and indirect allocable share of existing tax basis acquired in the Business Combination, (ii) increases in the Company’s allocable share of existing tax basis and tax basis adjustments that will increase the tax basis of the tangible and intangible assets of the Company as a result of the Business Combination and as a result of sales or exchanges of Up-C Units for cash or shares of Class A Common Stock, and (iii) certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA.

During the year ended December 31, 2022, the Company’s TRA liability associated with the allocable share of existing tax basis acquired in the Business Combination would give rise to a TRA liability of $ 2.5 million.

Furthermore, during the year ended December 31, 2022, 6,493,798 of Class V units were exchanged for Class A common stock of the Company, which will result in an increase in its share of the tax basis in the net assets of MSP Recovery, LLC;

these exchanges will not give rise to a TRA liability due to the Company not receiving a tax basis adjustment that increased the tax basis of the tangible and intangible assets as a result of a limitation on the partnership tax allocations of built-in gains and losses.

In connection with the Business Combination, the Company also entered into a Tax Receivable Agreement (the “TRA”) .

During the years ended December 31, 2023 and 2022, the Company’s TRA liability associated with the allocable share of existing tax basis acquired in the Business Combination would give rise to a TRA liability of $ 11.3 million and $ 2.5 million, respectively.

The Company has not recognized such liabilities under the TRA after concluding it was not probable that the Company will be able to realize the remaining tax benefits based on estimates of future taxable income.

No payments were made to the Continuing Equity Owners and Blocker Shareholders (as defined in the TRA) pursuant to the TRA during the years ended December 31, 2023, or 2022.

The estimation of liability under the tax receivable agreement is by its nature imprecise and subject to significant assumptions regarding the amount, character, and timing of the taxable income of MSP Recovery, Inc.

in the future.

We may incur additional liabilities under the TRA when Lionheart II Holdings, LLC are exchanged in the future.

If the valuation allowance recorded against the deferred tax assets applicable to the tax attributes subject to the TRA is released in a future period, the relating TRA liability may be considered probable at that time and recorded within earnings.

The Company has assessed the realizability of the net deferred tax assets and, in that analysis, has considered the relevant positive and negative evidence available to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The Company has recorded a full valuation allowance against the deferred tax assets as of December 31, 2022, which will be maintained until there is sufficient evidence to support the reversal of all or some portion of these allowances.

As the tax benefits associated with the TRA have not be recognized, based on estimates of future taxable income, the Company has concluded it is not probable to recognize any tax receivable agreement liability.

The Company has recorded a full valuation allowance against the deferred tax assets as of December 31, 2023 and 2022, which will be maintained until there is sufficient evidence to support the reversal of all or some portion of these allowances.

As the tax benefits associated with the TRA have not be recognized, based on estimates of future taxable income, the Company has concluded it is not

probable to recognize any tax receivable agreement liability.

If the valuation allowance recorded against the deferred tax assets is released in a future period, the Tax Receivable Agreement liability may be considered probable at that time and recorded within earnings.

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See Note 12, Noncontrolling Interest , for more information on ownership interests in the Company.

Nomura Promissory Note

Amended and Restated Nomura Promissory Note

On May 27, 2022, the Company issued an unsecured promissory note to Nomura in a principal amount of approximately $ 24.5 million related to advisory fees and deferred underwriting fees and expenses that became due and payable by the Company to Nomura, in connection with the consummation of the Business Combination.

On April 12, 2023, the Company amended the promissory note, increasing the principal amount to approximately $ 26.3 million and extending the maturity date of the promissory note to September 30, 2024 .

The amended note carries an interest rate of 16 % per annum and is payable in kind or in cash, at the Company's discretion, every 30 calendar days after April 12, 2023.

Upon two days prior written notice to Nomura, the Company may prepay all or any portion of the then outstanding principal amount under the promissory note together with all accrued and unpaid interest thereon .

On November 13, 2023, the Company entered into another Amended and Restated Nomura Promissory Note to (a) increase the principal amount to approximately $ 28.9 million, (b) extend the maturity date to December 31, 2024 , and (c) permit the Company to use the proceeds of an at-the-market offering to repay indebtedness incurred by the Company for which the proceeds are used for operating expenses, subject to certain enumerated restrictions.

On March 26, 2024, the Company further amended and restated the Amended and Restated Nomura Promissory Note (the “Amendment to the Amended and Restated Nomura Promissory Note”) to (a) increase the principal amount to approximately $ 30.0 million, and (b) extend the maturity date to September 30, 2025 .

The Amended and Restated Nomura Promissory Note carries an interest rate of 16 % per annum and is payable in kind or in cash, at the Company’s discretion, every 30 calendar days after March 26, 2024.

The balance of the unsecured promissory note and related interest are included within Claims financing obligations and notes payable in the consolidated balance sheet.

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On May 23, 2022 as part of the Closing of th e Business Combination, the Company acquired assets through the issuance of Up-C Units.

In exchange for approximately 196.6 million Up-C units, the Company acquired CCRAs previously held by Series MRCS, an affiliate of MSP.

The CCRAs are included as I ntangible Assets, net in the consolidated balance sheet.

The CCRAs are held at cost, which was determined using the opening market price of the Company's Class A shares as of the day subsequent to the Closing Date discounted by 4.5 % for lack of marketability due to timing before shares are sellable.

The Company determined the appropriate measurement date was the opening of the first trading day of the Class A shares after the Closing Date as this reflects the equivalent value of the Up-C units provided to the sellers.

The Up-C units provided to the sellers did not include New Warrants and as such the Class A shares value excluding the New Warrants was reflected at the Close of the first trading day after the Closing Date.

The CCRAs are treated as finite life intangible a ssets similar to other CCRAs that the Company has acquired and have a useful life of 8 years.

For further details on this CCRA acquisition, see Note 7, Intangible Assets, Net .

In exchange for approximately 7.9 million Up-C Units (after giving effect to the Reverse Split), the Company acquired Claims previously held by Series MRCS, an affiliate of the Company.

The Claims are included as I ntangible Assets, net in the consolidated balance sheet.

The Claims are held at cost, which was determined using the opening market price of the Company’ s Class A Common Stock as of the day subsequent to the Closing Date discounted by 4.5 % or lack of marketability due to timing before shares are sellable.

The Company determined the appropriate measurement date was the opening of the first trading day of the Class A Common Stock after the Closing Date as this reflects the equivalent value of the Up-C Units provided to the sellers.

The Up-C Units provided to the sellers did not include New Warrants, and as such, the Class A Common Stock value excluding the New Warrants was reflected at the Close of the first trading day after the Closing Date.

The Claims are treated as finite life intangible a ssets similar to other Claims that the Company has acquired and have a useful life of eight years.

For further details on this Claims acquisition, see Note 7, Intangible Assets, Net .

On May 23, 2022 as part of the Closing of the Business Combination, the Company acquired assets through the issuance of Up-C Units.

In exchange for approximately 356.8 million Up-C units, the Company acquired the rights to receive the distributable net proceeds (the "Proceeds") of a portfolio of Claims owned by VRM MSP, a Delaware limited liability company and joint investment vehicle of VRM and Series MRCS.

In exchange for approximately 14.3 million Up-C Units (after giving effect to the Reverse Split), the Company acquired the rights to receive the distributable net proceeds (the “Proceeds”) of a portfolio of Claims owned by VRM MSP, a Delaware limited liability company and joint investment vehicle of VRM and Series MRCS.

Under this asset acquisition structure, the Company determined that the arrangements to acquire the rights to proceeds from certain Claims recovery rights along with the guarantee of the VRM Full Return (noted and defined below) result in the Company consolidating the Series.

Upon consolidation, the Company included the value of the Up-C Units provided and the value of the guarantee as Intangible Assets, net in the consolidated balance sheet.

These are held at cost and treated as finite life intangible assets similar to other CCRAs that the Company has acquired and have a useful life of 8 years.

These are held at cost and treated as finite life intangible assets similar to other CCRAs that the Company has acquired, and have a useful life of eight years .

In connection with such transaction the Company agreed to pay Virage an amount equal to the contributions by Virage to VRM MSP plus an annual rate of return of 20 % (the “VRM Full Return”).

Pursuant to the terms of the agreement with Virage, such amount is payable exclusively by any of the following means (or any combination thereof):

(a) the Proceeds, (b) a sale of certain reserved shares of Messrs.

(a) the Proceeds, net of expenses related to claim settlement, (b) a sale of certain reserved shares of Messrs.

John Ruiz and Frank Quesada, and the delivery of the resulting net cash proceeds thereof to VRM, or (c) a sale of shares by the Company and delivery of the net cash proceeds thereof to VRM.

The amount of the VRM Full Return was $ 941.3 million as of December 31, 2023.

Upon payment of the VRM Full Return, VRM and Series MRCS would assign and transfer to the Company their respective rights to receive all Proceeds.

As the Company incurred debt related to the VRM Full Return as included in the guarantee obligation within the consolidated balance sheet, this value was included in the purchase price and is included in Intangible Assets, net, in the consolidated balance sheet for the full value of the VRM Full Return at the acquisition date.

As the Company incurred debt related to the VRM Full Return as included in the guaranty obligation within the consolidated balance sheet, this value was included in the purchase price and is included in Intangible Assets, net, in the consolidated balance sheet for the full value of the VRM Full Return at the acquisition date.

Any subsequent interest accrual is reflected within interest expense in the consolidated statement of operations.

Separately, the VRM Full Return was guaranteed by Messrs.

John Ruiz and Frank Quesada for any remaining required payment of the VRM Full Return as of May 23, 2023.

On April 12, 2023, the Company entered into an amendment (the "Virage MTA Amendment") to the agreement with Virage pursuant to which the payment date for the VRM Full Return was extended from May 23, 2023 until September 30, 2024, subject to acceleration upon certain triggering events.

See Note 19, Subsequent Events .

On April 12, 2023, the Company and Messrs.

Quesada and Ruiz entered into an amendment (the “Virage MTA Amendment”) to the agreement with Virage and the related Guaranty pursuant to which the payment date for the VRM Full Return was extended from May 23, 2023 until September 30, 2024, subject to acceleration upon certain triggering events.

On November 14, 2023, the maturity date was extended to December 31, 2024.

In addition, the Virage MTA Amendment changed the payment methods to Virage to exclusively be, in the following order of priority:

(a) the Proceeds and any other sources of revenue or liquidity of the Company (and its subsidiaries) that are not encumbered by a lien of a party other than Virage and to the extent such revenues and liquidity exceed the amount of net of revenues necessary to establish and maintain an operating reserve of $ 70.0 million (reduced to $ 47.5 million on July 24, 2023) for certain Company expenses, (b) a sale of certain reserved shares of Messrs.

John Ruiz and Frank Quesada, and the delivery of the resulting net cash proceeds thereof to VRM, (c) Parent’s sale of additional shares and delivery of proceeds to Virage, subject to certain anti-dilution provisions, (d) if not satisfied by the foregoing, a sale of other shares of the Company by Messrs.

