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Item 7. Management’s Discussion and Analysis

2025-04-16 compared with 2024-04-15 · 403 added, 329 removed, 337 unchanged (68% of the section changed)

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This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this Annual Report on Form 10-K (the “Annual Report”).

Unless the context otherwise requires, all references in this subsection to “we,” “the Company,” or “MSP” refers to Legacy MSP prior to the Business Combination and the Company after the Business Combination.

Unless the context otherwise requires, all references in this subsection to “we,” or “the Company” refers to Legacy MSP prior to the Business Combination and the Company after the Business Combination.

This discussion may contain forward-looking statements based upon the Company’s current expectations, estimates, and projections that involve risks and uncertainties.

Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

We are a leading healthcare recovery and data analytics company.

We focus on the Medicare, Medicaid, and commercial insurance spaces.

We are disrupting the antiquated healthcare reimbursement system, using data and analytics to identify and recover improper payments made by Medicare, Medicaid, and commercial health insurers.

MSP Recovery is a leading healthcare reimbursement recovery and data analytics company, providing historical and Near Real-Time solutions for payers, providers, and patients.

We focus on discovering losses and recovering improper payments for Medicare, Medicaid, and commercial health insurers, disrupting the antiquated healthcare reimbursement system.

We also provide innovative technology and comprehensive services for multiple industries including healthcare and legal.

Medicare and Medicaid are payers of last resort.

Too often, they end up being the first and only payers, because the responsible payer is not identified or billed.

As Medicare and Medicaid pay a far lower rate than what other insurers are often billed, this costs the healthcare system (and the supporting taxpayers) tens of billions of dollars a year in improper billing and lost recoveries.

By discovering, quantifying, and settling the billed-to-paid gap on a large-scale basis, the Company is positioned to generate meaningful annual recovery revenue at high profit margins.

Our access to large volumes of data, sophisticated data analytics, and a leading technology platform provide a unique opportunity to discover and recover on Claims.

We have developed Algorithms to identify waste, fraud, and abuse in the Medicare, Medicaid, and commercial health insurance segments.

Our access to large volumes of data, sophisticated data analytics platforms, and advanced technology provide a unique opportunity to discover and recover improper healthcare Claims payments.

We have developed Algorithms to identify waste, fraud, and abuse in the Medicare, Medicaid, and commercial health insurance sectors.

Our team of experienced data scientists and medical professionals analyze historical medical Claims data to identify recoverable opportunities.

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We differ from our competitors as we receive our recovery rights through irrevocable assignments of Claims.

Rather than provide services under a third-party vendor services contract, we receive the rights to certain recovery proceeds from our Assignors.

As assignees, we have control over the direction of the litigation and take on a risk that our competitors do not.

We, or our affiliated entities, are the plaintiff in any action filed and have control over the direction of the lawsuit.

When we are assigned these rights by our clients, we assume risk that our competitors do not.

Rather than provide services under a third-party vendor services contract, we receive the rights to certain recovery proceeds from our Assignors’ Claims (and, in most cases, take assignment of the Claims themselves, allowing us to step into the Assignor clients’ shoes).

As we, or our affiliated entities, are assigned the recovery rights associated with Claims, we are the plaintiff in any action filed and therefore exercise control over the direction of the litigation.

By receiving Claims through assignment, we can pursue additional recoveries under numerous legal theories that our competitors cannot.

Although we typically own assigned Claims, for a significant portion of assigned Claims, our ability to pursue recoveries depends on our ongoing access to data through data access rights granted to us.

In these cases, termination of such data access would substantially impair our ability to generate recoveries on those Claims.

Our current Claims portfolio has scaled significantly.

Although we own the assigned Claims, for a significant portion of assigned Claims, our ability to pursue recoveries depends on our ongoing access to data associated with those Claims through data access rights granted to us.

The termination of said data access rights would substantially impair our ability to generate recoveries on those Claims.

We are entitled to a portion of any recovery rights associated with approximately $1,591 billion in Billed Amount (and approximately $380 billion in Paid Amount), which contains approximately $87.7 billion in Paid Value of Potentially Recoverable Claims, as of December 31, 2024.

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Our potentially serviceable market is impacted by the expansion or contraction of healthcare coverage and spending, which directly affects the number of Claims available.

The Centers for Medicare & Medicaid Services (“CMS”) has projected that health spending will continue to grow at an average rate of 5.4% a year between 2022 and 2031.

The Centers for Medicare & Medicaid Services has projected that health spending will continue to grow at an average rate of 5.6% a year between 2023 and 2032.

We also believe reimbursement models may become more complex as healthcare payers accommodate new markets and lines of business and as advancements in medical care increase the number of testing and treatment options available.

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Our Business Model

Recovery Model

In our current business model, we receive irrevocable assignments of health Claim recovery rights through CCRAs from a variety of sources including, but not limited to, MAOs, MSOs, HMOs, hospitals, and other at-risk entities.

Prior to executing a CCRA, we utilize our proprietary internal data analytics platform to review the set of Claims and identify Claims with probable recovery paths.

Once Claims have been assigned, our data analysts use our proprietary Algorithms to identify potential recoveries.

Discover Losses/Recover Reimbursements

We receive irrevocable assignments of health Claims recovery rights through CCRAs from a variety of sources including, but not limited to, MAOs, MSOs, HMOs, hospitals, and other at-risk entities.

We utilize our proprietary internal data analytics platforms to review healthcare Claims and identify Claims with probable recovery paths.

Once Claims have been assigned, our data analysts run proprietary Algorithms to identify potential recoveries.

Results are then quality checked by our internal medical team.

We contract with the Law Firm and various other law firms across the country to pursue recoveries through the legal system.

Where appropriate, Law Firm reaches out to the liable parties to demand payment of amounts that are owed.

Prior to litigation, there may be an incentive for the primary insurer to settle.

If legal action is required to pursue recovery from primary insurers, we seek “double damages” under the MSP Act.

We contract with the Law Firm and other law firms across the country to pursue recoveries through the legal system.

Where appropriate, the Law Firm contacts primary payers to demand payment of amounts owed.

Prior to litigation, there may be an incentive for the primary insurer to settle as, pursuant to the Medicare Secondary Payer Act, an action for damages in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) shall be in an amount double the amount otherwise provided.

We engage with each Assignor independently.

We are typically entitled to 100% of recoveries pursuant to our CCRA.

From those recoveries, we are typically contractually obligated to pay 50% of Net Proceeds to the Assignor.

We are generally entitled to 100% of recoveries pursuant to our CCRAs;

from those recoveries, we are typically obligated to pay 50% of Net Proceeds to the Assignor.

In certain cases, we have purchased the Assignor’s rights to recovery proceeds in advance of any collection;

therefore, entitling the Company to retain 100% of the Net Proceeds.

The “Net Proceeds” of any assigned Claim is defined as the gross amount recovered on an assigned Claim, minus any costs directly traceable to such assigned Claim(s) for which recovery was made.

In some instances, we may purchase outright an Assignor’s recovery rights;

in such instances, we are entitled to the entire recovery.

in this instance, we are entitled to the entire recovery.

In some cases, we have entered into arrangements to transfer CCRAs or rights to proceeds from CCRAs to other parties.

Such sales include variable consideration in the form of payments that will be made only upon achievement of certain recoveries or based on a percentage of actual recoveries.

We have not yet generated substantial revenue from the recovery model.

To date, the majority of our revenue has been generated by Claims recovery services which are either performance-based or fee for service arrangements as described below.

Over time, the Company believes that a large part of the flaws that exist in the marketplace can be significantly improved by the solutions that can be achieved by our “Chase to Pay” model.

Chase to Pay is a near real-time analytics driven platform that identifies the proper primary insurer at the point of care or close enough in proximity for payers to determine primary and secondary payers.

Chase to Pay is intended to plug into near real-time medical utilization platforms used by providers at the points of care.

Rather than allow an MAO to make a wrongful payment whereby the payer needs to chase down the primary payer and collect a reimbursement for the MAO, Chase to Pay is intended to prevent the MAO from making a wrongful payment and ensure that the correct payer pays in the first instance.

Furthermore, the primary payer typically will make payments at a higher multiple than the MAO would have paid, and MSP will be entitled to receive its portion of the recovery proceeds on the amounts paid by the primary payer.

Chase to Pay is powered, in part, by Palantir Technologies’ Foundry platform utilizing LifeWallet’s industry knowledge.

As Chase to Pay works at or around the point of care, it is expected to substantially decrease legal costs of recovery.

As a result, when implemented, Chase to Pay is expected to improve the net recovery margin as the recovery multiple grows and variable legal costs to recover decline.

As a result of having already received data from 28 insurance carriers for historical claims, and based on the agreement with said carriers to receive data daily therefrom for one year from the date of the settlement, the Chase to Pay model can be utilized.

Although we have not yet generated revenue from this model, some customers send data to LifeWallet on a daily, monthly, or quarterly basis.

The Company is working to increase the number of customers that provide daily data outputs.

We are currently in the process of determining the pricing and form of these arrangements.

As part of our “Chase to Pay” model, we launched LifeWallet in January 2022, a platform powered by our sophisticated data analytics, designed to locate and organize users’ medical records, facilitating efficient access to enable informed decision-making and improved patient care.

See the section entitled The LifeWallet Ecosystem for more information about Chase to Pay.

In other cases, the Company has pledged proceeds which are due to the Company to repay certain obligations, such as the Purchase Money Loan, the Working Capital Credit Facility, and the MTA.

We have yet to generate substantial revenue from the recovery model.

Claims Recovery Services

We may also recognize Claims recovery service revenue from our services to customers to assist those entities with the pursuit of Claims recovery rights.

We provide services to other parties to identify recoverable Claims and provide data matching and legal services.

We may also recognize Claims recovery service revenue from our services to clients, assisting entities with the pursuit of Claims recovery rights by identifying recoverable Claims and providing data matching and legal services.

Under our Claims recovery services model, we do not own the rights to Claims but provide our services for a fee based on budgeted expenses for the month with an adjustment for the variance between budget and actual expense from the prior month.

We were a party to that certain Recovery Services Agreement (the “MSP RH Series 01 Recovery Services Agreement”), dated as of October 23, 2020, by and between MSP Recovery Holdings Series 01, LLC (“MSP RH Series 01”) and MSP Recovery, pursuant to which MSP Recovery provided services including identifying, processing, prosecuting, and recovering money for certain Claims of MSP RH Series 01.

In return for these services, MSP RH Series 01 paid a one-time fee of approximately $7.2 million, and paid annual

service fees of approximately $3.0 million commencing January 1, 2021, subject to adjustment based on the aggregate value of Claims of MSP RH Series 01 that is subject to the MSP RH Series 01 Recovery Services Agreement.

On March 29, 2023, this service fee agreement was terminated in connection with the series agreements discussed in further detail in the Hazel Transactions section of Note 4, Asset Acquisitions .

See also Note 2, Basis of Presentation and Summary of Significant Accounting Policies in this Annual Report for additional detail.

The fees received pursuant to this agreement are related to expenses incurred and are not tied to the Billed Amount or potential recovery amounts.

