Note 9. MEMBERS EQUITY AND NONCONTROLLING INTEREST
The entities included in the Financial Statements that are under common control (see Note 1) generally have a single class of units and are controlled by a
single individual or entities controlled by that individual (the Controlling Member). The Controlling Member and other noncontrolling members generally retain similar rights and privileges in these entities, based on their respective
ownership percentages.
MAO-MSO Recovery LLC Series FHCP (FHCP) is a
non-wholly owned subsidiary of MSP Recovery, LLC. In accordance with FHCPs operating agreement, the noncontrolling member is entitled to a preferred return of 20% per annum (the Preferred
Return). Once the Preferred Return has been met, the noncontrolling member is entitled to 80% of claims recoveries by FHCP. The controlling member is allocated 100% of the costs of FHCP. Since the Preferred Return exceeds the total
members equity of FHCP as of March 31, 2022 and December 31, 2021, the noncontrolling interest presented on the condensed combined and consolidated balance represents the entire members equity of FHCP.
Note 10. COMMITMENTS AND CONTINGENCIES
The Company is
subject to certain legal proceedings, claims, investigations, and administrative proceedings in the ordinary course of its business. The Company records a provision for a liability when it is both probable that the liability has been incurred and
the amount of the liability can be reasonably estimated. These provisions, if any, are reviewed and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a
particular case. Depending on the nature and timing of any such proceedings that may arise, an unfavorable resolution of a matter could materially affect the Companys future combined and consolidated results of operations, cash flows or
financial position in a particular period. As of March 31, 2022, there were no material pending or threatened litigations against us.
The Company
pursues claims recoveries through settlement, arbitration and legal proceedings. The accounting policy for these activities is discussed under Claims recovery income in Note 2 Basis of presentation and summary of significant
accounting policies.
Note 11. RELATED PARTY
Legal Services MSP Recovery Law Firm
Certain
Company entities have previously entered into legal services agreements (the Existing LSAs) with the Law Firm, an affiliate of certain Members, for the recovery of Claims. Pursuant to the terms of the Existing LSAs, the Law Firm provides
MSP with investigation, case management, research and legal services in the pursuit of recovery of Claims in exchange for a portion of the recovered proceeds relating to such Claims. The Existing LSAs also provide that the Law Firm serve as
exclusive lead counsel for any litigation relating to such Claims. As of March 31, 2022 and December 31, 2021, $8.5 million and $5.5 million, respectively, was due to the Law Firm and included in the condensed combined and
consolidated balance sheets in Affiliate Payable.
The Law Firm may also collect and/or hold cash on behalf of the Company in the ordinary course of
business. As of March 31, 2022 and December 31, 2021, $3.5 million and $3.4 million, respectively, was due from the Law Firm and included in the condensed combined and consolidated balance sheets in Affiliate Receivable. In
addition, the Company rents office space from the Law Firm as discussed in Note 6.
MSP Recovery Aviation, LLC
MSP Recovery, LLC may make payments related to operational expenses on behalf of its affiliate, MSP Recovery Aviation, LLC (MSP Aviation). As of
both March 31, 2022 and December 31, 2021, $153 thousand was due from the MSP Aviation and included in the condensed combined and consolidated balance sheets in Affiliate Receivable.
Funds held for other entities
MSP Recovery, LLC may
collect and/or hold cash on behalf of its affiliates in the ordinary course of business. As of both March 31, 2022 and December 31, 2021, $39.7 million was due to affiliates of the Company and included in the condensed combined and
consolidated balance sheets in Affiliate Payable. These amounts were primarily due to Series MRCS LLC, an affiliate of MSP, and will be repaid either through excess cash flows from operations, other financing or in connection with the transaction
noted in Note 1. During the year ended December 31, 2021, the Company also entered into a note payable with Series MRCS as outlined in Note 5. As of March 31, 2022 and December 31, 2021, the balance of the note payable was
$0.5 million and included in the condensed combined and consolidated balance sheets in Claims financing obligation & notes payable.
As of
both March 31, 2022 and December 31, 2021, $0.4 million was due to MSP National, LLC from Series MRCS LLC and as of March 31, 2022 and December 31, 2021, there were additional receivables from other affiliates of
$89 thousand and $92 thousand, respectively. These were included in the condensed combined and consolidated balance sheets in Affiliate Receivable.
VRM
MSP Recovery, LLC receives claims recovery service
income for services provided to VRM. The Company concluded that VRM is a related party due to ownership interests in the entity held by Series MRCS LLC, an affiliate of MSP. During the three months ended March 31, 2022 and 2021,
$7.3 million and $2.7 million, respectively, of claims recovery service income was received from VRM as part of the servicing agreement and was included in the condensed combined and consolidated statements of operations.
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