John Ruiz and Frank Quesada, and the delivery of the resulting net cash proceeds thereof to VRM;

provided that if the VRM Full Return is not fully paid by September 30, 2024 the VRM Full Return shall be payable by any of such payment methods in any order of priority.

As a part of the Virage MTA Amendment, on January 1, 2024, the Company will be required to make a one-time, lump sum payment to Virage for the period starting May 24, 2023 and ending December 31, 2023, in one or a combination of:

(a) cash, in an amount equal to 1.0% of each calendar month-end balance (which month-end balance shall be increased daily up to 20% per annum based on a formula set forth in the Virage MTA Amendment) of the amount owing to Virage as of each preceding calendar month end and/or (b) warrants to purchase Class A common stock at $ 0.0001 per share, in an amount equal to the quotient of 1.0% of each calendar month-end balance (which month-end balance shall be increased daily up to 20% per annum based on a formula set forth in the Virage MTA Amendment) of the amount owing to Virage as of each preceding calendar month end and the volume weighted average price of a share of our Class A common stock for the five day period prior to the issuance.

If paid in warrants, such warrants will expire on January 1, 2026 .

On November 13, 2023, the Company entered into the Second Virage MTA Amendment that extended the final payment date of the VRM Full Return to December 31, 2024, subject to acceleration upon certain triggering events.

In addition, the Second Virage MTA Amendment (a) changed the minimum operating reserve from $ 47.5 million to the budget of the Company (plus applicable taxes) plus 10 % and (b) required Virage and the Company negotiate and agree on a form of initial warrant and monthly warrant by no later than December 31, 2023.

Accordingly, the Company issued the VRM Warrants.

The Initial Virage Warrant, as amended, was issued effective January 1, 2024 and entitles Virage to purchase 28,298,329 shares of Class A Common Stock, with an expiration date of January 1, 2026 .

Further, as of April 5, 2024, Monthly Virage Warrants were issued for February 2024 entitling Virage to purchase 8,263,494 shares, March 2024 entitling Virage to purchase 11,955,994 shares, and April 2024 entitling Virage to purchase 13,556,181 shares .

Until our obligations to Virage are paid in full, the Company has the option every month to continue to pay Virage in one or a combination of:

On April 1, 2024, the Company entered into the Third Virage MTA Amendment which:

(i) extended the VRM Full Return payment due date to September 30, 2025, subject to acceleration upon certain triggering events, including the receipt of a going concern opinion by the Company’s independent auditor;

and (iii) commence the sale of certain reserved shares of Messrs.

Ruiz and Frank C.

Quesada, and the delivery of the resulting net cash proceeds thereof to VRM.

On July 28, 2023, VRM exercised its option to exchange Claims with service dates prior to January 1, 2014 for more recent Claims.

To do so, the VRM MSP agreement was amended to reflect that:

(a) rights to recovery proceeds arising from Claims held by VRM MSP, with dates of service before January 1, 2014, were transferred to MSP Recovery;

(b) MSP Recovery contributed to VRM MSP in the form of in-kind ownership interests to certain Series entities holding Claims;

and (c) as a result of such capital contributions, MSP Recovery was admitted as a member of VRM MSP.

The contribution of certain Series (holding certain CCRAs) by MSP Recovery into VRM MSP is considered a common control transaction, given that the Company consolidates Series before and after such transfers.

In addition, the Company analyzed being admitted as a member of VRM MSP and concluded to apply Investments in Equity Method guidance under ASC 323.

The Company initially measured and recorded its equity method investment in VRM MSP using a cost accumulation model;

however, in consolidation, the investment in VRM MSP is eliminated, with the CCRA intangible assets remaining on the balance sheet under the “Intangible assets”

The investment in VRM MSP will reflect a zero balance.

In addition, given VRM MSP’s primary assets are the CCRAs, VRM MSP’s ability to generate any earnings (not already reported via MSP Recovery consolidation of Series), is negligible;

therefore, MSP Recovery does not expect any significant earnings from VRM MSP.

Hazel Transactions

Claims Transactions and Purchase Money Loan

On March 29, 2023, the Company acquired a controlling interest in nine legal entities, whose sole assets are CCRAs, from Hazel.

This is referred to as the “Claims Purchase.” The purchase price for the Claims Purchase was funded by (i) a purchase money loan between Hazel, as a lender, and the Company, as a borrower, in the amount of $ 250 million (the “Purchase Money Loan”) and (ii) proceeds from the sale of certain, separate CCRAs in the Claims Sale (as defined below).

Also, on March 29, 2023 , the Company sold a controlling interest in three legal entities whose sole assets are CCRAs to Hazel.

The agreement provided that the Company and Hazel would share in the recovery proceeds therefrom, in accordance with an agreed waterfall after Hazel had realized the first $ 150 million in claims recoveries.

This transaction is referred to as the “Claims Sale,” and together with the Claims Purchase, the “Claims Transactions.”

As the Claims Transactions were negotiated together in contemplation of one another, they have been combined for accounting purposes.

The Company analyzed the Claims Sale and determined that this transaction would be treated as the sale of in-substance nonfinancial assets, in exchange for noncash consideration in the form of the CCRAs from the Claims Purchase measured at fair value.

The variable consideration related to future recoveries is fully constrained, because, at this time, it is not probable that any amounts will be owed above the $ 150 million recovery threshold that would trigger additional payments.

The Company analyzed the Claims Purchase and determined it results in the initial consolidation of variable interest entities that are not businesses.

The acquired CCRAs held by those entities are recognized at fair value.

The fair value of the assets sold in the Claims Sale was determined to be $ 45.5 million.

The Company’s carrying value of those CCRAs surrendered was $ 40.9 million.

Because there are no other observable prices for such transactions, the Company determined the fair value by reference to the purchase price for those CCRAs in a recent transaction.

The fair value of the acquired CCRAs was determined to be $ 285.5 million, and the Company recognized the Purchase Money Loan recognized at $ 250 million, as any implicit discount or premium to current market rates at the time of issuance were insignificant.

This resulted in a gain on the Claims Transactions of $ 4.6 million, which largely corresponds to the previously recognized amortization of the CCRAs that were sold in the Claims Sale.

Amounts borrowed and obligations under the Purchase Money Loan and the Working Capital Credit Facility (See Note 11, Claims Financing Obligation and Note Payable ) are secured by a pledge of proceeds from specific Claims in the Company’s Claims portfolio, with the lien securing the Purchase Money Loan being subordinated and junior to the lien securing the Working Capital Credit Facility.

Pursuant to the Purchase Money Loan and the Working Capital Credit Facility, the Company entered into a collateral administrative agreement between the Company and Hazel, which sets forth certain arrangements between the Company and Hazel in relation to Claims owned by the Company, the proceeds of which are due to the Company were pledged to Hazel to secure the Purchase Money Loan and the Working Capital Credit Facility.

INVESTMENT IN EQUITY METHOD INVESTEES

The Company holds three investments which are accounted for using the equity method :

MAO-MSO Recovery II LLC Series PMPI (“Series PMPI”), MAO-MSO Recovery LLC and MAO-MSO Recovery II LLC (both collectively the “MAO-MSO entities”).

The Company holds four investments which are accounted for using the equity method :

MAO-MSO Recovery II LLC Series PMPI (“Series PMPI”), MAO-MSO Recovery LLC, MAO-MSO Recovery II LLC (both collectively the “MAO-MSO entities”) and VRM MSP.

Series PMPI is a series of MAO-MSO Recovery II LLC.

The Company exercises significant influence over the operating and financial activities of Series PMPI, but does not exercise control of the entity.

In accordance with Series PMPI’s operating agreement, the controlling member is entitled to a preferred return of 20 % per annum (the “Preferred Return”).

Once the Preferred Return has been met, the controlling member is entitled to 50 % of Claim s recoveries by PMPI.

The noncontrolling member is allocated 100 % of the costs of PMPI.

Since the Preferred Return exceeds the total members’

equity of PMPI as of both December 31, 2022 and December 31, 2021, the value of the equity method investment in the consolidated balance sheet is $ 0 .

Since the Preferred Return exceeds the total members’ equity of PMPI as of both December 31, 2023 and 2022, the value of the equity method investment in the consolidated balance sheet is $ 0 .

The MAO-MSO entities are Delaware limited liability companies formed as master series entities whose central operations are to form other series legal entities that will hold and pursue Claims recovery rights.

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The activity of these entities has been insignificant for the years ended December 31, 2023, 2022 and 2021.

Since the Company did not make a contribution to the MAO-MSO entities and the entities have recorded losses, the value of the equity method investment in the consolidated balance sheets is $ 0 as of both December 31, 2022 and December 31, 2021.

Summary financial information for equity accounted investees, not adjusted for the percentage ownership of the Company is as follows:

For the year ended,

Series PMPI (in thousands)

December 31, 2022

December 31, 2021

December 31, 2020

For the Year Ended December 31,

(in thousands)

Other expenses

Profit (Loss)

Series PMPI (in thousands)

December 31, 2022

December 31, 2021

As of December 31,

Total Liabilities

PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consist of the following:

In 2023, in connection with an amendment to the VRM MSP structure, the Company became a direct investor in VRM MSP, which controls MSP Recovery Claims, Series LLC, and recognizes this investment as an equity method investment.

However, the Company previously consolidated and continues to consolidate the underlying Series of MSP Recovery Claims, Series LLC, which hold investments in CCRAs that the Company controls as primary beneficiary under the VIE model.

As such, other than the Series, which were already consolidated, the investment in VRM MSP includes only administrative activities that are not otherwise consolidated, and any costs are allocable to the other investors.

As a result, the Company has no significant equity earnings or exposure to losses or obligations to fund this investment.

PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following:

(In thousands)

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Other software

Property, plant and equipment, gross

Property and equipment, gross

accumulated depreciation and amortization of software

Property, plant and equipment, net

For the years ended December 31, 2022, 2021 and 2020, depreciation expense and amortization expense was $ 424 thousand , $ 343 thousand and $ 235 thousand, respectively.

Property and equipment, net

For the years ended December 31, 2023, 2022 and 2021, depreciation expense and amortization expense was $ 0.3 million , $ 0.4 million , and $ 0.3 million , respectively.

INTANGIBLE ASSETS, NET

During the year ended December 31, 2022, the Company acquired CCRAs held by Series MRCS and consolidated CCRAs held by the Series.

The as sets were acquired through the issuance of equity as part of the Business Combination.

The assets are held at cost and treated as a finite intangible asset with a useful life of 8 years.

The Company holds CCRAs held by Series MRCS, which were acquired through the issuance of equity as part of the Business Combination in 2022 and additional acquisitions of additional CCRAs throughout 2022 and 2023 .

These assets are held at cost and treated as a finite intangible asset with a useful life of eight years .

Intangible assets, net consists of the following:

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Accumulated amortization

During the year ended December 31, 2022, in addition to the CCRAs acquired as part of the Business Combination the Company purchased $ 64.8 million of CCRAs included in Intangible assets, net, of which $ 2.7 million was paid in cash, $ 11.0 million was paid through Class A Common Stock issuance and $ 51.2 million is recorded within Other Current Liabilities in the consolidated balance sheet as of December 31, 2022 and will be paid through the issuance of Class A Common Stock.