Although we believe our future business to be highly tied to the recovery model and Chase to Pay, we will continue to enter into these contracts as the market dictates.

The fees received pursuant to a Claims recovery service agreement are related to expenses incurred and are not tied to the Billed Amount or potential recovery amounts.

Although we believe our future business to be highly tied to the Recovery model and Chase to Pay, we may enter into these contracts as the market dictates.

The Company did not recognize any Claims recovery service income during the year ended December 31, 2024.

Industry Solutions

The MSP Ecosystem

MSP Recovery has developed a comprehensive ecosystem to enhance healthcare reimbursement processes, integrating advanced data analytics, Near Real-Time insights, and technological tools to provide connectivity between property and casualty insurers, health plans, providers, patients, and stakeholders.

This integrated ecosystem analyzes data from various sources to identify responsible parties, assists providers in receiving reasonable and customary rates for accident-related treatment, shortens the company’s collection time frame, and increases revenue visibility and predictability for its users.

The Chase to Pay platform was designed to significantly improve payment accuracy in our fragmented healthcare system.

Chase to Pay is a near real-time analytics driven platform that identifies the proper primary insurer at or near the point of care, helping to determine primary and secondary payers.

Chase to Pay is intended to integrate with medical utilization platforms used by providers during patient care and treatment.

Rather than allow a wrongful payment whereby the secondary payer needs to chase down the primary payer to collect a reimbursement, Chase to Pay helps to prevent wrongful payments in the first place, and ensures that the correct payer pays.

Furthermore, as primary payers typically pay a negotiated or commercially reasonable rate, rather than the deeply discounted Medicare rate;

the Company is entitled to pursue the full amount that primary payer would have been responsible to pay, had they paid in the first instance.

As Chase to Pay was designed to work at or near the point of care, it is expected to substantially improve the propriety of payments and decrease the legal costs of recovery.

As a result, when implemented, Chase to Pay is expected to improve the net recovery margin as the recovery multiple grows and variable legal costs to recover decline.

As a result of having already received data from property & casualty insurance carriers we've settled with for historical claims, and based on the agreement with said carriers to receive data for one year from the date of the settlement, the Chase to Pay platform can be utilized to pursue additional recoveries by matching the insurance carrier with Claims data received from our Assignors.

Although we have not yet generated revenue from this platform, some Assignors send data to the Company on a monthly or quarterly basis.

The Company is working to increase the number of Assignors that provide daily data outputs.

We are currently in the process of determining the pricing and form of these arrangements.

MSP/Palantir Clearinghouse Platform

The clearinghouse platform, created in collaboration with Palantir, was developed to identify, quantify, and resolve outstanding liens.

By law, Medicare and MA Plans are payers of last resort, making no-fault insurers the primary payers, responsible to exhaust their policy limits to pay for accident-related claims before Medicare bears any responsibility.

Healthcare providers often submit Claims for the payment of medical services rendered after an accident to the patient’s health insurer, either seeking “conditional payments,” pending reimbursement by a primary payer, or entirely unaware that a primary payer has payment obligations.

Medicare is unable to effectively verify if and how much is owed for any particular claimant if they are not aware that there is a Primary Payer involved.

Federal law requires primary payers to maintain and report the “key identifiers” for all claimants (such as their name, Social Security number, address, etc.) used to determine a claimant’s Medicare status before settling any injury claim.

These steps are required to ensure that Medicare is alerted to primary payer obligations in order to seek reimbursement.

Primary payers routinely fail to fulfill these two duties, resulting in improper Medicare payments, rather than payments made by responsible parties, as required by law.

The Company has proven that, in some instances, primary payers have a reporting rate as low as 2%, thus those certain primary payers have failed to comply with the law 98% of the time.

We expect that the clearinghouse platform is a potential solution to this systemic problem, integrating advanced artificial intelligence (“AI”) tools, natural language processing (“NLP”), and machine learning (“ML”) to create a robust data analytics system capable of capturing and managing extensive healthcare data from multiple sources.

Key Features and Benefits:

• Near Real-Time Data Analytics:

The clearinghouse platform provides an expansive repository of data from patients, attorneys, healthcare providers, health insurers, and property and casualty insurers that can be utilized to determine payer obligations.

• Enhanced Connectivity:

With the ability to connect property and casualty insurers to health plans and downstream medical providers, the clearinghouse platform can address inefficiencies arising from improper payments related to accident-related injuries.

This connectivity streamlines the reimbursement process, ensuring that healthcare payers and providers receive appropriate compensation, helping to reduce administrative burdens.

• Advanced Data Management:

The utilization of AI, NLP, and ML to process and analyze large volumes of healthcare data helps enhance the accuracy and efficiency of claims management and payment integrity.

• Legal Integration:

The clearinghouse platform integrates legal, data, and healthcare knowledge, providing a unified ecosystem that streamlines the processing of claims reconciliation.

It may also be used by primary payers to proactively resolve liens and ensure compliance with federal laws.

Through the clearinghouse platform, the Company aims to transform the healthcare reimbursement system by leveraging advanced technologies to improve data connectivity and enhance operational efficiency, leading to improved patient outcomes.

MSP Recovery has developed an Electronic Health Record (“EHR”) platform (the “EHR Platform”), enabling patients and their authorized third-party representatives to collect, distribute, and export their EHR securely, facilitating informed decision-making and improved healthcare outcomes.

The EHR Platform streamlines the retrieval and analysis of medical data.

It also provides comprehensive insights for healthcare providers, enhancing efficiency, and monitoring outcomes and key performance indicators.

The use of blockchain technology tokenization helps improve accuracy in patient care and treatment while minimizing errors in billing and payment.

This aims to prevent fraud and abuse while supporting proactive, patient-centered care.

Recent Updates

2024 Reverse Stock Split

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

The 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.

Effective 11:59 PM EDT on November 15, 2024, the Company filed a Certificate of Amendment to 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 “2024 Reverse Split”).

The stock began trading post split on November 18, 2024 under the same symbol.

As a result of the 2024 Reverse Split, every 25 shares of the Company’s Common Stock were converted into one share of the Company’s new Common Stock.

Fractional shares resulting from the 2024 Reverse Split were rounded up to the nearest whole number.

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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 Quarterly Report have been adjusted to give effect to the one-for-twenty-five (1-for-25) Reverse Split.

Hazel Transactions

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 (after original issue discount), 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.

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 VRM Full Return payment due date was extended from May 23, 2023 until September 30, 2024, subject to acceleration upon certain triggering events.

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

(a) 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 such revenues and liquidity exceed the amount of net of revenues necessary to establish and maintain an operating reserve (“Operating Reserve”) of $70 million (the Operating Reserve was reduced to $47.5 million on July 24, 2023) for certain Company expenses, (b) a sale of certain reserved shares of Messrs.

Ruiz and Frank C.

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 by Messrs.

Ruiz and Quesada other shares of Messrs.

Ruiz and 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.

In addition, in connection therewith, Messrs.

Quesada and Ruiz agreed to certain transfer restrictions applicable to their common stock, and agreed to effectuate sales of Company common stock in certain circumstances.

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

The Second Virage MTA Amendment

(a) changed the 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.

In addition, pursuant to the Second Virage MTA Amendment, on January 1, 2024, the Company was 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.

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 (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;

(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) Messrs.

Primary Market Transfer

On December 6, 2024, the Company received notification from the Staff that the Company’s application to transfer the listing of its Class A Common Stock and publicly traded warrants from the Nasdaq Global Market to the Nasdaq Capital Market was approved.

The Company’s securities transferred to the Nasdaq Capital Market at the opening of business on December 10, 2024.

The Nasdaq Capital Market operates in substantially the same manner as the Nasdaq Global Market, and listed companies must meet certain financial requirements and comply with Nasdaq’s corporate governance requirements.

Symbol Change

Effective December 9, 2024, the Company consolidated all lines of business under the MSP Recovery brand, and the Company’s Class A Common Stock, New Warrants, and Public Warrants began trading on Nasdaq under the ticker symbols “MSPR,” “MSPRW,” and “MSPRZ,” respectively.

Prior to this change, the Company was known as LifeWallet.

Going Concern

The Company has assessed its ability to continue as a going concern.

Refer to the “Going Concern” section within Liquidity and Capital Resources below for analysis and conclusion.

Impairment of Intangible Assets

During the Company’s fourth quarter review of its CCRAs, the Company identified potential impairment indicators, such as recurring operating losses, and a lack of substantial revenue generated from our Claims portfolio to date, 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 in the fourth quarter of 2024.

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.

An asset group is impaired if the estimated undiscounted cash flows are less than the asset group’s carrying value.

Impairment is measured by the amount by which the carrying value exceeds fair value.

The Company performed a probability-weighted undiscounted net cash flow analyses, taking into account various scenarios of expected cash flows, some of which rendered positive results, while others rendered negative results.

Given that the probability-weighted average cash flows of all scenarios were below the carrying value, the Company performed a fair value assessment to measure impairment loss.

The fair value assessment of the intangible assets was determined using the income approach.

The significant inputs and assumptions used in the estimate of fair value were primarily Level 3 inputs, and include internally developed assumptions used in the undiscounted analysis, as well as the determination of an appropriate discount rate.

The Company’s estimation of the fair value of its CCRA intangible assets resulted in a non-cash impairment charge amount of $752.7 million recorded during the fourth quarter of 2024 in Impairment of intangible assets in the consolidated statement of operations for the year ended December 31, 2024.

The estimation of the fair value requires significant management judgment with respect to the estimates discussed above.

The estimates of the fair value are based on the best information available as of the date of the assessment.

Small changes in the significant inputs and assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease an impairment charge by a material amount.

If actual results or future expectations are not consistent with the assumptions used in our estimate of fair value, it may result in the recording of additional impairment charges in the future which could be material.

2024 Settlements

During fiscal year 2024, the Company entered into comprehensive settlements with property and casualty insurers (the “P&C Insurers”) on March 1, 2024, April 18, 2024, July 16, 2024, and November 11, 2024.

Although the identity of the parties and terms of settlement are confidential, the settlement terms include:

• Agreements to provide historical data for claimants and also assist the Company in reconciling its relevant current and future assigned Medicare claims (applicable to all settlements);

• The P&C Insurers’ Implementation of the Company’s coordination of benefits clearinghouse platform (applicable to the March 1, July 16, and November 11 settlements);

• Agreements to resolve cooperatively, or through binding mediation, relevant Medicare claims (liens) that MSP Recovery owns today and in the future (applicable to all settlements);

• Agreements that the P&C Insurers are primary payers for any unreimbursed Medicare lien that the Company 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 (applicable to all settlements);

• Cash payments from the P&C Insurers to settle existing historical claims (applicable to all settlements).

In addition, the Company entered into confidential settlement agreements with certain pharmaceutical manufacturers, medical device manufacturers, and patient assistant organizations:

• On August 19, 2024, the Company announced a $3.1 million cash settlement with a pharmaceutical manufacturer in a case where the Company alleged that the manufacturer increased the price of a drug in violation of antitrust laws.