The payment is due in the second quarter of 2023.

For the CCRAs acquired through equity issuance, the Company is required to provide additional shares or cash if the value of the shares provided is not equal to $ 10.0 million or greater within 1 year of issuance.

As such, the Company recorded a liability of $ 8.7 million within Other current liabilities in the consolidate balance sheet for the difference between $ 10.0 million and the fa ir value of the shares as of December 31, 2022.

For the years ended December 31, 2022, 2021 and 2020, Claims amortization expense was $ 266.9 million , $ 164 thousand , and $ 125 thousand, respectively.

During the year ended December 31, 2023, the Company purchased $ 287.0 million of CCRAs included in Intangible assets, net, of which $ 285.5 million was through the Hazel transaction (See Note 4, Asset Acquisitions ), $ 0.8 million was through a Class A Common Stock issuance in July 2023 and $ 0.7 million was paid in cash.

For the years ended December 31, 2023, 2022 and 2021, Claims amortization expense was $ 476.5 million , $ 266.9 million and $ 0.2 million , respectively.

Future amortization for CCRAs is expected to be as follows:

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CCRAs Amortization

SHORT TERM LEASES

The Company leases office space under a non-cancellable operating lease expiring November 2023 .

In addition, the Company rents an office space from the Law Firm, which is on a month-to-month basis and therefore is not included in the future minimum lease payme nts below.

Rent expense for the years ended December 31, 2022, 2021 and 2020 was $ 0.8 million , $ 0.8 million and $ 1.5 million , respectively.

With the adoption of ASC 842 as noted in Note 2, Basis of Presentation and Summary of Significant Accounting Policies , the Company has made an accounting policy election to capitalize leases with initial terms in excess of 12 months.

As of December 31, 2022 , the Company did no t have any leases in excess of 12 months.

The Company monitors intangible assets for potential impairment indicators, including, but not limited to, assumptions regarding the amount and timing of future collections derived from its CCRAs.

The Company continues to pursue recoveries from various parties under rights held through its CCRAs;

however, extended delays may result in future impairment of the Company’s intangible assets.

During the Company’s annual review of its CCRAs, the Company identified potential impairment indicators, such as recurring operating losses, which it considered in its evaluation of its definite-lived intangible assets.

As a result, the Company performed a recoverability analysis on the definite-lived CCRA intangible assets.

The recoverability analysis primarily included unobservable inputs, including internally developed assumptions about the estimated market share of insurance carriers that may not have paid claims due to Assignors, undiscounted cash flows of potential estimated recoveries from those carriers, the corresponding direct costs associated with those estimated recoveries, and the Company’s ability to successfully litigate or negotiate settlements.

In addition, the Company also took into consideration transactions of the sale of CCRAs to unrelated third parties.

Based on these analyses, the Company concluded that the undiscounted net recoveries were in excess of the CCRAs’ carrying amounts as of December 31, 2023.

As such, no impairment was recognized.

There are inherent risks in our business which could impact the recoverability analysis.

For example, litigation outcomes are inherently risky, and unfavorable court rulings, delays, damages calculations, or other limitations can adversely affect our recovery efforts.

In addition, the market share of the carriers that we pursue may change, which could impact the overall potential recoveries that we could generate in the future.

As a result, factors may change in the future that could negatively impact our recoverability of the CCRAs, and may result in a material impairment charge.

The following table presents the changes in the Company’s intangibles assets for year ended December 31, 2023:

(in thousands)

Intangible Assets

Balance as of December 31, 2022

Acquisitions of CCRAs

Amortization expense

Sale of CCRAs

The Company leases office space in Puerto Rico under a non-cancellable operating lease which commenced in September 2023 and expires August 2026 .

Prior to this lease, the Company held a short-term lease, therefore the Company recorded an initial ROU asset and lease liability upon signing the new lease agreement.

Lease expense under the new operating lease for year ended December 31, 2023 amounted to $ 52.6 thousand.

In addition, the Company rents an office space from the Law Firm, which is on a month-to-month basis and therefore is not included within the ROU Asset and Lease liability nor in the future minimum lease payments below.

Short-term rent expense each of the years ended December 31, 2023, 2022 and 2021 was $ 0.8 million .

As of December 31, 2023 , the weighted-average lease term and weighted-average discount rate were 2.6 years and 15.31 %, respectively.

The presentation of right-of-use assets and lease liabilities in the consolidated balance sheet is as follows:

(In thousands)

Classification

Right-of-use asset

Right-of-use assets

Total Leased Assets

Operating lease liability

Other current liabilities

Operating lease liability

Lease liabilities

Total Lease Liability

The future minimum lease payments under non-cancellable operating leases as of December 31, 2023 for the next five years and thereafter are as follows:

(in thousands)

Lease Payments

Year Ending December 31,

(1) Operating lease expires before or during the year ending December 31, 2023.

Total minimum payments required

implied interest

Present value of lease liabilities

The Company holds an economic interest in MSP Recovery, LLC and consolidates its financial position and results.

The remaining ownership of MSP Recovery, LLC not held by the Company is considered a noncontrolling interest.

MSP Recovery, LLC is treated as a partnership for income tax reporting and its members, including the Company, are liable for federal, state, and local income taxes based on their share of the LLC’s taxable income.

There was no provision for income tax for the years ended December 31, 2023, 2022, and 2021.

A reconciliation of the United States statutory income tax rate to the Company’s effective tax rate for the year ended December 31, 2022, 2021, and 2020 is as follows for the years indicated:

December 31, 2022

December 31, 2021

December 31, 2020

A reconciliation of the United States statutory income tax rate to the Company’s effective tax rate for the year ended December 31, 2023, 2022, and 2021 is as follows for the years indicated:

For the Year Ended December 31,

Federal Statutory rate

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Effective Income tax rate

Details of the Company’s deferred tax assets and liabilities at December 31, 2022 and 2021 are as follows for the years indicated:

December 31, 2022

December 31, 2021

Details of the Company’s deferred tax assets and liabilities at December 31, 2023 and 2022 are as follows for the years indicated:

As of December 31,

Deferred tax assets

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Transaction Costs

Interest Expense — 163j

Total deferred tax assets

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The Company has a deferred tax asset for the difference between the financial reporting and the tax basis of its investment in MSP Recovery, LLC.

The deferred tax asset above does not consider the iterative impact of the TRA liability as the entire liability has not been recorded as of December 31, 2022.

As of December 31, 2022 and 2021, the Company had $ 3,854,829 and $ 446,481 of U.S.

The deferred tax asset above does not consider the iterative impact of the TRA liability as the entire liability has not been recorded as of December 31, 2023 and 2022.

As of December 31, 2023 the Company had $ 4.3 million and $ 4.2 million of U.S.

gross federal and state net operating loss carryovers available to offset future taxable income, respectively.

As of December 31, 2022, the Company had $ 2.0 million and $ 1.9 million of U.S.

gross federal and state net operating loss carryovers available to offset future taxable income, respectively.

In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized.

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federal jurisdiction and Florida which remain open and subject to examination by the various taxing authorities.

As of December 31, 2022, the Company’s federal and state and local income tax years 2019 through 2022 remain open and are subject to examination.

As of December 31, 2023 , the Company’s federal and state and local income tax years 2020 through 2023 remain open and are subject to examination.

VARIABLE INTEREST ENTITIES

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Based on its evaluations, if the Company determines it is the primary beneficiary of such VIEs, it consolidates such entities into its financial statements.

VIEs information below is presented on aggregate basis based on similar risk and reward characteristics and MSP’s involvement with the VIEs.

The Company includes a number of entities that are determined to be VIEs and for which the common control group can direct the use of the entities’

assets and resources for other purposes.

The Company consolidates VIEs in which one of the combined entities is the primary beneficiary.

The assets of the consolidated VIEs may only be used to settle obligations of these VIEs and to settle any investors’

ownership liquidation requests.

There is no recourse to MSP for the consolidated VIEs’

The assets of the consolidated VIEs are not available to MSP’s creditors.

Total assets and liabilities included in its consolidated balance sheets for these VIEs were $ 2.3 billion and $ 0.4 million, re spectively, at December 31, 2022 and $ 9.7 million and $ 122.7 million, respectively, at December 31, 2021 .

The assets at December 31, 2022 include the Intangible Assets, net included in the Series of $ 2.3 billion.

VIEs information below is presented on aggregate basis based on similar risk and reward characteristics and the Company’s involvement with the VIEs.

The Company includes a number of entities that are determined to be VIEs and for which the common control group can direct the use of the entities’ assets and resources for other purposes.

The Company only consolidates those VIEs for which the Company is the primary beneficiary.

The assets of the consolidated VIEs may only be used to settle obligations of these VIEs and to settle any investors’ ownership liquidation requests.

There is no recourse to the Company for the consolidated VIEs’ liabilities.

The assets of the consolidated VIEs are not available to the Company’s creditors.

Total assets and liabilities included in its consolidated balance sheets for these VIEs were $ 2.2 billion and $ 0.4 million, respectively, at December 31, 2023 and $ 2.3 billion and $ 0.4 million, respectively, at December 31, 2022.

The assets at December 31, 2023 and 2022 include the Intangible Assets, net included in the Series of $ 2.0 billion and $ 2.3 billion, respectively.

Investments in unconsolidated Variable Interest Entities

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For MAO-MSO Recovery II, LLC and Series PMPI, MSP may be exposed to providing additional recovery services at its own cost if recovery proceeds allocated to it are insufficient to recover the costs of those services.

MSP does n ot have any other exposures or any obligation to provide additional funding.

MSP does not have any other exposures or any obligation to provide additional funding.

As discussed in Note 5, Investment in Equity Method Investees , the Company became a member of VRM MSP through the contribution of certain Series (holding certain CCRAs) by MSP Recovery into VRM MSP.

The Company determined, based on analysis of the rights to cash flows from the Series and the related guaranty obligation, that the Company is the primary beneficiary of the Series entities, and therefore should consolidate as of the transaction date.

The contribution is considered a common control transaction, as the Company controls and consolidated the Series before and after such contribution.

The Company consolidates the Series held within VRM MSP, however does not consolidate VRM MSP itself.

Refer to Note 5, Investment in Equity Method Investees , for additional information on this VRM MSP transaction.

CLAIMS FINANCING OBLIGATIONS AND NOTES PAYABLE

During the year ended December 31, 2022, the Company finalized an Amendment to Claim Proceeds Investment Agreement and a Warrant Agreement with Brickell Key Investments LP (the "Holder"), pursuant to which the parties have agreed to amend the original Claims Proceeds Investment Agreement ("CPIA") and required payment terms.

The Amendment and Warrant Agreement were executed effective September 30, 2022.

The maximum amount of Class A Shares that the Holder may purchase from the Company is 66,666,666 (the “Amount”) for a purchase price equal to $ 6,666.67 ($ 0.0001 per Class A Share) and is payable in cash.

This Warrant (the “Warrant”) will expire at 5:00 p.m.

Based on claims financing obligations and notes payable agreements, as of December 31, 2023 and 2022, the present value of amounts owed under these obligations were $ 556.3 million and $ 201.3 million , respectively, including capitalized interest.

The weighted average interest rate is 14.7 % based on the current book value of $ 556.3 million with rates that range from 0.0 % to 20.0 % .

The Company is expected to repay these obligations from cash flows from claim recovery income or potentially for the renegotiated debt through class A common stock issuances.

As of December 31, 2023, the minimum required payments on these agreements are $ 702.4 million .

Certain of these agreements have priority of payment regarding any proceeds until full payment of the balance due is satisfied.

The maturity of the commitments range from the date sufficient claims recoveries are received to cover the required return or in some cases by 2031.

Brickell Key Investments

In 2015, the Company entered into a Claims Proceeds Investment Agreement (“CPIA”), as amended, with Brickell Key Investments LP (the “Holder”).

Pursuant to the CPIA, as amended, the Company grants to the Holder the right to purchase Class A common shares in the Company (the “Class A Shares”) up to a maximum amount of 2,666,667 (the “Amount”) for a purchase price equal to $ 6,666.67 ($ 0.0025 per Class A Share), and is payable in cash.

This Warrant (the “Warrant”) will expire at 5:00 p.m.

(Eastern Time), on September 30, 2027 and may be exercised in whole or in part by Holder at any time prior to such date.

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If the Holder monetizes the Warrant, the amount owed will be reduced at a measure of $ 30.00 per Class A Share.

In connection with the Amendment and Warrant Agreement, the Holder also executed a Stock Pledge Agreement (the "Pledge Agreement") with MSP Founders, John H.

Ruiz and Frank Quesada (the "Founders").

As part of the agreement, the Founders agreed to pledge 50 million shares to secure payment of the original principal amount of the CPIA.

If the Holder were to receive amounts in excess of $ 80 million, the Founders would receive interest of 10 % on the original principal amount of the CPIA.

In connection with the Amendment and Warrant Agreement, the Holder also executed a Stock Pledge Agreement (the “Pledge Agreement”) with Legacy MSP founders, John H.

Ruiz and Frank C.

Quesada (the “Founders”).

As part of the Pledge Agreement, the Founders agreed to pledge 50 million shares to secure payment of the original principal amount of the CPIA.

In addition, the Pledge Agreement provides the right to repurchase the Warrant from the Holder on or before June 30, 2023.

The Founders entered into an agreement with the Company where this repurchase right has been assigned to the Company (the “Side Agreement”).

The Pledge Agreement and Side Agreement were executed effective September 30, 2022.

As the Company has, at its option, the ability to pay its obligation through cash proceeds or through monetization of the Warrants, the amount owed as of December 31, 2022 was included as Claims financing obligation and notes payable on the consolidated balance sheet.

Also, the liability related to the remaining amounts due was recorded as $ 80 million as of December 31, 2022 as the Company, at its option, has the ability to repurchase the Warrants for $ 80 million on or before June 30, 2023.

The resulting gain on debt extinguishment from the amendment was $ 63.4 million and was recorded in Other income (expense), net within the consolidated statement of operations for the year ended December 31, 2022.

Based on Claims financing obligations and notes payable agreements, as of December 31, 2022 and December 31, 2021, the present value of amounts owed under these obligations were $ 201.3 million and $ 201.4 million , respectively, including unpaid interest to date of $ 2.8 million and $ 94.5 million , respectively.

The weighted average interest rate is 6.3 % based on the current book value of $ 201.3 million with rates that range from 2 % to 11.04 % .

The Company is expected to repay these obligations from cash flows from Claim recovery income or potentially through class A common stock issuances.

As of December 31, 2022, the minimum required payments on these agreements are $ 354.9 million .

Certain of these agreements have priority of payment regarding any proceeds until full payment of the balance due is satisfied.

The maturity of the commitments range from the date sufficient Claims recoveries are received to cover the required return or in some cases by 2031.

Also, during 2020, the Company obtained funds under the Paycheck Protection Program (the “PPP Loan”) in the amount of $ 1.1 million.

Since the amount must be repaid unless forgiven in accordance with the Paycheck Protection Program, the Company accounted for the funds as debt under ASC 470.

As of December 31, 2022 and December 31, 2021, t he total amount of the PPP Loans have been forgiven.

As the Company has, at its option, the ability to pay its obligation through cash proceeds or through monetization of the Warrants, the $ 80.0 million of amounts owed as of December 31, 2023 was included as Claims financing obligation and notes payable on the consolidated balance sheet.

The Founders did not exercise the option to repurchase the Warrants on or before June 30, 2023.

The Company recognized the Warrants at fair value which, considering the price of the Company’s common stock was below $ 30.00 as of December 31, 2023 , it was determined to be zero .

Hazel Working Capital Credit Facility and Hazel Purchase Money Loan

On March 29, 2023 , the Company’s subsidiary, Subrogation Holdings, LLC, entered into an Amended and Restated Credit Agreement (the “Working Capital Credit Facility”) with Hazel Partners Holdings LLC (“HPH”), an affiliate of Hazel, as the lender and administrative agent, which provides for up to $ 80 million (with a 40 % original issue discount), consisting of a Term Loan A commitment to fund up to $ 30 million in proceeds (in multiple installments), and a Term Loan B Commitment to fund up to $ 18 million in proceeds (in multiple installments), the funding of each conditioned on certain milestones.

The amended terms to the Working Capital Credit Facility were memorialized in the Second Amended and Restated First Lien Credit Agreement dated November 10, 2023.

At different points during the year ended December 31, 2023, the Company received funding with an aggregate amount of $ 20.5 million under Term Loan A, which was then terminated.

The parties agreed to increase the Term Loan B commitment from $ 18 million to $ 27.5 million, after giving effect to the original issue discount on the Working Capital Credit Facility, which would be funded in multiple installments and in accordance with the terms of the Working Capital Credit Facility.

At different points during the year ended December 31, 2023, the Company received funding with an aggregate amount of $ 9.0 million under Term Loan B, and received an additional $ 4.5 million on January 25, 2024.

After considering the subsequent payment received, the Company has additional availability amounting to $ 14.0 million under Term Loan B.

Amounts borrowed and obligations under the Working Capital Credit Facility are secured by a pledge of proceeds from certain Claims in the Company’s Claims portfolio, with the lien securing the Purchase Money Loan being subordinated and junior to the lien securing the Working Capital Credit Facility.

Pursuant to the Second Amended and Restated First Lien Credit Agreement, and in order to secure those additional advances of Term Loan B beginning in January 2024, the following was provided as additional collateral:

(i) a pledge of proceeds from certain Claims in the Company’s Claims portfolio, up to $ 14 million;

(ii) a pledge of the equity interests in an Affiliate of Messrs.

John Ruiz and Frank Quesada;

and (iii) a personal guaranty by Messrs.

John Ruiz and Frank Quesada, as primary obligors, guaranteeing those additional advances of Term Loan B beginning in January 2024.

On December 22, 2023, our Board

approved the Company's payment of certain costs and fees (including legal fees) on behalf of John H.

Ruiz and Frank C.

Quesada, associated with a mortgage granted in connection with said guaranty, totaling $ 0.1 million .

In addition, as discussed in Note 4, Asset Acquisitions , on March 29, 2023 the Company entered into the Purchase Money Loan with Hazel in the amount of $ 250.0 million.

Loans under the Working Capital Credit Facility accrue interest at a Term Secured Overnight Financing Rate for 12-month interest period, plus an applicable margin of 10 % per annum.

Accrued interest on the Working Capital Credit Facility is payable in kind and will be capitalized.

The Working Capital Credit Facility has a stated maturity date of March 31, 2026 , and HPH may extend for up to one year in its sole discretion.

The Purchase Money Loan accrues interest at a rate of 20 % per annum, payable in kind or in cash at the Company’s discretion.

The Purchase Money Loan has a maturity date of March 31, 2026 , extendable up to one year in Hazel’s sole discretion.

The Company is permitted to prepay the loans under the Working Capital Credit Facility from time to time without prepayment premium.

Prepayment of the Purchase Money Loan will be permitted after the prepayment or repayment of loans under the Working Capital Credit Facility, and such prepayment of the Purchase Money Loan may be subject to prepayment penalty, as applicable.

The Purchase Money Loan and the Working Capital Credit Facility contain certain representations, warranties, and covenants of the Company and its subsidiaries, including restrictions on debt incurrence, liens, investments, affiliate transactions, distributions and dividends, fundamental changes, certain debt prepayments, and Claim settlement.

As discussed in Note 4, Asset Acquisitions , amounts borrowed and obligations under the Purchase Money Loan and the Working Capital Credit Facility are secured by a pledge of proceeds from certain Claims in the Company’s Claims portfolio, with the lien securing the Purchase Money Loan being subordinated and junior to the lien securing the Working Capital Credit Facility.

Pursuant to the Purchase Money Loan and the Working Capital Credit Facility, the Company entered into a collateral administrative agreement between the Company and HPH, which sets forth certain arrangements between the Company and HPH in relation to the management of the litigation of certain Claims owned by the Company, the proceeds of which are due to the Company, and were pledged to Hazel and HPH to secure the Purchase Money Loan and the Working Capital Credit Facility, respectively.

Amended and Restated Nomura Promissory Note

On April 12, 2023, the Company amended the promissory note to Nomura originally issued on May 27, 2022, which increased the principal amount to approximately $ 26.3 million and extended the maturity date of the promissory note to September 30, 2024 .

Pursuant to the Amended and Restated Promissory Note dated November 13, 2023, the Company amended the promissory note to Nomura to:

(a) increase the principal amount to approximately $ 28.9 million, (b) extend the maturity date to December 31, 2024 and (c) permit the Company to use the proceeds of an at-the-market offering to repay indebtedness incurred by the Company for which the proceeds are used for operating expenses, subject to certain enumerated restrictions.

On March 26, 2024, the Company further amended and restated the Amended and Restated Nomura Promissory Note (the “Amendment to the Amended and Restated Nomura Promissory Note”) to:

(a) increase the principal amount to approximately $ 30.0 million, and (b) extend the maturity date to September 30, 2025 .

Upon two days prior written notice to Nomura, the Company may prepay all or any portion of the then outstanding principal amount under the Amended and Restated Nomura Promissory Note together with all accrued and unpaid interest thereon.

Committed Equity Facility

Pursuant to the Yorkville Purchase Agreement, the Company had the right to sell to Yorkville from time to time at its option up to $ 1 billion in shares of the Company’s Class A Common Stock, subject to the terms, conditions and limitations set forth in the Yorkville Purchase Agreement.

On November 14, 2023, the Company entered into the Standby Equity Purchase Agreement (“Yorkville SEPA”) with Yorkville, which replaced the Yorkville Purchase Agreement described above.

For additional information on the Yorkville SEPA, refer to Note 1, Description of the Business - Yorkville Purchase Agreement and Yorkville Standby Equity Purchase Agreement.