• On November 11, 2024, the Company entered into a confidential settlement agreement with a medical device manufacturer totaling $760,000, where the Company alleged that the manufacturer increased the price of a medical device in violation of antitrust laws.

• On November 21, 2024, the Company reached a preliminary settlement totaling $2.0 million where the Company alleged violations of the Racketeer Influenced and Corrupt Organizations Act, and violation of various state consumer protection laws and unjust enrichment laws.

The terms of the settlement are a combination of monetary and non-monetary consideration, with the non-monetary consideration involving the Company’s acquisition of prescription drug claims data that may assist the Company to identify and recover against other responsible parties, including other pharmaceutical manufacturers and distributors.

Yorkville Amendments

At the close of Primary Market trading on October 18, 2024, the daily VWAP for MSP Recovery, Inc.’s (the “Company”) Class A Common Stock was below the Floor Price (which is $3.75), as defined in the Exchangeable Promissory Notes (“Notes”) issued to YA II PN, Ltd.

(“Yorkville”) pursuant to the Standby Equity Purchase Agreement dated November 14, 2023, as amended (the “SEPA”), by and between Yorkville and the Company, for ten consecutive Trading Days, resulting in a Floor Price Trigger pursuant to the Notes.

Upon the occurrence of a Trigger Event, the Company shall make monthly payments (“Monthly Payments”) beginning on the 7th Trading Day after the date of the Trigger Event and continuing on the same day of each successive month.

On April 10, 2025, Yorkville agreed:

(i) that the first Monthly Payment, as set forth in Section (1)(c) of the Notes, would be due from the Company no sooner than November 30, 2026, (ii) the maturity date of the Convertible Notes is extended to November 30, 2026, and (iii) to waive Volume Threshold and Maximum Advance Amount limitations set forth in the Yorkville SEPA.

Capitalized but undefined terms have the same meaning as set forth in the Yorkville SEPA and the Notes.

LSA Amendment

On April 14, 2025, Lionheart II Holdings, LLC (“Lionheart”), a wholly owned subsidiary of the Company, executed Amendment No.

1 to its Legal Services Agreement with La Ley con John H.

d/b/a MSP Recovery Law Firm (“La Ley”), and MSP Law Firm, PLLC (collectively with La Ley, “Law Firm”) which, effective December 31, 2024:

(i) terminates any obligation by the Company or its subsidiaries to provide further advances to fund the Law Firm, and provides that any Compensation earned by the Law Firm will be first used to repay the Advance Balance to Lionheart.

Restructuring Plan

As described in our Current Report on Form 8-K filed with the SEC on April 10, 2025, on April 4, 2025, Virage Recovery Master, LP (“Virage”);

Virage Capital Management, LP;

Hazel Partners Holdings, LLC (“HPH”);

Hazel Holdings I, LLC (and together with HPH, “Hazel”);

La Ley con John H.

d/b/a MSP Recovery Law Firm;

MSP Recovery, LLC;

MSP Law Firm PLLC;

MSP Recovery, Inc.

(the “Company”), John H.

Ruiz, and Frank C.

Quesada would commence the sale of certain of their reserved shares, and the delivery of the resulting net cash proceeds thereof to VRM.

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.

On November 13, 2023, the Company fully amended and restated the Nomura promissory note (the “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.

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.

Cano Health, LLC

On July 7, 2023, the Company issued 7,960,001 unregistered shares (after giving effect to the Reverse Split) of Class A Common Stock to 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.

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, 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 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 capital to VRM MSP in the form of in-kind ownership interests to certain series entities holding Claims;

however, recovery proceeds associated with said entities with service dates prior to January 1, 2014 and after March 31, 2023 were retained by MSP Recovery;

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” line item.

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.

Yorkville Facility

On January 6, 2023, we entered into a purchase agreement with YA II PN, Ltd., a Cayman Island exempted company (“Yorkville”), pursuant to which Yorkville committed to purchase up to $1 billion in shares of Class A Common Stock, subject to certain limitations and conditions set forth therein.

On November 14, 2023, we entered into the Yorkville SEPA, which fully amended and restated the January 6, 2023 agreement.

Under the Yorkville SEPA, the Company agreed to issue and sell to Yorkville, from time to time, and Yorkville agreed to purchase from the Company, up to $250 million of the Company’s Class A Common Stock, subject to certain limitations.

In connection with the Yorkville SEPA, and subject to the conditions set forth therein, Yorkville has agreed to advance us an amount of up to $15.0 million, evidenced by Convertible Notes to be issued to Yorkville at a purchase price equal to 95.0% of the principal amount of each Convertible Note.

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.

Interest shall accrue on the outstanding balance of any Convertible Note 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.

The maturity date of each Convertible Note will be September 30, 2025 (as extended by the Yorkville Letter Agreement), and may be extended at the option of Yorkville.

Yorkville may convert the Convertible Notes into shares of our Class A Common Stock at a conversion price equal to the lower of:

(A)(i) with respect to the initial Convertible Note issued on November 16, 2023, $8.0225, (ii) with respect to the second Convertible Note issued on December 11, 2023, $3.7136, and (iii) with respect to the third Convertible Note issued on April 8, 2024, $1.5050, or (B) 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 $1.00 (the “Floor Price”) (as lowered by the Yorkville Letter Agreement).

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 Class A Common Stock to Yorkville at a price per share equivalent to the Conversion Price as determined in accordance with the Convertible Notes.

Yorkville, in its sole discretion, may select the amount of any conversion, subject to certain limitations.

The shares of Class A Common Stock will be sold to Yorkville pursuant to the Yorkville SEPA at the election of the Company as specified in the Advance Notice and at a per share price equal to:

(i) 98% of the Market Price (as defined below) for any period commencing on the receipt of the Advance Notice by Yorkville and ending on 4:00 p.m.

New York City time on the applicable Advance notice date (the “Option 1 Pricing Period”), and (ii) 97% of the Market Price for any three consecutive trading days commencing on the Advance notice date (the “Option 2 Pricing Period,” and each of the Option 1 Pricing Period and the Option 2 Pricing Period, a “Pricing Period”).

“Market Price” is defined as, for any Option 1 Pricing Period, the daily volume weighted average price (“VWAP”) of the Class A common stock on Nasdaq during the Option 1 Pricing Period, and for any Option 2 Pricing Period, the lowest daily VWAP of the Class A common stock on the Nasdaq during the Option 2 Pricing Period.

In addition, provided that there is a balance outstanding under the Convertible Notes, shares of Class A Common Stock may also be sold to Yorkville pursuant to the Yorkville SEPA at the election of Yorkville, pursuant to a Yorkville Advance.

Pursuant to the Yorkville SEPA, Yorkville may offer and sell our Class A Common Stock from time to time.

Yorkville may offer and sell our Class A Common Stock in a number of different ways and at varying prices.

If any underwriters, dealers, or agents are involved in the sale of any of the securities, their names and any applicable purchase price, fee, commission or discount arrangement between or among them will be set forth, or will be calculable from the information set forth, in any applicable prospectus supplement.

Yorkville may offer, sell, or distribute all or a portion of their shares of Class A Common Stock publicly or through private transactions at prevailing market prices or at negotiated prices.

We will not receive any proceeds from the sale of shares of Class A Common Stock by Yorkville pursuant to the Yorkville SEPA;

however, we expect to receive proceeds from sales of Class A Common Stock that we may elect to make to Yorkville pursuant to the Yorkville SEPA, if any, from time to time at our discretion.

On April 8, 2024, the Company and Yorkville reached an agreement (the “Yorkville Letter Agreement”) to:

(1) reduce the Floor Price from $1.28 to $1.00;

(2) waive the first monthly payment due to the Floor Price Trigger, thereby curing the Floor Price Trigger;

and (3) 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.

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.

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.

Recent Settlements

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).

Quesada (collectively, the “Parties”) entered into a term sheet (the “Term Sheet”) agreeing to certain terms and transactions that are designed to reduce costs of the Company through a servicer, deleverage the Company by converting certain debt of certain creditors into equity, provide access to $9.75 million of bridge funding to the Company (of which $6.5 million remains available through July 2025 (of which $6.5 million remains available through July 2025 pursuant to the Term Sheet, $2.75 million of which remains available under the Operational Collection Floor at the sole discretion of HPH) and up to $25 million of working capital for New Servicer (as defined below), and focus the Company’s operations, through the New Servicer, on the core business model of pursuing recoveries under the MSP Laws so that it can achieve its long-term recovery goals.

Beyond July 2025, the Company’s anticipated sources of funding include the MSP Principals’ commitment to pledge $25 million of collateral to backstop additional working capital funding for the Company, potential distributions under our Standby Equity Purchase Agreement with YA II PN, Ltd.

(the “Yorkville SEPA”), and claims recovery proceeds, subject to debt obligations on certain of the claims.

These proposed transactions are subject to, among other things, further negotiation and the execution of definitive agreements, regulatory approvals, certain third-party consents and approvals, and shareholder approvals if required by the Nasdaq Stock Market.

The obligation of Hazel and its affiliates to enter into definitive documents is subject to the satisfaction of various conditions precedent, at their sole discretion, including, but not limited to, satisfactory finalization of due diligence and all required internal approvals, receipt of certain third-party consents required, and finalization of documentation.

Consummation of the transactions contemplated by the Term Sheet are also subject to additional fundings by other parties and certain debt concessions by other stakeholders.

As a result, there can be no guarantee that the transactions contemplated by the Term Sheet will be consummated.

The proposed transactions include, but are not limited to, the following transactions:

Establishment of New Servicer

The Company shall establish a new subsidiary (“New Servicer”) to provide and control recovery efforts, by way of litigation, demand letters, settlements, or other means, in connection with existing claim recovery rights (to the extent assignable), and those acquired in the future, held in special purpose vehicles (“SPV”), wholly owned by New Servicer, to hold any new claims acquired.

Company will license its intellectual property to the New Servicer in exchange for a license fee of 17.5% of New Servicer’s excess cash flow, with a minimum fee of $1.55 million paid on May 30, 2025, and June 30, 2025.

New Servicer will be funded by an affiliate of Hazel (hereinafter, “Funder”), up to $25 million in funding, as set forth below, with a right of first refusal for additional funding needs.

New Servicer will be independently managed and be separately governed by an independent board of directors, including a chief executive officer chosen by Funder and consented to by the Company, one director chosen by the Company, and one independent director chosen by Funder and approved by the Company.

Funder’s governance rights shall terminate once all Hazel loans have been repaid in full, and Funder’s Recovery Rights Interest (as defined below) in the New Servicer is less than 10%.

Virage shall have observer rights to the New Servicer board of directors until the amounts owed to Virage pursuant to the Master Transaction Agreement dated March 9, 2022, as amended (the “MTA”), which was approximately $1.1 billion as of December 31, 2024 (the “VRM Full Return”) has been repaid and Virage’s equity interest in the Company is less than 10%.

Working Capital Funding for the New Servicer

Funder has agreed to extend a line of credit to New Servicer of up to $25 million, funded in tranches of up to $1.75 million per month, subject to the New Servicer meeting certain milestones (which are currently being negotiated and to be agreed in definitive documentation), beginning September 2025, with a maturity date of June 30, 2027.

New Servicer funding will accrue interest at the Secured Overnight Financing Rate (“SOFR”) plus 5% per annum for one year, and SOFR plus 10% thereafter.

Funder will establish a first lien on the New Servicer;

the Company will not guaranty the loan to fund New Servicer.

In addition, Funder or Hazel is entitled to receive to up to 35% of New Servicer’s excess cash flow (the “Recovery Rights Interest”).

At its option, Funder may convert, in whole or part, its Recovery Rights Interest for up to 30% of the then outstanding shares of Company’s equity, measured as of the Closing and subject to dilution for stock issuance thereafter.

Additional Bridge Financing for the Company

Moreover, Hazel agreed to provide up to $9.75 million in bridge loan funding to the Company under the existing Operational Collection Floor facility (in addition to the $16.0 million previously funded under the facility) in the amounts of:

(i) $1.75 million for March 2025, which was funded on February 28, 2025;

(ii) $1.5 million for April 2025, which was funded on April 4, 2025;

(iii) $1.5 million for May 2025, to be funded on or about April 30, 2025;

(iv) up to $2.0 million to fund the legal, accounting, and administrative expenses associated with the reorganization, subject to certain terms and customary conditions acceptable to Hazel, and minimum license fees of (v) $1.55 million for June 2025;

and (vii) $1.55 million for July 2025.

Funding is conditional, in part, on an increase in the pledge of collateral and personal guaranty by $9.75 million by Messrs.

Ruiz and Quesada (the “MSP Principals”).

Such minimum license fee payment will be paid from the Bridge Loan.

Beyond July 2025, the MSP Principals have committed to pledge $25 million of collateral to backstop additional working capital requirements of the Company, in addition to other previous sources of funding, including cash proceeds from the sale of Class A Common Stock to Yorkville pursuant to the Yorkville SEPA, and the proceeds from claims recoveries, subject to lien repayment on certain claims.

In addition, the Company expects annual costs reductions due to New Servicer operations and shall be funded by the Funder (through New Servicer).

In addition, the Term Sheet requires (and is conditioned upon) La Ley con John H.

d/b/a MSP Recovery Law Firm and MSP Law Firm, PLLC, collectively, raising $25 million for operational funding over two years, subject to similar milestones (to be agreed upon) as per the New Servicer funding, and to be entered into at completion of the proposed transaction.

Debt Restructuring

In exchange for a 43% equity interest in the Company (inclusive of shares currently held and those shares acquired through warrant exercises pursuant to the Virage Term Sheet discussed below) Virage has agreed to waive all claims and release all liens against the Company relating to the VRM Full Return (approximately $1.1 billion as of December 31, 2024), and the Parties agree that the VRM Full Return will be paid only from:

(i) a junior lien against Subrogation Holdings proceeds, (ii) claims currently owned by Virage, (iii) liens over two tranches of claims currently owned by Hazel (which Hazel shall release as part of the reorganization transaction) and (iv) a non-recourse second lien up to $100 million over 50% of the proceeds from the New Servicer and associated SPVs, to the extent that the VRM Full Return has not been repaid.

In addition, the MSP Principals have agreed to convert 100% of the Company’s debt obligation to them, totaling approximately $144 million, into shares of the Company’s Class A Common Stock, the full and final amount of the debt-to-equity conversion is subject to tax analysis and approval of the MSP Principals and the Company’s Board of Directors.

Hazel’s existing loans to Subrogation Holdings and the amount of Company’s guaranty (currently approximately $100 million) remain unchanged except that such lien shall now exclude the Company’s intellectual property.

Hazel agreed, subject to obtaining third-party consents, to extend the maturity date on all outstanding obligations to November 30, 2026.

To secure the repayment of the existing Hazel loans to the extent such loans have not been repaid in full, the Company shall, for a principal amount of up to $235 million with an interest rate of SOFR plus 10% per annum:

(i) pledge to Hazel 50.1% of the New Servicer and associated SPV equity interests;

and (ii) grant a lien over 50% of the proceeds from New Servicer and associated SPVs, once the New Servicer funding has been repaid.

In addition, to the extent the VRM Full Return has not been repaid, Virage has second lien of up to $100 million over 50% of the proceeds from New Servicer and associated SPVs.

On January 13, 2025, the Board delegated to an independent committee of the Board of Directors (the “Independent Committee”) the power and authority to, among other things, determine on behalf of the Board and the Company whether, to the extent any conflicts or potential conflicts exist or arise in the future among the Company and Messrs.

Ruiz and Quesada, certain Restructuring and Proposals are advisable and fair to, and in the best interests of, the Company and its stockholders.

The Independent Committee reviewed the Term Sheet and engaged legal counsel and financial advisors that are familiar with the Company and restructuring transactions to determine if the Term Sheet is advisable and fair, and in the best interests of the Company and its stockholders.

Although the Independent Committee identified material conflicts, those conflicts involve conditions precedent to the Term Sheet, and are resolvable to the satisfaction of the Independent Committee in furtherance of the Term Sheet and in the best interest of the Company;

as such, the Independent Committee determined that it is advisable and in the best interests of the Company to approve the signing of the Term Sheet and subsequent entry into agreements consistent with the terms set forth therein.

Pursuant to the Term Sheet, the parties expect to enter into one or more definitive agreements by April 30, 2025.

VRM Warrant Issuance and Restructuring

Pursuant to the first Amendment to the Master Transaction Agreement, dated April 11, 2023 (the “First Amendment”), for each calendar month beginning with January 31, 2024 and ending when the VRM Full Return (as defined in the Master Transaction Agreement dated March 9, 2022 (as amended, the “MTA”)) is paid in full, the Company is required to either:

(i) pay in cash or (ii) issue a warrant to purchase a number of shares of Class A Common Stock of the Company, or some combination thereof, to Virage Recovery Master LP (“VRM”) equal to the quotient of 1% of the calendar month-end balance of the Unpaid Base Amount (as defined in the MTA) (the “Required Monthly Issuance”).

On April 14, 2025, the Company issued VRM Monthly Warrants for November 2024 and December 2024, for 3,277,808 and 6,332,792 shares respectively, exercisable at a purchase price of $0.0001 per share for a period of two years from the original issuance date, exercisable on a cashless basis only.

To date, the Company has issued 12 warrants to VRM pursuant to the First Amendment, entitling Virage to purchase 19,361,939 shares of Class A Common Stock.

In connection with negotiations to restructure the Company’s obligations under the MTA, on February 18, 2025, the Company entered into a term sheet agreement with Virage (the “Virage Term Sheet”) to amend the MTA, whereby Virage and the Company agreed, subject to certain conditions, which have not been met as of the date of this Annual Report on Form 10-K, to enter into definitive documentation at a later date to:

(i) exercise the VRM Warrants to purchase that number of shares that would result in Virage owning 33 1/3% of the then issued and outstanding Common Stock (the “Warrant Exercise”), (ii) surrender to the Company any remaining unexercised VRM Warrants, or portions thereof, for termination, (iii) contemporaneous with the Warrant Exercise, terminate its agreement to hold no more than 9.99% of the outstanding Common Stock of the Company, (iv) subject to certain conditions, grant proxy voting rights to the MRCS Principals over an amount of shares of Common Stock issuable to Virage from the Warrant Exercise such that the MRCS Principals will have voting control over 51% of the total outstanding Parent Class A Common Stock, and (v) terminate any obligation of the Company to satisfy the Required Monthly Issuance.

These proposed transactions under the Virage Term Sheet are subject to, among other things, further negotiation and the execution of definitive agreements, regulatory approvals, and shareholder approvals if required by the Nasdaq Stock Market;

as a result, there can be no guarantee that the transactions thereby will be consummated.

Key Factors Affecting Our Results

Our Claims Portfolio

We differ from some of our competitors because we obtain our recovery rights through irrevocable assignments.

We differ from our competitors because we obtain our recovery rights through irrevocable assignments.

When we are assigned these rights, we take on the risk that such Claims may not be recoverable.

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In litigation, our experienced management and legal teams provide us with a competitive advantage.

While our model of being assigned the Claim rights allows us the flexibility to direct the litigation and potentially generate higher margins, we have, on an opportunistic basis, paid the Assignor an upfront purchase price for these rights.

To date, we have not generated substantial revenue from our Claims portfolio, and our business model is dependent of achieving revenue from this model in the future.

If we are unable to recover the upfront purchase price from the assigned Claims or the investments we have made in pursuing recoveries, it would have an adverse effect on our profitability and business.

If we are unable to recover the up-front purchase price from the assigned Claims or the investments we have made in pursuing recoveries, it would have an adverse effect on our profitability and business.

Our potential Claims recovery income in a given period will be impacted by the amount of Claims we review and ultimately pursue.

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These strategies will include a platform to educate potential Assignors about our company, making strategic business partnerships, potential mergers, as well as other marketing strategies.

Our Assignors have grown from 32 in 2015, to 105 in 2018, to 123 in 2019, to 134 in 2020 and over 160 Assignors to date.

Our Assignors have grown from 32 Assignors in 2015 to over 160 Assignors to date.

If we are unable to continue to attract new Assignors to our platform, this could adversely affect future profitability.

In addition to obtaining new Claims, our ability to collect on identified Claims at our estimated multiples is key to our future profitability.

Pursuant to the MSP Act, we believe we are entitled to pursue reasonable and customary rates.

Pursuant to the MSP Laws, we believe we are entitled to pursue reasonable and customary rates.

Under existing statutory and case law, the private cause of action under the MSP Act permits the pursuit of double damages when a primary plan fails to provide for primary payment or appropriate reimbursement.

In addition to double damages, federal law provides express authority to pursue statutory interest from primary payers on any amounts owed.

In addition to double damages, federal law and regulations provide express authority to pursue statutory interest from primary payers on any amounts owed.

As a result, we may pursue double damages and statutory interest in our MSP Act-related recoveries.

We seek to recover these amounts under either the recovery model or the Chase to Pay model.

We seek to recover these amounts under either the recovery model or the Chase to Pay platform.

Federal law also expressly provides MAOs with the right to charge providers for the Billed Amount when accident-related liability exists.

Per the terms of various legal services agreements that MSP Recovery has with the Law Firm, for legal services provided, the Law Firm would receive a percentage of the total Claim recovery which would include double damages and additional penalties.

Our ability to pursue double damages may be impacted by the RAMP Act as disclosed in Note 13, Commitments and Contingencies , to the consolidated financial statements included elsewhere in this Annual Report.

Our Claims recovery revenue is typically recognized upon reaching a binding settlement or arbitration with a counterparty or when the legal proceedings, including any appellate process, are resolved.

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Total Paid Amount :

The term Paid Amount is defined in the Definitions section above.

The term Paid Amount is defined in the Glossary of Terms section above.

As we continue to expand, we anticipate our revenue growth will be greatly dependent on our ability to increase the total Paid Amount and, correspondingly, the Paid Value of Potentially Recoverable Claims, in our portfolio.