NONCONTROLLING INTEREST

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Ownership Percentage

Ownership of Class A Common Units

Ownership of Class V Common Units

3,147,979,494

Ownership of Class A Common Stock

Ownership of Class V Common Stock

Balance at end of period

3,222,584,778

The non-controlling interest holders have the right to exchange Up-C Units, at the Company’s option, for (i) cash or (ii) one share of Class A Common Stock, subject to the provisions set forth in the LLC Agreement.

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As of December 31, 2023 , 2.6 million Up-C Units have exchanged into Class A shares.

In addition to the non-controlling interest related to Up-C Units, the Company also has non-controlling interests related to the Series as noted in Note 10, Variable Interest Entities, and MAO-MSO Recovery LLC Series FHCP (“FHCP”), which is a non-wholly owned subsidiary of MSP Recovery, LLC.

In accordance with FHCP’s operating agreement, the noncontrolling member is entitled to a preferred return of 20 % per annum (the “Preferred Return”).

In addition to the non-controlling interest related to Up-C Units, the Company also has non-controlling interests related to the Series as noted in Note 10, Variable Interest Entities , and MAO-MSO Recovery LLC Series FHCP (“FHCP”), which is a non-wholly owned subsidiary of MSP Recovery, LLC.

In accordance with FHCP’s operating agreement, the noncontrolling member is entitled to a preferred return of 20 % per annum (the “Preferred Return”).

Once the Preferred Return has b een met, the noncontrolling member is entitled to 80 % of Claims recoveries by FHCP.

The controlling member is allocated 100 % of the costs of FHCP.

Since the Preferred Return exceeds the total members’

equity of FHCP as of December 31, 2022 and December 31, 2021 , the non-controlling interest also includes $ 4.3 million representing the entire members’

equity of FHCP.

Since the Preferred Return exceeds the total members’ equity of FHCP as of both December 31, 2023 and 2022 , the non-controlling interest also includes $ 4.3 million representing the entire members’ equity of FHCP.

COMMITMENTS AND CONTINGENCIES

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These provisions, if any, are reviewed and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

Depending on the nature and timing of any such proceedings that may arise, an unfavorable resolution of a matter could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period.

As of December 31, 2022, there was no material pending or threatened litigation against us.

Depending on the nature and timing of any such proceedings that may arise, an unfavorable resolution of a matter could materially affect the Company’s future results of operations, cash flows or financial position in a particular period.

The Company pursues claims recoveries through settlement, arbitration and legal proceedings.

The accounting policy for these activities is discussed under Claims recovery income in Note 2, Basis of Presentation And Summary of Significant Accounting Policies .

Approximately 93 % of the Company's expected recoveries arise from Claims being brought under the Medicare Secondary Payer Act private cause of action (Section 1862(b)(3)(A) of the Social Security Act (42 U.S.C.

§ 1395y(b)(3)(A)).

A significant majority of the Company’s expected recoveries arise from Claims brought pursuant to the private cause of action under the Medicare Secondary Payer Act (“MSP Act”).

This law allows the Company to pursue recoveries against primary payers for reimbursement of medical expenses that the Company’s Assignors paid for when primary payers (i.e., liability insurers) were responsible for payment.

On May 16, 2023, Senators Tim Scott (R-SC) and Maggie Hassan (D-NH) and Representatives Brad Schneider (D-IL) and Gus Bilirakis (R-FL) introduced the Repair Abuses of MSP Payments Act (S.1607/H.R.3388) (the “RAMP Act”) in the U.S.

On May 16, 2023, the Repair Abuses of MSP Payments Act (the “RAMP Act”) was introduced in the U.S.

Senate and the U.S.

House of Representatives, respectively, seeking to amend the private cause of action under the Medicare Secondary Payer Act, by striking “primary plan”

and inserting “group health plan”

(as defined in paragraph 42 U.S.C.

§ 1395y(b)(1)(A)(v)).

The Medicare Secondary Payer Act’s private cause of action—a fundamental component of how the Company is able to calculate damages—incentivizes private parties, such as MSP Recovery, to pursue reimbursement of conditional payments by rewarding them with double damages.

If the Medicare Secondary Payer Act is changed, or if the RAMP Act were enacted to apply retroactively, it could

significantly reduce the Company's potential recoveries and have a material adverse effect on its business, financial condition, and results of operations.

RELATED PARTY

Loan from related parties

During the year ended December 31, 2022 , the Company issued an unsecured promissory note in an aggregate principal amount of $ 112.8 million ( the “Promissory Note”) to John H.

House of Representatives, respectively, seeking to amend the private cause of action under the Medicare Secondary Payer Act, by striking “primary plan” and inserting “group health plan” into the existing text.

As there is no indication that the RAMP Act is intended to be enacted retroactively, it should not have any effect on the recoverability of historical claims.

To the extent that the Company has recovery rights in claims that have not yet been sought, or to the extent that the Company is assigned additional claims that may otherwise have been entitled to recoveries under the MSP Act, the passing of the RAMP Act could impact the Company’s ability to pursue recoveries on those prospective claims.

Investigations

As previously disclosed, on August 11, 2022, the Securities and Exchange Commission (the “SEC”) initiated an investigation of the Company, and requested documents relating to, among other matters, the business combination transaction with Lionheart Acquisition Corporation II consummated on May 23, 2022, certain historical and projected financial results, investor agreements, and data analytic platforms and algorithms.

The Company received a subpoena dated March 1, 2023 from the SEC regarding the aforementioned subject matter, and subsequently received a subpoena on May 10, 2023, in connection with the investigation relating to, among other matters, the Company’s projections and the accounting and valuation of certain assets that were the basis for the Company’s determination that its quarterly financial statements for the periods ended June 30, 2022 and September 30, 2022 require restatements and should no longer be relied upon, as disclosed in the Company’s Form 8-K on April 14, 2023.

On August 16, 2023, the Company received an additional subpoena from the SEC regarding certain funding sources of the Company prior to the Business Combination, various statements and disclosures by the Company in connection with, and following, the Business Combination, certain historical and projected financial results, and data analytic platforms and algorithms used to identify potential recoveries.

The Company intends to fully cooperate with the SEC in responding to the subpoenas.

In addition, on March 10, 2023, the Company received a subpoena from the U.S.

Attorney’s Office in connection with a grand jury investigation in the U.S.

District Court for the Southern District of Florida requesting certain information concerning the Company, which subpoena requests documents relating to, among other matters, the Company’s proprietary algorithms and other software used to

identify potentially recoverable claims, the drop in the price of the Company’s common stock following the Business Combination, and certain marketing materials and investment agreements presented to potential investors.

To the best of the Company’s knowledge, the Department of Justice has not issued any target letters to anyone associated with the Company as a result of this investigation.

(The United States Attorney’s Manual states that a “target” is a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant.)

The Company has cooperated, and will continue to cooperate, fully with these inquiries.

In connection with its review of the matters related to the preparation and filing of the 2022 Form 10-K, the Special Committee, along with external advisors retained thereby, also reviewed the subject matter of information requests related to the foregoing subpoenas received prior to June 2023.

Based on that review, and the nature of the documents requested in the subsequent subpoena, the Company believes that the investigations will be resolved without any material developments;

however, there can be no assurance as to the outcome or future direction thereof.

Cano Health, LLC

On August 10, 2023, MSP Recovery sued Cano in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida for declaratory relief and anticipatory breach of the CCRA, Purchase Agreement, and a Service Agreement (collectively, the “Cano Agreements”) between the parties.

On the same day, Cano sued the Company in the same court, alleging fraud in the inducement, breach of contract, tortious interference, and unjust enrichment relating to the Cano Agreements.

The Company has outstanding a $ 5.0 million receivable from Cano;

however, due to Cano’s Quarterly Report on Form 10-Q for the June 30, 2023 period, which includes a substantial doubt about its ability to continue as a going concern, and subsequent Chapter 11 bankruptcy filing on or about February 5, 2024, the Company established a reserve for the balance due under such receivable during 2023.

These matters were automatically stayed as a result of the Cano’s bankruptcy filing.

On January 4, 2024, Cano sued Simply Healthcare Plans, Inc.

(“Simply”) and the Company and affiliated entities seeking a declaratory judgment to determine whether the Cano Purchase Agreement should be rescinded, and whether Cano or the Company have standing to recover on claims assigned to the Company against Simply under the Cano Purchase Agreement.

Cano also seeks damages from Simply relating to the claims assigned to the Company under the Cano Purchase Agreement.

The Company intends to vigorously assert its position in all Cano related litigation .

FAIR VALUE MEASUREMENTS

The Company has no assets that are measured at fair value on a recurring basis as of December 31, 2023 and 2022.

There were no assets or liabilities measured at fair value on a non-recurring basis during the years ended December 31, 2023 and 2022.

Liabilities measured at fair value on a recurring basis as of December 31, 2023, are summarized as follows:

Derivative liability related to fair value of beneficial conversion feature

The following table details the roll-forward of the Level 3 liabilities during the year ended December 31, 2023:

Balance at January 1, 2023

Fair value of derivative liability at issuance

Change in fair value of derivative liabilities

Balance at December 31, 2023

As of December 31, 2023, the beneficial conversion feature within the Yorkville SEPA is treated as an embedded derivative liability and changes in the fair value were recognized in the change in fair value of warrant and derivative liabilities in the consolidated statements of operations.

The embedded derivative liability was valued at each of the respective issuance dates (November 15, 2023 and December 11, 2023) and at year-end using the following market based inputs:

December 31, 2023

Price of Common Stock

$ 2.48 - $ 6.83

Market Risk Spread:

12.60 % - 12.82 %

Expected Term (in years)

RELATED PARTY TRANSACTIONS

Loans from Related Parties

During the year ended December 31, 2022, the Company issued an unsecured promissory note in an aggregate principal amount of $ 112.8 million (the “Promissory Note”) to John H.

Ruiz and Frank C.

Quesada, the Company’s Chief Executive Officer and director and Chief Legal Officer and director, respectively (collectively, the “MSP Principals”), t o provide cash to pay transaction costs related to the Merger, pay down affiliate payable balances and provide operating cash to the Company.

Quesada, the Company’s Chief Executive Officer and director and Chief Legal Officer and director, respectively (collectively, the “MSP Principals”), in exchange for the MSP Principals agreeing to provide cash to pay transaction costs related to the Merger, pay down affiliate payable balances, and provide operating cash to the Company.

In addition to the amounts in the Promissory Note, at the merger date with LCAP, the MSP Principals contributed $ 13.0 million through funds that had been loaned to VRM MSP to cover related service fees.

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The Promissory Note is payable by the Company at any time, without prepayment penalties, fees, or other expenses.

During the year ended December 31, 2022 , the Company recorded $ 2.7 million on interest expense related to the Promissory Note.

A portion of the proceeds under the Promissory Note in an amount equal to $ 36.5 million was advanced to the Law Firm, an affiliate of certain Members, for certain operating expenses as contemplated by the Legal Services Agreement.

This amount is reflected in prepaid expenses and other current assets within the consolidated balance sheets and had a balance o f $ 26.9 million as of December 31, 2022.

The payments of Law Firm expenses are reflected in Professional fees - legal within the consolidated statement of operations.