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Paid Value of Potentially Recoverable Claims (“PVPRC”) :

The term PVPRC is defined in the Definitions section above.

The term PVPRC is defined in the Glossary of Terms section above.

We analyze our Claims portfolio and identify potentially recoverable Claims using our Algorithms to comb through historical paid Claims data and search for potential recoveries.

PVPRC is a measure of the Paid Amount that has been paid to providers in respect of those potentially recoverable Claims.

Management believes this measure provides a useful metric for potential recoveries, but it is not a measure of the actual amount that may be recovered with respect to potentially recoverable Claims, which in turn may be higher or lower based on a variety of factors.

Management believes this measure provides a useful metric for potential recoveries, but it is not

a measure of the actual amount that may be recovered with respect to potentially recoverable Claims, which in turn may be higher or lower based on a variety of factors.

As non-compliance with Section 111 reporting requirements is commonplace, responsible reporting entities (RRE) routinely fail to report their responsibility to make primary payments;

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For recoveries sought pursuant to the MSP Laws, we generally pursue amounts in excess of the Paid Amount;

in other cases, the cause of action will dictate the amount pursued.

in other cases, such as antitrust or product liability, the cause of action will dictate the amount pursued.

The Recovery Multiple is the amount of any generated Claims recovery income obtained by the Company in respect to any Claims as compared to the Paid Amount of those Claims (e.g., if a given Claim had a Paid Amount of $100, a $300 recovery would represent a Recovery Multiple of 3x).

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As actual recoveries have been limited to date, this measure has limited utility for historical periods.

However, management believes this measure will become more meaningful during the next 12 months and beyond to the extent the Company begins to report actual increases in recoveries during those periods.

As of December 31, 2023, the Company has obtained settlements where the Recovery Multiple was or would be in excess of the Paid Amount, and settlements at or below the paid amount.

However, these settlements do not provide a large enough sample to be statistically significant and are therefore not shown in the table.

As the Recovery Multiple is based on actual recoveries, this measure is not based on the Penetration Status of Portfolio, as described below.

However, management believes this measure will become more meaningful during the next 12 months and beyond to the extent the Company begins to report substantive recoveries.

As of December 31, 2024, the Company has obtained settlements where the Recovery Multiple was or would be in excess of the Paid Amount, settlements at or below the paid amount, and settlements where the Recovery Multiple cannot be calculated with certainty on the settlement date, as these settlements include, in addition to cash payments, non-cash consideration, including, but not limited to agreements:

(i) to assign Claims for the Company to pursue recoveries against plaintiffs’ attorneys and medical providers, (ii) to provide historical data and assistance in reconciling current and future Medicare claims;

(iii) to implement the clearinghouse platform;

and (iv) to resolve cooperatively, or through binding mediation, recoverable Medicare Claims that the Company owns today and/or obtains in the future.

Penetration Status of Portfolio :

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We estimate that cases that are in the potential resolution discussions and/or data matching are closer to generating potential future Claims recovery income.

As of and for the Year Ended December 31,

Year Ended December 31,

$ in billions

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Penetration Status of Portfolio

During the year ended December 31, 2023, the Company has received total recoveries of $7.2 million.

However, the settlement amounts do not provide a large enough sample to be statistically significant, and are therefore not shown in the table.

During the year ended December 31, 2024, the Company received gross recoveries of $18.1 million, of which the Recovery Multiple for recoveries obtained pursuant to the MSP Laws was 1.32 times the Paid Amount, and the Recovery Multiple for

recoveries obtained pursuant to non-MSP Laws, including antitrust and unfair trade practice laws, was 0.04 times the Paid Amount.

During the years ended December 31, 2023 and 2022, recoveries were not meaningful, and so no multiple is provided.

On August 10, 2022, the United States Court of Appeals, Eleventh Circuit held that a four-year statute of limitations period applies to certain claims brought under the Medicare Secondary Payer Act’s private cause of action, and that the limitations period begins to run on the date that the cause of action accrued.

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Claims Recovery Service Income

We also recognize Claims recovery service income for our services to a related party and a third party to assist those entities with pursuit of Claims recovery rights.

In the past, we have recognized Claims recovery service income for our services to a related party and a third party to assist those entities with pursuit of Claims recovery rights.

We have determined we have 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.

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Amounts payable for services to third parties are typically based on budgeted expenses for the current month with an adjustment for the variance between budget and actual expenses from the prior month.

The Company did not recognize any significant claims recovery service income during 2023.

The Company did not recognize any claims recovery service income during the year ended December 31, 2024.

Other Revenue

Other revenue consists of fee revenue generated by the Company’s new electronic health records (“EHR”) platform, which went live in the second quarter of 2024.

Other revenue was not significant for the year ended December 31, 2024.

Operating Expenses

Costs of Claim Recoveries

Costs of recoveries consist of all directly attributable costs specifically associated with Claims processing activities, including contingent payments payable to Assignors (i.e., settlement expenses).

Claims Amortization Expense

Claims Amortization Expense consists of the amortization of CCRA intangible assets for those CCRAs in which we made upfront payments or commitments in order to acquire Claims recovery rights.

Claims Amortization Expense consists of the amortization of CCRA intangible assets for those CCRAs in which we made up-front payments or commitments in order to acquire Claims recovery rights.

General and Administrative Expenses

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General and administrative expenses also consist of rent, IT costs, insurance, and other office expenses.

As we continue to grow as a company and build our team, we expect that our general and administrative costs will increase.

We also expect to incur additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor relations, and professional services.

Allowance for Credit Losses

Allowance for credit losses consists of a specific reserve for a receivable amount due from Cano.

Allowance for credit losses consists of a specific reserve in 2023 for a receivable amount due from Cano Health, LLC (see Note 12, Commitments and Contingencies ), which was subsequently written-off in 2024.

Due to its material nature, it is included separately in the consolidated statement of operations.

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Professional fees – legal consist of payments for the expenses of the Law Firm covered by a certain Legal Services Agreement and other legal professional services from third-party providers, including payments to co-counsel.

Impairment of Intangible Assets

Consists of a non-cash impairment charge of the CCRA intangible assets recognized during the fourth quarter of 2024 as a result of the fourth quarter 2024 impairment review.

Depreciation and Amortization

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Interest Expense

In some cases, we have entered into arrangements to transfer CCRAs or rights to proceeds from CCRAs to other parties.

When such transfers are considered to be sales of future revenue that are debt-like in nature as defined in ASC 470, 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.

Our interest expense consists of the imputed interest on these payments.

We anticipate that as we recognize Claims recoveries related to CCRAs in these arrangements, the interest expense on these arrangements will decrease.

In addition, interest expense includes interest paid on the Amended and Restated Nomura Promissory Note, Hazel Working Capital Credit Facility and Purchase Money Loan, Virage transactions (See Note 4, Assets Acquisitions , to the consolidated financial statements included elsewhere in this Annual Report), Yorkville Advances, and Loans from related parties.

Interest expense includes interest paid on the Nomura Note, Hazel Working Capital Credit Facility and Purchase Money Loan, Virage transactions (see Note 3, Material Agreements ), Yorkville Advances, and Loans from related parties.

Other Income (Expense)

Other income consists of equity investment earnings, some affiliate related income, mark-to-market gain (loss) for payments due in stock.

Other income consists of equity investment earnings, some affiliate related income, mark-to-market gain (loss) for payments due in stock, settlement income, and interest income.

Other expenses consist of bank service charges, airing fees, tax penalties, settlement expense, political contributions and donations, and some affiliate related expenses.

Changes in Fair Value of Warrant and Derivative Liabilities

Changes in fair value of warrants and derivative liabilities consists of the mark-to-market of warrant liabilities and derivatives as part of the OTC Equity Prepaid Forward Transaction noted in Note 18, Derivative Liability , and warrant liabilities due to Public Warrants as noted in Note 3, Business Combination , in the notes to consolidated financial statements included elsewhere in this Annual Report.

Changes in fair value of warrants and derivative liabilities consists of the mark-to-market of warrant liabilities due to Public Warrants and Virage Warrants as noted in Note 3, Material Agreements.

Net (Income) Loss Attributable to Non-Controlling Members

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Results of Operations

A discussion of changes in our results of operations and cash flows for the year ended December 31, 2022 from the year ended December 31, 2021 has been omitted from this Annual Report, but may be found in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K, filed with the SEC on July 27, 2023, which is available free of charge on the SEC’s website at www.sec.gov and at www.msprecovery.com, by clicking “Investors” located at the top of the page.

Year ended December 31, 2024 versus year ended December 31, 2023

The following table sets forth a summary of our consolidated results of operations for the year ended December 31, 2023 and 2022.

The following table sets forth a summary of our consolidated results of operations for the years ended December 31, 2024 and 2023.

Year Ended December 31,

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Claims recovery service income

Total Claims Recovery

Total Revenue

Operating expenses

Cost of claims recoveries

Cost of revenues

Claims amortization expense

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Professional fees – legal

Impairment of intangible assets

Allowance for credit losses

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Net loss before provision for income taxes

Provision for income tax benefit (expense)

Provision for income tax expense

Net (income) loss attributable to non-controlling interests

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Claims Recovery Service Income.

Claims recoveries service income decreased by $18.0 million, or 97%, to $0.5 million for the year ended December 31, 2023 from $18.5 million for the year ended December 31, 2022, primarily driven by a decrease in third-party service fees, which mainly relate to a contract that expired during 2023 and did not renew.

Claims recoveries service income decreased by $0.5 million to zero for the year ended December 31, 2024 from $0.5 million for the year ended December 31, 2023, driven by third-party service fees related to a contract that expired during 2023 and did not renew.

Other Revenue.

Other revenue was $0.1 million for the year ended December 31, 2024.

The increase is related to a new service introduced in the second quarter of 2024.

Cost of Claims Recoveries.

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Claims Amortization Expense.

Claims amortization expense increased by $209.6 million, to $476.5 million for the year ended December 31, 2023 from $266.9 million for the year ended December 31, 2022, primarily driven by increased amortization due to the acquisition of CCRAs purchased during the year ended December 31, 2023, included in intangible assets in the consolidated balance sheets.

Claims amortization expense increased by $7.6 million, to $484.1 million for the year ended December 31, 2024 from $476.5 million for the year ended December 31, 2023, primarily driven by increased amortization due to the acquisition of CCRAs.

General and Administrative.

General and administrative increased by $2.5 million, or 11%, to $26.5 million for the year ended December 31, 2023 from $24.0 million for the year ended December 31, 2022, as a result of additional costs of being a public Company.

The increase was primarily driven by increases costs in salaries and benefits of $0.4 million, increase in non-executive board

compensation of $0.9 million, and increases in other costs such as marketing and promotions of $0.4 million, insurance of $0.5 million and $0.3 million of information technology expenses, among others, as compared to the year ended December 31, 2022.

General and administrative decreased by $4.3 million, or 16%, to $22.2 million for the year ended December 31, 2024 from $26.5 million for the year ended December 31, 2023, primarily driven by a decrease in marketing and promotions of $3.9 million, salaries, benefits and payroll expenses and taxes of $0.3 million, and insurance of $0.4 million, offset primarily by an increase in rent expense of $0.3 million and information technology expenses of $0.1 million, mainly data storage, among others.