The payments are expense as incurred as the Company doesn't have recourse to these amounts, but if the Law Firm earns fees under the legal service agreements (the "Existing LSAs") noted below, the Company would not be obligated to pay these costs until the amount of fees earned were in excess of the payments of Law Firm expenses and payments the Company has made to co-counsels.

As of as December 31, 2022, the Company has paid Law Firm expenses and co-counsel fees equal to $ 21.9 million in excess of the fees earned under the Existing LSAs.

Therefore, the Company would not be required to pay or incur expenses through cost of Claims recoveries until the amount of fees earned were in excess of the amounts already paid.

As of December 31, 2022 , this represents prepayments that would cover recoveries of $ 109.5 million assuming the 40 % fees on the half owned by the Company as fees are not incurred on the half owned by the assignors.

Legal Services –

MSP Recovery Law Firm

During the years ended December 31, 2023 and 2022 , the Company recorded $ 5.0 million and $ 2.7 million, respectively, of interest expense related to the Promissory Note.

This amount is reflected in prepaid expenses and other current assets within the consolidated balance sheets and had a balance of $ 7.7 million and $ 26.9 million as of December 31, 2023 and 2022.

The advances of Law Firm expenses are reflected in Professional fees - legal within the consolidated statement of operations.

The advances are expensed as incurred, as the Company does not have recourse to any amounts incurred should Law Firm fail to secure recoveries, although it does have recourse to any amounts advanced that have not been incurred as an expense.

Under the legal services agreement, Company shall advance certain of Law Firm’s monthly expenses, including payroll and overhead;

however, should Law Firm earn fees under the legal service agreements (the “Existing LSAs”) noted below, net of pre-existing obligations including payments to co-counsel sufficient to cover its monthly expenses, Company is entitled to reimbursement of the advance of said monthly expenses.

Further, to the extent that Law Firm earns a surplus of fees in excess of its monthly expenses, said surplus shall be used to reimburse past amounts of Law Firm’s monthly expenses that Company advanced.

For the years ended December 31, 2023 and 2022, approximately $ 19.2 million and $ 9.6 million , respectively, of the $ 36.5 million advanced by the Company to the Law Firm has been incurred for expenses pursuant to the legal services agreement.

Legal Services – Law Firm

Certain Company entities have previously entered into the Existing LSAs with the Law Firm, an affiliate of certain Members, for the recovery of Claims.

Pursuant to the terms of the Existing LSAs, the Law Firm provides the Company with investigation, case management, research and legal services in the pursuit of recovery of Claims in exchange for a portion of the recovered proceeds relating to such Claims.

The Existing LSAs also provide that the Law Firm serves as exclusive lead counsel for any litigation relating to such Claims.

The Existing LSAs also provide that the Law Firm serves as lead counsel or co-lead counsel for any litigation relating to such Claims.

As of December 31, 2023 there was no amount due, as amounts paid through the prepaid noted above had covered amounts of existing LSAs due to the Law Firm for Claim recoveries.

As of December 31, 2021, $ 5.5 million was due to the Law Firm and included in the consolidated balance sheets in Affiliate Payable.

For the year ended December 31, 2022, $ 29.7 million was included in Professional fees - Legal for expenses related to the Law Firm in the consolidated statements of operations.

The amounts were largely due to share base compensation as noted below and the payment of Law Firm expenses per the related party loan as noted above.

For the years ended December 31, 2021 and 2020, the amounts were de minimis.

For the year ended December 31, 2022, $ 405 thousand were included in cost of Claims recoveries for expenses related to the Law Firm in the consolidated statements of operations.

For the years ended December 31, 2021 and 2020 , no amounts were included cost of Claims recoveries for expenses related to the Law Firm in the consolidated statements of ope rations.

The Law Firm may also collect and/or hold cash on behalf of the Company in the ordinary course of business.

As of December 31, 2022 and December 31, 2021, $ 2.1 million and $ 3.4 million , respectively, was due from the Law Firm and included in the consolidated balance sheets in Affiliate Receivable.

In addition, the Company rents office space from the Law Firm as discussed in Note 8, Short Term Leases .

For the year ended December 31, 2022, the Company issued 8,022,000 Class A common stock shares to the Law Firm employees, which was deemed to be share based compensation.

For the years ended December 31, 2023 and 2022, $ 19.2 million and $ 29.7 million , respectively, was included in Professional fees - legal for expenses related to the Law Firm in the consolidated statements of operations.

The amounts are related to the payment of Law Firm expenses as noted above.

For the year ended December 31, 2022, the Company issued Class A common stock shares to the Law Firm employees, which were deemed to be share based compensation.

As such $ 20.1 million of expense was included within Professional fees - Legal for expenses related to the Law Firm in the consolidated statements of operations for the year ended December 31, 2022.

In addition, during fiscal year 2023 , the Company issued an unsecured promissory note in an aggregate principal amount of $ 4.95 million to the Law Firm, to provide general operational funding (the “Law Firm Loan”).

The aggregate unpaid principal amount of this promissory note is due 24 months from the date of the last advance from the Second Amended and Restated First Lien Credit Agreement is made.

This promissory note does not carry interest and is payable by the Company at any time, without prepayment penalties, fees, or other expenses.

On March 4, 2024, the Board authorized the partial repayment of the Law Firm Loan in the amount of $ 0.4 million, which funds were to be used for the express purpose of paying property taxes on real property owned and pledged by the MSP Principals to HPH as collateral in connection with the Working Capital Credit Facility.

For the years ended December 31, 2023 and 2022, $ 0.3 million and $ 0.4 million , respectively, were included in cost of Claims recoveries for expenses related to the Law Firm in the consolidated statements of operations.

For th e year ended December 31, 2021, no amounts of cost of Claims recoveries for expenses related to the Law Firm were included in the consolidated statements of ope rations.

The Law Firm may also collect and/or hold cash on behalf of the Company in the ordinary course of business.

As of December 31, 2023 and 2022, $ 0.8 million and $ 2.1 million , respectively, was due from the Law Firm and included in the consolidated balance sheets in Affiliate Receivable.

In addition, the Company rents office space from the Law Firm as discussed in Note 8, Leases .

MSP Recovery Aviation, LLC

The Company may make payments related to operational expenses on behalf of its affiliate, MSP Recovery Aviation, LLC (“MSP Aviation”).

MSP Aviation was created to provide aircraft rental to third party customers and the Company.

The Company has made payments in the periods of the financial statements only related to specifically billed flights and these rates are at or below the market rate for such services.

As of both December 31, 2022 and December 31, 2021, $ 153 thousand was due from MSP Aviation and included in the consolidated balance sheets in Affiliate Receivable.

For the year ended December 31, 2022, $ 400 thousand was included in

General and Administrative expenses related to MSP Aviation in the consolidated statements of operations.

For the year ended December 31, 2021 and 2020, the amounts were de minimis.

The Company may make payments related to operational expenses on behalf of its affiliate, MSP Recovery Aviation, LLC (“MSP Aviation”).

The Company has made payments in the periods of the financial statements only related to specifically billed flights.

As of both December 31, 2023 and 2022, $ 0.2 million was due from MSP Aviation and included in the consolidated balance sheets in Affiliate Receivable.

For the years ended December 31, 2023 and 2022, $ 0.2 million , $ 0.4 million , respectively, was included in General and

Administrative expenses related to MSP Aviation in the consolidated statements of operations.

For the year ended December 31, 2021, the amount was included in General and Administrative expenses related to MSP Aviation in the consolidated statements of operation.

Funds Held for Other Entities

The Company may collect and/or hold cash on behalf of its affiliates in the ordinary course of business.

As of December 31, 2022 and December 31, 2021, $ 19.8 million and $ 39.7 million was due to affiliates of the Company and included in the consolidated balance sheets in Affiliate Payable.

As of both December 31, 2023 and 2022, $ 19.8 million was due to affiliates of the Company and included in the consolidated balance sheets in Affiliate Payable.

These amounts were primarily due to Series MRCS, and will be repaid either through excess cash flows from operations or other financing.

During the year ended December 31, 2021, the Company also entered into a note payable with Series MRCS as outlined in Note 7, Intangible Assets, Net .

As of December 31, 2022 and December 31, 2021, the balance of the note payable was $ 0.5 million and included in the consolidated balance sheets in Claims financing obligation and notes payable.

As of December 31, 2022 and December 31, 2021, there were additional receivables from other affiliates of $ 148 thousand and $ 92 thousand , respectively.

As of December 31, 2021, $ 0.4 million was due to MSP National, LLC from Series MRCS.

As of both December 31, 2023 and December 31, 2022, the balance of the note payable was $ 0.5 million and included in the consolidated balance sheets in Claims financing obligation and notes payable.

As of December 31, 2023 and 2022, there were additional receivables from other affiliates of $ 0.2 million and $ 0.1 million , respectively.

These were included in the consolidated balance sheets in Affiliate Receivable.

Historically, MSP Recovery, LLC has received Claims recovery service income for services provided to VRM MSP.

The Company concluded that VRM MSP is a related party due to ownership interests in the entity held by Series MRCS LLC.

During the years ended December 31, 2022, 2021 and 2020, $ 10.6 million , $ 11.5 million and $ 13.1 million, respectively, of Claims recovery service income was received from VRM MSP as part of the servicing agreement and was included in the consolidated statements of operations.

As of the merger date, the VRM MSP servicing agreement was terminated.

Historically, MSP Recovery has received Claims recovery service income for services provided to VRM MSP.

The Company concluded that VRM MSP is a related party due to ownership interests in the entity held by Series MRCS.

During the years ended December 31, 2022 and 2021, $ 10.6 and $ 11.5 million, respectively, of claims recovery service income was received from VRM MSP as part of the servicing agreement and was included in the consolidated statements of operations.

There was no Claims recovery service income for services provided to VRM MSP for the year ended December 31, 2023.

For the years ended December 31, 2023 and 2022, the Company recorded $ 221.4 million and $ 81.9 million , respectively, for interest expense related to the VRM Full Return and Virage MTA Amendment.

Prior the Business Combination, the Company had not guaranteed the VRM Full Return therefore no amount of interest was recorded by prior to Business Combination.

Working Capital Credit Facility Collateral

Pursuant to the Second Amended and Restated First Lien Credit Agreement, and in order to secure those additional advances of Term Loan B beginning in January 2024, the Company approved for Messrs.

John Ruiz and Frank Quesada to provide, as additional collateral, the following:

(i) a pledge of the equity interests in an Affiliate of Messrs.

John Ruiz and Frank Quesada;

(ii) a mortgage on real property owned by an Affiliate of Messrs.

John Ruiz and Frank Quesada, and (iii) a personal guaranty by Messrs.

John Ruiz and Frank Quesada, as primary obligors, guaranteeing those additional advances of Term Loan B beginning in January 2024.

On December 22, 2023, our Board approved the Company's payment of certain costs and fees (including legal fees) on behalf of John H.

Ruiz and Frank C.

Quesada, associated with the mortgage granted in connection with said guaranty, totaling $ 0.1 million.