Professional Fees.

Professional fees increased by $4.3 million, or 23%, to $22.8 million for the year ended December 31, 2023 from $18.5 million for the year ended December 31, 2022, primarily driven by additional costs incurred by being a public company, including $6.0 million advisory fees, as well as $0.7 million of other external consultants, offset by a decrease of $0.4 of a management fee that did not reoccur in 2023 and $2.0 million in other various professional fees.

Professional fees decreased by $8.6 million, or 38%, to $14.1 million for the year ended December 31, 2024 from $22.8 million for the year ended December 31, 2023, primarily driven by a $5.5 million reduction in consulting fees, $6.6 million management fees in 2023 that did not reoccur in 2024, a $1.5 million reduction in other professional fees, and $0.2 million reduction in professional accounting fees, offset by an increase of $5.1 million in corporate legal fees.

Professional Fees – Legal.

Professional Fees - Legal decreased by $8.6 million, or 20%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily driven by a $20.1 million reduction in shared based compensation for the Law Firm, offset by $1.8 million increase in fees to outsourced law firms and Law Firm expenses increase of $9.6 million for the year ended December 31, 2023.

Professional Fees – Legal decreased by $24.9 million, or 72%, to $9.5 million for the year ended December 31, 2024, from $34.4 million for the year ended December 31, 2023, primarily due to fees incurred for outsourced law firms in 2023 being managed by the Law Firm in 2024, as well the difference in amortization of the advance to the Law Firm, discussed within “ MSP Principals Promissory Note” in Sources of Liquidity further below, which completed its amortization early in 2024.

Impairment of Intangible Assets.

A non-cash impairment of intangible assets of $752.7 million was recorded for the year ended December 31, 2024.

As discussed in Note 6, Intangible Assets, Net to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the Company recorded a non-cash impairment amounting to $752.7 million as part the annual impairment review over intangible assets.

Refer to discussion in “Recent Updates” above and in Note 6, Intangible Assets, Net .

Allowance for Credit Losses.

Allowance for credit losses for year ended December 31, 2023 was $5.0 million, entirely related to an amount due from Cano which has been reserved considering Cano’s bankruptcy proceeding, and subsequently written-off.

No such allowance occurred during 2024.

Depreciation and Amortization.

Depreciation and amortization expense remained consistent for year ended December 31, 2024 in comparison with year ended December 31, 2023.

Interest Expense.

Interest expense increased by $168.2 million, or 139%, to $289.2 million for the year ended December 31, 2023 from $121.0 million for the year ended December 31, 2022, primarily driven by an increase due to the guaranty obligation, the new Hazel Working Credit Facility and Purchase Money Loan, as well as increases in the basis for which interest is incurred on our Claims financing obligations and accrued interest on the related party loan obtained in June 2022.

Interest expense increased by $130.9 million, or 45%, to $420.0 million for the year ended December 31, 2024 from $289.2 million for the year ended December 31, 2023, primarily driven by an increase due to the guaranty obligation, the Hazel Working Credit Facility and Purchase Money Loan, as well as increases in the basis for which interest is incurred on our Claims financing obligations and accrued interest on the related party loan.

Other Income, Net.

Other income decreased by $53.8 million, to $9.3 million for the year ended December 31, 2023 from $63.1 million for the year ended December 31, 2022 driven by a $63.4 million gain associated with the settlement of the Brickell Key Investment debt extinguishment in 2022 that did not reoccur in 2023.

Other income for the year ended December 31, 2023 consists primarily of a $4.6 million of gain on the sale of CCRAs and $4.4 million of gain on fair value of a liability payable in stock.

Other income decreased by $8.7 million, to $0.5 million for the year ended December 31, 2024 from $9.3 million for the year ended December 31, 2023 primarily due to a $4.6 million gain on sale of CCRAs during 2023 that did not reoccur in 2024, a $3.9 million reduction in the mark-to-market gain on liability payable in stock, and $0.2 million reduction in Other miscellaneous income and expense.

Change in Fair Value of Warrant and Derivative Liabilities.

For the year ended December 31, 2023, $4.6 million gain in 2023 related primarily to a mark-to-market adjustment to the fair value of Public Warrants.

For the year ended December 31, 2022, $12.5 million of total loss was recorded, of which $9.6 million for the fair value of derivative liabilities related to the Committed Equity facility and $2.9 million was related to mark-to-market adjustments for the fair value of warrants.

The change in fair value of warrant and derivative liabilities increased $132.3 million to $136.9 million for the year ended December 31, 2024 from $4.6 million to the same period in the prior year.

For the year ended December 31, 2024, $136.9 million gain in 2024 related to a mark-to-market adjustment to the fair value of Public Warrants and Virage Warrants.

For the year ended December 31, 2023, the $4.6 million gain in 2023 related to a mark-to-market adjustment to the fair value of Public Warrants.

Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with GAAP, this Annual Report also contains non-GAAP financial measures.

We consider “adjusted net loss” and “adjusted operating loss” as non-GAAP financial measures and important indicators of performance and useful metrics for management and investors to evaluate our business’s ongoing operating performance on a consistent basis across reporting periods.

We consider “adjusted net loss” and “adjusted operating loss” as non-GAAP financial measures and important indicators of performance and useful metrics for management and investors to evaluate the Company’s ongoing operating performance on a consistent basis across reporting periods.

We believe these measures provide useful information to investors.

Adjusted net loss represents net loss adjusted for certain non-cash and non-recurring expenses and adjusted operating loss items represents Operating loss adjusted for certain non-cash and non-recurring expenses.

Adjusted net loss represents net loss adjusted for certain non-cash and non-recurring expenses, and adjusted operating loss items represent operating loss adjusted for certain non-cash and non-recurring expenses.

A reconciliation of these non-GAAP measures to their most relevant GAAP measure is included below:

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GAAP Operating Loss

Share based compensation

Professional fees paid in stock

Claims amortization expense

Impairment of intangible assets

Allowance for credit losses

Adjusted Operating Loss

GAAP Net Loss

Share based compensation

Professional fees paid in stock

Claims amortization expense

Gain on debt extinguishment

Impairment of intangible assets

Allowance for credit losses

Interest expense (1)

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Adjusted Net Loss

(1) Interest expense included above excludes any interest expense payments made in cash during the year ended December 31, 2024.

Liquidity and Capital Resources

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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.

The Company anticipates sources of liquidity to include up to $9.75 million in bridge loan funding to the Company under the existing Operational Collection Floor facility (in addition to the $16.0 million previously funded under the facility) in the amounts of:

(i) $1.75 million for March 2025, which was funded on February 28, 2025;

(ii) $1.5 million for April 2025, which was funded on April 4, 2025;

(iii) $1.5 million for May 2025, to be funded on or about April 30, 2025;

and (vi) $1.55 million for July 2025, as well as the Yorkville SEPA as disclosed in more detail in Note 9, Claims Financing Obligations and Notes Payable , and beyond July 2025, the MSP Principals’ commitment to pledge $25 million of collateral to backstop additional working capital requirements of the Company.

The Company has taken several actions to address liquidity concerns, including actions enumerated below.

However, as discussed further below, the Company has concluded management’s plans were not sufficient to alleviate the substantial doubt about the Company’s ability to continue as a going concern:

On March 29, 2023, the Company’s subsidiary, Subrogation Holdings, LLC 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.

See summary in “ Hazel Working Capital Credit Facility and Hazel Purchase Money Loan ” in Note 9, Claims Financing Obligations and Notes Payable to the consolidated financial statements.

On August 2, 2024, HPH agreed to, among other things, (i) extend the period for the Company draw up to $14 million for working capital, accessible in eight tranches of $1.75 million, that can be drawn at least one month apart, until September 2025 and (ii) provide for a $2.0 million loan to be funded by August 31, 2024 for the purpose of acquiring the New Claims.

On January 30, 2025, the Company drew the final $1.75 million tranche for working capital.

Pursuant to the OCF Amendment, HPH may, at its sole discretion, increase the Operational Collection Floor by an amount of up to $6.0 million, to be funded over a period of three to six months.

On February 28, 2025 and April 4, 2025, HPH exercised that discretion and funded $1.75 million and $1.5 million, respectively, from the increase to the Operational Collection Floor;

said payments are considered part of the bridge loan, as set forth in the proposed reorganization Term Sheet discussed in Note 18, Subsequent Events .

An additional $2.75 million remains available under the Operational Collection Floor, to be funded at HPH’s sole discretion.

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.

See summary in Note 3, Material Agreements to the consolidated financial statements.

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

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(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 Yorkville 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.

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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.

See summary in “ Yorkville SEPA” within Sources of Liquidity section below, as well as “ 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.

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.

The VRM Full Return guaranty obligation became current on September 30, 2024, and the Company does not currently have available liquidity to satisfy said obligation.

On November 13, 2023, the Company entered into the Second Amended and Restated Nomura Note (defined in Note 3, Business Combination to the consolidated financial statements), which extended the maturity date of the Nomura Note to December 31, 2024.

See summary in Note 9, Claims Financing Obligations and Notes Payable to the consolidated financial statements.

On March 26, 2024, the Company entered into the Third Amended and Restated Nomura Promissory Note, which extended the maturity date of the Nomura Note to September 30, 2025.

The note became current on September 30, 2024, and the Company does not currently have available liquidity to satisfy said obligation.

Pursuant to a letter agreement dated November 15, 2024, Nomura agreed to forego payments of up to $4.0 million due under the Third Amended and Restated Nomura Note from proceeds from the sale of Class A Common Stock to Yorkville pursuant to the Yorkville SEPA until March 31, 2025.

On November 14, 2023, the Company entered into the Yorkville SEPA, which included the issuance of Yorkville 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 9, Claims Financing Obligations and Notes Payable to the consolidated financial statements.

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

On April 12, 2024, Yorkville 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 $13.0 million on the same terms and conditions as the previous advances pursuant to the Yorkville SEPA.

On April 10, 2025, Yorkville further agreed to:

(i) extend the due date for the first Monthly Payment to November 30, 2026, (ii) extend the maturity date of the Convertible Notes to November 30, 2026, and (iii) to waive Volume Threshold and Maximum Advance Amount limitations set forth in the Yorkville SEPA.

As we have sold substantially all of the 2.0 million shares currently registered for resale to Yorkville, we need to file with the SEC one or more additional registration statements to register under the Securities Act the resale by Yorkville of any additional shares of our common stock, and the SEC would have to declare such registration statement or statements effective before we could sell additional shares.

There can be no assurances of such events occurring or the timing of such events occurring.

The Company has concluded that, despite the aforementioned financing arrangements, there is substantial doubt about its ability to continue as a going concern.

Unless we are successful in raising additional funds through the offering of debt or equity securities, we have concluded it is probable we will be unable to continue to operate as a going concern beyond the next twelve months.

The Company has received a report from its independent registered public accounting firm with an emphasis of matter paragraph as to going concern in connection with the Company’s audited annual financial statements for the year ended December 31, 2024, which resulted in an event of default in the aforementioned debt agreement, which would have resulted in the debt becoming immediately due;

however, the Company has received waivers from (i) Virage and VRM and (ii) HPH and Hazel as it pertains to the year ended December 31, 2024.

Sources of Liquidity

Working Capital Credit Facility

On March 6, 2023, Subrogation Holdings entered into a credit agreement (“Initial Credit Agreement”) with HPH, pursuant to which HPH funded an initial $10 million in proceeds to Subrogation Holdings.

On March 29, 2023, the Initial Credit Agreement was fully amended and restated (the “Working Capital Credit Facility”), providing for funding of 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.

On March 29, 2023, an additional $5 million was disbursed to Subrogation Holdings under the Term Loan A.

On March 6, 2023, Subrogation Holdings entered into a credit agreement (as amended on March 29, 2023;

November 10, 2023;

and October 1, 2024;

the “Working Capital Credit Facility”) with HPH providing for funding of 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.

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 is payable in kind and will be capitalized quarterly.

Accrued interest on the Working Capital Credit Facility is payable in kind and are 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.

On May 11, 2023 and June 13, 2023, HPH notified us that it would not disburse additional funds under the Working Capital Credit Facility until the Company satisfied certain milestone funding conditions, including certain servicing obligations as well as filing the 2022 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 the 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, after giving effect to the original issue discount on the Working Capital Credit Facility and which will be funded in multiple installments and in accordance with the terms of the Working Capital Credit Facility.

Funding will be at a rate of $2.25 million per month until December 2023, and thereafter at $1.75 million per month up to $14.0 million, subject to potential further reductions in the case of certain agreed cost savings

and funds availability.

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.

On August 4, 2023, the Company received funding amounting to $5.5 million from Term Loan A and $2.25 million installment under Term Loan B.

Under Term Loan B, the Company received $2.25 million of funding on August 30, 2023, and Subrogation Holdings received $4.5 million on November 13, 2023 and $4.5 million on January 25, 2024.

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.

During fiscal year 2023, HPH disbursed $20.5 million under Term Loan A and $9.0 million under Term Loan B.

During fiscal year 2024, HPH disbursed $4.5 million under Term Loan B on January 25, 2024.

On August 2, 2024, Subrogation Holdings entered into a letter agreement to amend the Working Capital Credit Facility (the “HPH Letter Agreement”) with HPH, which, among other things:

(i) extended the period to draw up to $23.3 million (with a 40% original issue discount) remaining under Term Loan B for working capital, accessible in eight tranches of $1.75 million, that can be drawn at least one month apart, until September 2025, and (ii) provided for a $3.3 million loan (subject to a 40% original issue discount) funded by August 31, 2024 to acquire additional Claims (the “New Claims”) that collateralize the Working Capital Credit Facility (collectively, (i) and (ii) the “Operational Collection Floor”).

The parties formalized the terms of the HPH Letter Agreement in Amendment No.

3 to the Working Capital Credit Facility dated October 1, 2024 (the “OCF Amendment”).

On October 2, 2024, the Company acquired the recovery rights to additional Medicare Secondary Payer Claims from an existing Assignor consisting of more than 450,000 Medicare members, as documented by the Assignor.

Under the Operational Collection Floor, the Company received during 2024:

(i) $12.3 million for working capital, and (ii) $2.0 million for the purpose of acquiring the New Claims.

To date, the Company received $3.5 million of working capital for 2025.

Pursuant to the Working Capital Credit Facility, HPH may, at its sole discretion, increase the Operational Collection Floor by an amount of up to $6.0 million, to be funded over a period of three to six months.

On February 28, 2025 and April 4, 2025, HPH exercised that discretion and funded $1.75 million and $1.5 million, respectively, from the increase to the Operational Collection Floor.

An additional $2.75 million remains available under the Operational Collection Floor, to be funded at HPH’s sole discretion.

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.

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

John Ruiz and Frank Quesada;

Ruiz and Frank C.

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.

Ruiz and Frank C.

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.

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

On April 1, 2025, in connection with the increased funding under the Operational Collection Floor, the pledge and personal guaranty in (ii) and (iii) above was increased by $3.25 million to $17.25 million.

MSP Principals Promissory Note

On June 16, 2022, the MSP Principals provided cash to the Company to finance operations in an aggregate amount of $112.8 million.

The Company issued the MSP Principals Promissory Note to the MSP Principals in an aggregate principal amount of $112.8 million that has an annual interest rate of 4%, payable in kind, and matures on the day that is the four-year anniversary of the issuance.

The Company issued the MSP Principals Promissory Note to the MSP Principals in an aggregate principal amount of

$112.8 million that has an annual interest rate of 4%, payable in kind, and matures on the day that is the four-year anniversary of the issuance.

On the maturity date, the Company is required to pay the MSP Principals an amount in cash equal to the outstanding principal amount, plus accrued and unpaid interest.

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In addition, the MSP Principals Promissory Note may be accelerated by the MSP Principals if the Board of Directors of the Company (excluding the MSP Principals) terminates the Legal Services Agreement.

For the years ended December 31, 2024 and 2023, approximately $7.7 million and $19.2 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.

During the year ended December 31, 2023, the Company received a $4.95 million loan from the Law Firm, evidenced by an unsecured promissory note, to provide general operational funding.

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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.

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 (as defined herein).

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.

On November 13, 2023, the Company entered into the 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 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 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 22, 2024.

On May 27, 2022, the Company issued an unsecured promissory note to Nomura (as amended on April 12, 2023, November 13, 2023, and March 26, 2024, the “Nomura Note”).

The Nomura Note carries a principal amount of approximately $30.0 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.

The Nomura Note is payable in kind or in cash, at the Company’s discretion, accrues interest at 16% per annum, and matures on 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 Nomura Note together with all accrued and unpaid interest thereon.

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

The Nomura Note became current on September 30, 2024, and the Company does not currently have available liquidity to satisfy said obligation.

Under the Nomura 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 a letter agreement dated November 15, 2024, Nomura agreed to forego payments of up to $4.0 million due under the Nomura Note from proceeds from the sale of Class A Common Stock to Yorkville pursuant to the Yorkville SEPA until March 31, 2025.

Yorkville SEPA

On November 14, 2023, we entered into the Yorkville SEPA, which fully amended and restated the January 6, 2023 agreement.

Pursuant to the Yorkville SEPA, the Company has the right to sell to Yorkville up to $250 million of its Class A 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 Class A 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 Class A 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, 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 Class A Common Stock (“Advance”) by delivering written notice to Yorkville (“Advance Notice”).

On November 14, 2023, the Company entered into a standby equity purchase agreement (the “Yorkville SEPA”) with YA II PN, Ltd., a Cayman Island exempted company (“Yorkville”), pursuant to which Yorkville committed to purchase up to $250.0 million in shares of Class A Common Stock, subject to certain limitations and conditions set forth therein, during the term thereof.

Sales of Class A Common Stock 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 Class A 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.

Pursuant to the terms and conditions set forth in the Yorkville SEPA, the Company has 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 Class A 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 Class A Common Stock purchased pursuant to an Advance Notice delivered by the Company will be purchased at a price equal to (i) 98% of the VWAP of the shares of Class A 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 Class A 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 shares of Class A Common Stock purchased pursuant to an Advance Notice will be purchased at a price equal to:

(i) 98% of the VWAP of the shares of Class A 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 Class A 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 Class A 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 proceeds to us of $4.73 million on November 16, 2023.

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

As required pursuant to the Amended and Restated Nomura Promissory Note, 50% of the aggregate proceeds under the Yorkville SEPA will be used to repay 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 repay 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.

Pursuant to the Convertible Notes, Yorkville has the option, subject to certain limitations, of exchanging on one or more occasions all or part of the then outstanding balance under the note for shares of our Class A Common Stock at a conversion price equal to the lower of:

(i) a fixed price equaling 120% of VWAP the day prior to the date of the closing of each tranche (the “Fixed Price”) or (ii) a variable price equaling 95% of the lowest daily VWAP during the seven consecutive trading days immediately preceding the exchange (the “Variable Price”), but in no event may the variable price be lower than $1.00 per share (the “Floor Price” as lowered pursuant to the Yorkville Letter Agreement).

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

2023, the Company issued two Convertible Notes to Yorkville for a combined principal amount of $10 million, resulting in net proceeds of $9.48 million, and in 2024 the Company 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.

Pursuant to the Yorkville Convertible Notes, Yorkville has the option, subject to certain limitations, of exchanging on one or more occasions all or part of the then outstanding balance under a given note for shares of our Class A Common Stock at a conversion price equal to the lower of:

(i) a fixed price equaling 120% of VWAP the day prior to the date of the closing of each tranche (the “Fixed Price”), or (ii) a variable price equaling 95% of the lowest daily VWAP during the seven consecutive trading days immediately preceding the exchange (the “Variable Price”), but in no event may the variable price be lower than $3.75 per share (the “Floor Price”).

With respect to the initial Convertible Note issued on November 15, 2023, the Fixed Price equals $200.5625 per share, with respect to the second Convertible Note issued on December 11, 2023, the Fixed Price equals $92.84 per share, and with respect to the third Convertible Note issued on April 8, 2024, the Fixed Price equals $37.625 per share.

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.

As required pursuant to the Second Amended and Restated Nomura Promissory Note, 50% of the aggregate proceeds under the Yorkville SEPA will be used to repay amounts outstanding under the Nomura Note (first towards accrued and unpaid interest, if any, then towards principal) and the remaining 50% of such proceeds will be used to repay amounts due under the Convertible Notes, if any, or be paid to the Company after the Convertible Notes are fully repaid.

Upon the occurrence and during the continuation of an event of default, the Yorkville 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.

(i) termination of quotation or listing of the Class A Common Stock on any primary market for a period of 10 consecutive trading days (the Company is currently quoted and listed for trading on Nasdaq) and (ii) failure to timely file any periodic report with the SEC 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 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, 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 a 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 Class A 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 Class A 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 Class A 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 Class A 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 Class A Common Stock to Yorkville, except with respect to the conversion of the Convertible Notes.

On December 6, 2024, stockholders holding at least a majority of our outstanding voting capital stock approved by written consent as required by Nasdaq Rule 5635(d), the issuance of shares of common stock of the Company in excess of the Exchange Cap set forth in the Yorkville SEPA.

Effective January 8, 2025, the Exchange Cap was effectively lifted, allowing the Company to issue shares to Yorkville pursuant to the Yorkville SEPA and the Yorkville Convertible Notes in excess of the Exchange Cap.

In addition, on April 10, 2025, Yorkville agreed to waive Volume Threshold and Maximum Advance Amount limitations set forth in the Yorkville SEPA.

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

Yorkville, in its sole discretion, may select the amount of any Investor Notice, provided that the number of shares issued does not cause Yorkville to exceed the 9.99% ownership limitation or the amount of shares of Class A Common Stock that are registered.

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

The Company will control the timing and amount of any sales of shares of Class A Common Stock to Yorkville, except with respect to the conversion of the Yorkville Convertible Notes.