INVESTMENTS IN EQUITY SECURITIES AND OBLIGATIONS TO DELIVER SECURITIES

The Company had an outstanding obligation to provide equity securities (a “short position”) as of December 31, 2020.

The short position was classified as a liability, marked-to-market and was evaluated at Level 1 for fair value.

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company for $ 1.8 million, recognizing a realized loss of $ 193 thousand in Other income, net in the consolidated statements of operations.

As of December 31, 2022 and December 31, 2021 , the Company had no investments in equity securities.

As of December 31, 2023 and 2022 , the Company had no investments in equity securities.

N ET LOSS PER COMMON SHARE

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Diluted loss per share for all period presented is the same as basic loss per share as the inclusion of the potentially issuable shares would be anti-dilutive.

Prior to the Business Combination, the equity structure of MSP Recovery, LLC included units which shared in the profits and losses of MSP Recovery, LLC.

Prior to the Business Combination, the equity structure of MSP Recovery included units which shared in the profits and losses of MSP Recovery.

In reviewing the calculation of earnings per unit for periods prior to the Business Combination, the Company concluded that it resulted in values that would not be meaningful to the users of the consolidated financial statements.

As such, earnings per share information for the year ended December 31, 2021 and 2020 has not been presented.

As such, earnings per share information for the year ended December 31, 2021 has not been presented.

The basic and diluted earnings per share for the year ended December 31, 2022 represent loss from only the period from the Closing Date to December 31, 2022 for the Company.

The following table sets forth the computation of basic and diluted earnings per share of Class A common stock:

(In thousands except shares and per share amounts)

Year Ended December 31,

(In thousands except shares and per share amounts)

Numerator - basic and diluted:

Net loss attributable to MSP Recovery, LLC pre-Business Combination

Net loss attributable to the noncontrolling interest post Business Combination

Net loss attributable to common shareholders

Net loss attributable to the non-controlling interests post Business Combination

Net loss attributable to MSP Recovery, Inc.

post-Business Combination

Denominator - basic and diluted:

Weighted-average shares of Class A common stock outstanding - basic

Effect of dilutive securities:

Weighted-average shares of Class A common stock outstanding - dilutive

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Earnings per share of Class A common stock - diluted

Shares of the Company’s Class V common stock do not participate in the earnings or losses of the Company and are therefore not participating securities.

As such, separate presentation of basic and diluted earnings per share of Class V common stock under the two-class method has not been presented.

In the calculation for earnings per share for the year ended December 31, 2022, the Company excluded from the calculation of diluted earnings per share 3,147,979,494 shares of Class V common stock, 3,319,304 Public Warrants outstanding, 66,666,666 CPIA Warrants and 1,028,046,326 shares of New W arrants ou tstanding because their effect would have been anti-dilutive.

In the calculation for earnings per share for the year ended December 31, 2023, the Company excluded from the calculation of diluted earnings per share 124,067,498 shares of Class V common stock, 2,950,157 Public Warrants outstanding, the CPIA Warrant exercisable for 2,666,667 shares of Class A Common Stock, and 894,754,824 New Warrants outstanding, as their effect would have been anti-dilutive.

In the calculation for earnings per share for the year ended December 31, 2022, the Company excluded from the calculation of diluted earnings per share 125,919,180 shares of Class V common stock, 3,319,304 Public Warrants outstanding, the CPIA Warrant exercisable for 2,666,667 shares of Class A Common Stock, 1,028,046,326 New W arrants outstanding because their effect would have been anti-dilutive.

Subsequent to December 31, 2023, the Company issued warrants to Virage, entitling VRM to purchase 62,073,998 shares of Class A Common Stock at a purchase price of $ 0.0001 per share for a period of two years from issuance, exercisable on a cashless basis.

DERIVATIVE LIABILITY

The Company and CF entered into an agreement for an OTC Equity Prepaid Forward Transaction (the “Transaction”).

Pursuant to the terms of the Transaction, CF agreed to (a) transfer to the Company for cancellation any warrants to purchase shares received as a result of being the stockholder of record of a share as of the close of business on the closing date of the Business Combination, pursuant to the previously announced and declared LCAP dividend and (b) waive any redemption right that would require the redemption of the Subject Shares (as defined below) in exchange for a pro rata amount of the funds held in LCAP’s trust account.

At closing of the Business Combination, the Company transferred from the trust account to an escrow account an amount equal to (a) the aggregate number of such Subject Shares (approximately 1.1 million shares), multiplied by (b) the per share redemption price for shares out of the trust account, as a prepayment to CF of the amount to be paid to CF in settlement of the Transaction for the number of shares owned by CF at the closing of the Business Combination (the “FEF Shares”).

For purposes of determining whether certain instruments are derivatives for accounting treatment, the Company follows the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock.

The standard applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.

The Company and CF entered into an agreement for an OTC Equity Prepaid Forward Transaction (the “Transaction”).

At closing of the Business Combination, the Company transferred from the trust account to an escrow account an amount equal to (a) the aggregate number of such Subject Shares (approximately 44,000 shares), multiplied by (b) the per share redemption price for shares out of the trust account, as a prepayment to CF of the amount to be paid to CF in settlement of the Transaction for the number of shares owned by CF at the closing of the Business Combination (the “FEF Shares”).

CF may sell the Subject Shares at its sole discretion in one or more transactions, publicly or privately.

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The calculation of the derivative liability/asset would be the difference between the restricted cash and current fair value of the outstanding FEF shares (number of FEF shares multiplied by market price of the Company’s Class A common stock as of period end).

As of December 31, 2022 , CF had not sold any FEF shares.

The aggregate purchase price of $ 11.4 million is reflected in restricted cash with the fair value of the shares of $ 1.8 million in cluded as Class A common stock subject to possible redemption within temporary equity and the derivative liability of $ 9.6 million reflecte d in current liabilities in the consolidated balance sheets.

QUARTERLY FINANCIAL DATA (UNAUDITED) RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Description of Restatement of Financial Information

Subsequent to the issuance of the interim financial information as of and for the periods ended June 30, 2022 and September 30, 2022, management identified material errors in such financial information.

As disclosed within Note 4, Asset Acquisitions, the Company acquired various intangible assets in connection with the Business Combination.

The Company identified an error in the accounting for these acquisitions, in that the Class A market price as of the Closing Date utilized in the valuation included the value of the New Warrants, whereas the Up-C Units provided in the acquisition did not have rights to New Warrants.

Therefore, the Class A market price didn't equate to the value of the Up-C Units until the opening of the day after the Closing Date when the New Warrants became detached from the Class A shares.

This error impacts the intangible assets value that was acquired as of the Closing Date and the resulting amortization of those assets.

In addition, the Company also determined, based on analysis of the rights to cash flows from the Series and the related guaranty obligation, that the Company is the primary beneficiary of the Series, and therefore should consolidate as of the transaction date.

This error impacts the intangible assets and indemnification asset value that was acquired as the balance is now reflected in Intangible Assets, net and is therefore amortized rather than recorded as a financial asset;

as a result of this change, the indemnification asset is no longer recorded and the Virage Guaranty is accreted through interest expense.

The Company's financial statements should also include the activity of the Series from the date of acquisition as it is now consolidated.

As a result of these errors, the Company determined that the valuation of the asset acquisitions and impacts of consolidating the Series were misstated in the Company's financial statements for the periods ending June 30 and September 30, 2022.

In the following tables, the Company has presented a reconciliation of its unaudited condensed consolidated financial information as originally reported, to the as restated amounts as of and for the three and six months ended June 30, 2022, and the three and nine months ended September 30, 2022.

The restatements will be reflected in the comparative financial statements included in our future filings of our 2023 unaudited condensed consolidated financial statements within our Quarterly Reports on Form 10-Q.

The table below sets forth the unaudited condensed consolidated balance sheet information, including the balances as reported, adjustments and the balances as restated:

For the reporting period

(In thousands except per share amounts)

June 30, 2022

As previously

Current assets:

Accounts receivable

Indemnification asset

Total current assets

Deferred tax asset

Intangible assets, net

Investment in rights to claim recovery cash flows

Stockholders' Equity (Deficit):

Additional paid-in capital

Accumulated deficit

Total Stockholders' Equity (Deficit)

Non-controlling interest

Total liabilities and equity

For the reporting period

September 30, 2022

As previously

(In thousands except per share amounts)

Current assets:

Accounts receivable

Indemnification asset

Total current assets

Deferred tax asset

Intangible assets, net

Investment in rights to claim recovery cash flows

Stockholders' Equity (Deficit):

Additional paid-in capital

Accumulated deficit

Total Stockholders' Equity (Deficit)

Non-controlling interest

Total liabilities and equity

The tables below set forth the unaudited condensed consolidated statements of operations, including the balances as reported, adjustments and the as restated balances:

For the three months

ended June 30, 2022

For the six months

ended June 30, 2022

(In thousands except per share amounts)

Restatement Adjustments

Claims recovery income

Claims recovery service income

Total Claims Recovery

Operating expenses

Cost of claim recoveries

Claims amortization expense

Professional fees

Total operating expenses

Operating Loss

Interest expense

Net loss before provision for income taxes

Provision for income tax benefit (expense)

Net (income) loss attributable to non-controlling members

Net loss attributable to controlling members

Basic and diluted weighted average shares outstanding, Class A Common Stock

Basic and diluted net income per share, Class A Common Stock

For the three months

ended September 30, 2022

For the nine months

ended September 30, 2022

(In thousands except per share amounts)

Restatement Adjustments

Claims recovery income

Total Claims Recovery

Operating expenses

Cost of claim recoveries

Claims amortization expense

Professional fees

Total operating expenses

Operating Loss

Interest expense

Net loss before provision for income taxes

Provision for income tax benefit (expense)

Net (income) loss attributable to non-controlling members

Net loss attributable to controlling members

Basic and diluted weighted average shares outstanding, Class A Common Stock

Basic and diluted net income per share, Class A Common Stock

The table below sets forth the unaudited condensed consolidated statements of cash flows, including balances as reported, adjustments and balances as restated amounts.

Note that only amounts that have changed have been disclosed:

For the six months

ended June 30,

(In thousands)

As Previously Reported

Restatement Adjustments

Cash flows from operating activities:

Claims amortization expense

Paid in kind interest

Deferred income taxes

Change in operating assets and liabilities:

Accounts receivable

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

For the nine months ended September 30, 2022

(In thousands)

As Previously Reported

Restatement Adjustments

Cash flows from operating activities:

Claims amortization expense

Paid in kind interest

Deferred income taxes

Accounts receivable

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

The table below sets forth the unaudited condensed consolidated statements of changes in equity, including balances as reported, adjustments and balances as restated amounts.