Actual sales of shares of Class A 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 Class A Common Stock, and determinations by the Company as to the appropriate sources of funding for our business and operations.

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(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 Class A Common Stock equal to $250.0 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 Class A Common Stock need to be issued and the Company has paid all amounts owed to Yorkville pursuant to the Convertible Notes.

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

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

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

On April 8, 2024, the Company and Yorkville reached an agreement (the “Yorkville Letter Agreement”) to:

(1) reduce the Floor Price from $1.28 to $1.00;

(2) waive the first monthly payment due to the Floor Price Trigger, thereby curing the Floor Price Trigger;

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

On April 12, 2024, Yorkville agreed that, to the extent that it holds Class A Common Stock in such quantities that would prevent the Company from utilizing the Yorkville SEPA solely due to the Ownership Limitation, Yorkville committed to fund an additional advance in the principal amount of $13.0 million on the same terms and conditions as the Yorkville Convertible Notes pursuant to the Yorkville SEPA.

During 2024, the Company sold 1,108,071 shares of Class A Common Stock to Yorkville, respectively, pursuant to investor and/or advance notices delivered under the Yorkville SEPA at prices between $1.78 and $21.09 per share.

The proceeds therefrom were used to:

(i) reduce amounts owed under Yorkville Note #1 by $2.8 million and $0.2 million of principal and interest, respectively for fiscal year 2024, (ii) $0.5 million to fund operations of the Company, and (iii) $2.6 million of payment to reduce amounts owed under the Nomura Note for fiscal year 2024.

There can be no assurances of such events occurring or the timing of such events occurring.

Assignment and Sale of Proceeds Agreement

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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 Net Recovery Proceeds, up to an aggregate of $250 million, at a purchase price of 90% of 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 Net Recovery Proceeds.

Prudent may terminate the Services Agreement upon sixty (60) days prior written notice to the Company.

The Company plans to utilize the Assignment Agreement as funding is needed.

To date, the Company has not exercised its rights pursuant to the Services Agreement and does not anticipate doing so in the foreseeable future.

Actual results, including sources and uses of cash, may differ from our current estimates due to the inherent uncertainty involved in making those estimates and any such differences may impact the Company’s ability to continue as a going concern in the future.

expenditures associated with the development and launch of our additional recovery services and the anticipated increase in Claims recovery capacity are subject to significant risks and uncertainties, many of which are beyond our control, which may affect the timing and magnitude of these anticipated expenditures.

These risk and uncertainties are described in more detail in the section entitled “Risk Factors.”

The Agreements that the Company entered into on June 30, 2022 with Prudent have been terminated effective August 13, 2024.

Claims Financing Obligations

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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.

See Note 4, Asset Acquisitions , in the consolidated financial statements included elsewhere in this Annual Report.

See Note 3, Material Agreements , in the consolidated financial statements included elsewhere in this Annual Report.

On February 20, 2015, a subsidiary of the Company entered into a Claims Proceeds Investment Agreement (“CPIA”) with a third-party investor to invest directly and indirectly in Claims, disputes, and litigation and arbitration Claims.

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Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Net cash provided by financing activities

(Decrease) increase in cash and restricted cash

Cash and restricted cash at beginning of year

Cash and restricted cash at end of period

Net increase (decrease) in cash

Cash at beginning of year

Cash at end of period

Cash Flows Used in Operating Activities

Net cash used in operating activities decreased by $23.9 million to $16.1 million for the year ended December 31, 2024 compared to net cash used in operating activities of $40.0 million for the year ended December 31, 2023.

During the year ended December 31, 2023, net cash used in operating activities was impacted primarily by our net loss, $476.5 million of claims amortization expense, $289.1 million of paid-in-kind interest, allowance for credit losses $5.0 million, and an increase of $31.2 million of changes in working capital, partially offset by a change in fair value of warrant liability of $4.8 million, gain on sale of intangible $4.6 million and a mark-to-market gain on liability payable in stock of $4.4 million.

During the year ended December 31, 2022, net cash used in operating activities was impacted primarily by our net loss, an increase in Prepaid and other assets of $27.6 million and decrease in affiliate payable of $25.4 million.

This was partially offset by a $2.2 million increase in accounts payable and accrued liabilities.

Net cash used in operating activities was further impacted by non-cash charges including a $63.4 gain on debt extinguishment partially offset by Claims amortization expense of $266.9 million, paid-in-kind interest of $145.3 million, share-based compensation of $20.1 million and change in fair value of derivatives of $9.6 million and change in fair value of warrant liabilities of $2.9 million.

Cash Flows Provided by (Used in) Investing Activities

Net cash provided by investing activities increased by $13.2 million to $7.6 million for the year ended December 31, 2023 compared to cash used in investing activities $5.7 million for the year ended December 31, 2022.

During the year ended December 31, 2024, net cash used in operating activities was impacted by our net loss and non-cash adjustments primarily related to $752.7 million impairment of intangible assets, $484.1 million of claims amortization expense, $278.8 million of paid-in-kind interest, $2.1 million of professional fees paid in stock, and an increase of $160.3 million of changes in working capital, partially offset by a change in fair value of warrant liability of $137.3 million, and a mark-to-market gain on liability payable in stock of $0.5 million.

During the year ended December 31, 2023, net cash used in operating activities was impacted primarily by our net loss and non-cash adjustments primarily related to $476.5 million of claims amortization expense, $289.1 million of paid-in-kind interest, allowance for credit losses $5.0 million, $2.7 million of professional fees paid in stock, and an increase of $34.2 million of changes in working capital, partially offset by a change in fair value of warrant liability of $4.8 million, gain on sale of intangible $4.6 million and a mark-to-market gain on liability payable in stock of $4.4 million.

Cash Flows (Used in) Provided by Investing Activities

Net cash used in investing activities fluctuated by $10.3 million to $2.7 million for the year ended December 31, 2024 compared to cash provided by investing activities $7.6 million for the year ended December 31, 2023.

During the year ended December 31, 2024, our cash used in investing activities related to the acquisition of additional CCRAs amounting to $2.2 million and $0.5 million of additions to property, plant, and equipment.

During the year ended December 31, 2023, our cash provided by investing activities was primarily $10.0 million proceeds from the sale of CCRAs, which are included in Intangible assets, offset by cash used in investing activities related to the acquisition of additional CCRAs amounting to $0.7 million and $1.7 million of additions to property, plant, and equipment.

During the year ended December 31, 2022, our cash used in investing activities was primarily due to acquisition of additional CCRAs included in Intangible assets, net, of which $2.7 million was paid for in cash and $3.0 million of additions to property, plant and equipment.

Cash Flows Provided by Financing Activities

Net cash provided by in financing activities decreased by $70.7 million to $29.0 million for the year ended December 31, 2023 compared to $99.7 million net cash provided by financing activities for the year ended December 31, 2022.

During the year ended December 31, 2023, our net cash used in financing activities was primarily due to borrowings from the New Money Loan of $39.0 million and proceeds from the related party loan of $4.95 million, which are offset by $11.4 million restricted cash payment related to the FEF shares to CF, $2.6 million repayments of the claims financing obligation, $0.7 million of debt issuance costs and $0.3 million payment of deferred financing costs.

During the year ended December 31, 2022, our net cash used in financing activities was primarily due to proceeds from the related party loan of $125.8 million, proceeds from the Business Combination of $12.0 million, $9.2 million from the issuance of common stock and $2.4 million from the issuance of temporary stock.

These were partially offset by $49.6 million of transaction costs incurred in connection with the Business Combination.

Off-Balance Sheet Commitments and Arrangements

As of the balance sheet dates of December 31, 2023 and December 31, 2022, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC and US GAAP.

Net cash provided by financing activities decreased by $9.5 million to $19.5 million for the year ended December 31, 2024 compared to $29.0 million net cash provided by financing activities for the year ended December 31, 2023.

During the year ended December 31, 2024, our net cash provided by financing activities was primarily due to borrowings of $23.5 million from the Working Capital Credit Facility and Yorkville Convertible Notes, and proceeds from the issuance of stock of $3.1 million, which are offset by $6.6 million repayments of the claims financing obligation and $0.4 million of payment on related party loan.

During the year ended December 31, 2023, our net cash provided by financing activities was primarily due to borrowings from the New Money Loan of $39.0 million and proceeds from the related party loan of $4.95 million, which are offset by $11.4 million restricted cash payment related to the FEF shares to CF, $2.6 million repayments of the claims financing obligation, $0.7 million of debt issuance costs and $0.3 million payment of deferred financing costs.

Contractual Obligations, Commitments and Contingencies

Based on Claims financing obligations and notes payable agreements, as of December 31, 2024 and 2023, the present value of amounts owed under these obligations were $673.6 million and $556.3 million, respectively, including unpaid interest to date of $1.6 million and $0.8 million, respectively.

In addition, as of December 31, 2024 and 2023, the Company has $12.2 million and $10.0 million advances from Yorkville, respectively.

The weighted average interest rate is 15.0% based on the current book value of $685.7 million with rates that range from 0.0% to 20.00%.

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On November 13, 2023, the maturity date was extended to December 31, 2024.

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.

operating reserve of $70 million for overhead expenses and applicable taxes.

On July 24, 2023, the operating reserve was adjusted to $47.5 million and pursuant to the Second Virage MTA Amendment, the operating reserve was changed from $47.5 million to the budget of the Company (plus applicable taxes) plus 10%.

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

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

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Impairment indicators would result only when the potential recoveries under the Claim paths of all remaining Claims suggests the unamortized carrying value is not recoverable.

As upfront payments for CCRAs are typically a fraction of the potential recoveries, it would typically take a substantial negative event (such as an unfavorable court ruling upheld on appeal or a change in law/statute with retroactive effect) to suggest an impairment may be triggered.

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 carries, 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 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.

As up-front payments for CCRAs are typically a fraction of the potential recoveries, it would typically take a substantial negative event (such as an unfavorable court ruling upheld on appeal or a change in law/statute with retroactive effect) to suggest an impairment may be triggered.

As a result, the Company performed a recoverability analysis on the definite-lived CCRA intangible assets in the fourth quarter of 2024.

An asset group is impaired if the estimated undiscounted cash flows are less than the asset group’s carrying value.

Impairment is measured by the amount by which the carrying value exceeds fair value.

Given that the probability-weighted average cash flows of all scenarios were below the carrying value, the Company performed a fair value assessment to measure impairment loss.

The fair value assessment of the intangible assets was determined using the income approach.

The estimation of the fair value requires significant management judgment with respect to the estimates discussed above.

The estimates of the fair value are based on the best information available as of the date of the assessment.

For example, if estimated recoveries were accelerated by one year, the non-cash impairment charge would decrease by $141.6 million, while if estimated recoveries were extended by a year, then the non-cash impairment charge would increase by $128.3 million.

In addition, a hypothetical 1% change in the discount rate assumption would increase or decrease the impairment charge by approximately $39.0 million.

Quantitative and Qualitative Disclosures About Market Risk.

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Item 7. Management’s Discussion and Analysis