Note that only amounts that have changed have been disclosed:

For the reporting period June 30, 2022

As Previously Reported

Restatement Adjustments

(In thousands except shares)

Additional Paid-in Capital

Accumulated Deficit

Non- Controlling Interests

Additional Paid-in Capital

Accumulated Deficit

Non- Controlling Interests

Additional Paid-in Capital

Accumulated Deficit

Non- Controlling Interests

Balance at December 31, 2021

Contributions prior to recapitalization transaction

Distributions prior to recapitalization transaction

Net loss prior to recapitalization transaction

Cumulative effect of recapitalization transaction

Opening net assets of Lionheart II Holdings, LLC acquired

Adjustment for value of derivative on temporary equity

Conversion of Warrants

Class A Issuances

Balance at June 30, 2022

For the reporting period September 30, 2022

As Previously Reported

Restatement Adjustments

(In thousands except shares)

Additional Paid-in Capital

Accumulated Deficit

Non- Controlling Interests

Additional Paid-in Capital

Accumulated Deficit

Non- Controlling Interests

Additional Paid-in Capital

Accumulated Deficit

Non- Controlling Interests

Balance at December 31, 2021

Contributions prior to recapitalization transaction

Distributions prior to recapitalization transaction

Net loss prior to recapitalization transaction

Cumulative effect of recapitalization transaction

Opening net assets of Lionheart II Holdings, LLC acquired

Adjustment for value of derivative on temporary equity

Conversion of Warrants

Class A Issuances

Balance at September 30, 2022

On January 6, 2023, the Company and CF entered into an Omnibus Fee Amendment Agreement (“Fee Amendment Agreement”).

Pursuant to the terms of the Fee Amendment Agreement, in satisfaction of the deferred underwriting commissions under a previous agreement, the Company and CF agreed to release from escrow the $ 11.4 million of restricted cash and release the FEF shares previously held as Class A Common Stock subject to possible redemption within temporary equity.

Prior to the Fee Amendment Agreement, CF had not sold any FEF shares.

As a result of the Fee Amendment Agreement and termination of the OTC Forward Transaction, as of December 31, 2023 , the Company no longer has any restricted cash, Class A Common Stock subject to possible redemption, or derivative liability in the consolidated balance sheets.

SUBSEQUENT EVENTS

Hazel Transactions

On March 29, 2023 (and amended on July 17, 2023), the Company entered into a membership interest purchase agreement with Hazel, whereby in exchange for a stated purchase price of $ 390 million, the Company acquired from Hazel interests in certain Claims recovery and reimbursement rights (the "Claims Purchase").

The purchase price for the Claims Purchase was funded by (i) the proceeds from the Claims Sale (as defined below), and (ii) a purchase money loan between Hazel, as lender, and the Company, as borrower, in the amount of $ 250 million (the "Purchase Money Loan").

On March 29, 2023 , the Company entered into a membership interest purchase agreement with Hazel, whereby in exchange for a purchase price of $ 150 million, Hazel acquired from the Company the membership interests in entities that own certain other Claims recovery and reimbursement rights, provided that the Company and Hazel will share in the recovery proceeds therefrom in accordance with an agreed waterfall (the "Claims Sale," and together with the Claims Purchase, the "Claims Transactions").

In addition, on March 29, 2023 , the Company entered into an Amended and Restated Credit Agreement (the "Working Capital Credit Facility") with affiliates of Hazel, as the lender and administrative agent, which provides for up to $ 80 million (with a 40 % original issue discount), consisting of a Term Loan A commitment to fund up to $ 30 million (in multiple installments) in proceeds, and a Term Loan B Commitment to fund up to $ 18 million (in multiple installments) in proceeds, the funding of each conditioned on certain milestones.

An initial $ 10 million in proceeds was drawn under the Term Loan A on March 6, 2023.

On March 29, 2023, an additional $ 5 million was disbursed to the Company under the Term Loan A.

On May 11, 2023 and June 13, 2023, Hazel notified us that it would

not disburse additional funds under the Working Capital Credit Facility until the Company satisfies certain funding conditions, including the filing of this Annual Report on Form 10-K.

The parties subsequently agreed that $ 5.5 million will be funded under Term Loan A in accordance with the terms of the Working Capital Credit Facility subsequent to the filing of this 2022 Form 10-K and receipt of funding notices, deeming funding conditions satisfied or waived.

Following such funding, the Term Loan A commitment would be terminated , with total funding of $ 20.5 million .

In addition, the parties agreed to increase the Term Loan B commitment from $ 18 million to $ 27.5 million, which will be funded in multiple installments and in accordance with the terms of the Working Capital Credit Facility.

Loans under the Working Capital Credit Facility accrue interest at a Term Secured Overnight Financing Rate for 12-month interest period, plus an applicable margin of 10 % per annum.

Accrued interest on the Working Capital Credit Facility is payable in kind and will be capitalized.

The Working Capital Credit Facility has a stated maturity date of March 31, 2026 , and Hazel may extend for up to one year in its sole discretion.

The Purchase Money Loan accrues interest at a rate of 20 % per annum, payable in kind or in cash at the Company's discretion.

The Purchase Money Loan has a maturity date of March 31, 2026 , extendable up to one year in Hazel's sole discretion.

The Company is permitted to prepay the loans under the Working Capital Credit Facility from time to time without prepayment premium.

Prepayment of the Purchase Money Loans will be permitted after the prepayment or repayment of loans under the Working Capital Loans, and such prepayment of the Purchase Money Loans may be subject to prepayment penalty, as applicable.

The Purchase Money Loan and the Working Capital Credit Agreement contains certain representations, warranties and covenants of the Company and its subsidiaries, including restrictions on debt incurrence, liens, investments, affiliate transactions, distributions and dividends, fundamental changes, certain debt prepayments and Claim settlement.

Amounts borrowed and obligations under the Purchase Money Loan and the Working Capital Credit Facility are secured by a pledge of proceeds from certain Claims in the Company's Claims portfolio, with the lien securing the Purchase Money Loan being subordinated and junior to the lien securing the Working Capital Credit Facility.

Pursuant to the Purchase Money Loan and the Working Capital Credit Facility, the Company entered into a collateral administrative agreement between the Company and Hazel, which sets forth certain arrangements between the Company and Hazel in relation to the management of the litigation of certain Claims owned by the Company, the proceeds of which were pledged to Hazel to secure the Purchase Money Loan and the Working Capital Credit Facility.

Yorkville Facility

Refer to Note 1 - Description of the Business of this Form 10-K.

Virage Amendment

On April 12, 2023, we entered into an amendment (the "Virage MTA Amendment") to the Virage MTA and Virage Guaranty pursuant to which the payment date was extended from May 23, 2023 until September 30, 2024, subject to acceleration upon certain triggering events.

The guaranty obligation will become current at September 30, 2023, and the Company does not currently have available liquidity to satisfy such obligations.

Under the Virage MTA Amendment, Virage will receive a first priority lien on all sources of revenue of the company not otherwise encumbered as of the date of the Virage MTA Amendment, to the extent in excess of the amount of revenues necessary to establish and maintain an operating reserve of $ 70 million for overhead expenses and applicable taxes.

On January 1, 2024, if the Virage Guaranty is not paid, the Company will be required to make a one-time, lump sum payment to Virage for the period starting May 24, 2023 and ending December 31, 2023, in one or a combination of:

(a) cash, in an amount equal to 1.0% of each calendar month-end balance (which month-end balance shall be increased daily up to 20% per annum based on a formula set forth in the Virage MTA Amendment) of the amount owing to Virage as of each preceding calendar month end and/or (b) warrants to purchase Class A common stock at $ 0.0001 per share, in an amount equal to the quotient of 1.0% of each calendar month-end balance (which shall be increased daily up to 20% per annum based on a formula set forth in the Virage MTA Amendment) of the amount owing to Virage as of each preceding calendar month end and the volume weighted average price of a share of our Class A common stock for the five day period prior to the issuance.

If paid in warrants, such warrants will expire on January 1, 2026 .

Further, for each calendar month beginning with January 31, 2024 until the obligations to Virage are paid in full, the Company has agreed to pay to Virage an amount monthly, in one or a combination of:

If paid in warrants, such warrants will expire two years from the date of issuance.

The warrants will contain customary provisions for a transaction of this type, including that each warrant will be exercisable in whole or in part at any time prior to the expiration date, be freely transferable, subject only to applicable securities laws, and be subject to customary anti-dilution protection regarding the exercise price and number of shares of Class A Common Stock to be issued upon the exercise of each warrant.

Amended and Restated Nomura Promissory Note

On April 12, 2023, the Company amended the promissory note to Nomura originally issued on May 27, 2022, which amendment increased the principal amount to approximately $ 26.3 million and extended the maturity date of the promissory note to September 30, 2024 .

The note will become current at September 30, 2023, and the Company does not currently have available liquidity to satisfy said obligation.

The amended note carries an interest rate of 16 % per annum and is payable in kind or in cash, at the Company's discretion, every 30 calendar days after April 12, 2023.

Cano Health Share Issuance

On July 7, 2023, the Company issued 199,000,001 shares of Class A common stock to Cano Health, LLC (“Cano”) as payment for $ 61,677,419.35 million dollars in deferred compensation related to the following agreements, which the Company had the option to pay in cash or in stock and has elected to pay in stock, of which (i) 80,645,162 shares of Common Stock were issued as a deferred consideration for the assignment of certain claims pursuant to that certain Purchase Agreement, effective as of September 30, 2022, as amended to date, by and between the Company and Cano, and (ii) 118,354,839 shares of Common Stock were issued as deferred consideration for the assignment of certain claims pursuant to that certain Amended and Restated Claims Recovery and Assignment Agreement effective as of December 31, 2021, as amended to date, by and between the Company and Cano.

Settlement with 28 Affiliated Property and Casualty Insurers

On February 19, 2024, the Company reached a comprehensive settlement with 28 affiliated property and casualty insurers (the “P&C Insurers”).

The terms of the confidential settlement agreement include:

• The P&C Insurers’ agreement to provide ten years of historical data (identifying all claims processed from January 1, 2014, through the present) and data sharing of future claims, extending out for one year, assisting LifeWallet in reconciling its current and future assigned Medicare claims;

• The P&C Insurers’ Implementation of LifeWallet’s coordination of benefits clearinghouse solution;

• A 5-year agreement to resolve cooperatively, or through binding mediation, relevant Medicare claims (liens) that LifeWallet owns today and in the future;

• The P&C Insurers’ agreement that they are primary payers for any unreimbursed Medicare lien that LifeWallet identifies from data sharing, and the P&C Insurers’ agreement to assign all rights to collect against other third parties that either failed to pay liens or collected twice from Medicare funds and the P&C Insurers;

• A cash payment from the P&C Insurers to LifeWallet to settle existing historical claims (amount subject to confidentiality).

Yorkville Letter Agreements;

Third Convertible Note

On April 8, 2024, the Company and Yorkville reached an agreement to:

(i) reduce the Floor Price under the Yorkville SEPA from $ 1.28 to $ 1.00 ;

(ii) waive the first monthly payment due to the Floor Price Trigger, thereby curing the Floor Price Trigger;

and (iii) extend the maturity date of the Convertible Notes to September 30, 2025 .

In addition, the parties agreed that the third Convertible Note for $ 5.0 million would be issued on April 8, 2024, with terms substantially the same as the previous Convertible Notes.

Refer to Note 1, Description of the Business , for additional information.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data