SPFX Standard Premium Finance Holdings Inc (QX)

Notes to Condensed Consolidated Financial Statements

March 31, 2022 and 2021

(unaudited)

1. Principles of Consolidation and Description of Business

Standard Premium Finance Holdings, Inc. (“SPFH” or the “Holding”) was incorporated on May 12, 2016, pursuant to the laws of the State of Florida.

Standard Premium Finance Management Corporation (“SPFMC” or the “subsidiary”) was incorporated on April 23, 1991, pursuant to the laws of the State of Florida, to engage principally in the insurance premium financing business. The Subsidiary is a licensed insurance premium finance company in Florida, Georgia, North Carolina, South Carolina, Tennessee, Texas, Virginia, Maryland, Colorado, and Arizona.

The accompanying condensed consolidated financial statements include the accounts of SPFH and its wholly-owned subsidiary SPFMC. SPFH and its subsidiary are collectively referred to as “the Company”. All significant intercompany balances and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements (unaudited), which include the accounts of Standard Premium Finance Holdings, Inc. and its wholly-owned subsidiary, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto for the year ended December 31, 2021.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements of Standard Premium Finance Holdings, Inc. and its wholly-owned subsidiary for the fiscal year ended December 31, 2021 have been omitted.

Cash and Cash Equivalents

The Company considers short-term interest-bearing investments with initial maturities of three months or less to be cash equivalents. The Company has no cash equivalents at March 31, 2022 and December 31, 2021.

Revenue Recognition

Revenues are recognized when control of the promised services is transferred to the customer and in an amount that reflects the consideration the Company expects to be entitled to in exchange for these services. For the services where the Company’s performance obligation is satisfied at a point in time and for which there is no ongoing obligation, revenue is recognized upon delivery. For the services where the Company satisfies its performance obligation over time as the service is being transferred to the customer, revenue is generally recognized using the output method as the services are delivered.

2. Summary of Significant Accounting Policies (Continued)

Finance charges on insurance premium installment contracts are initially recorded as unearned interest and are credited to income monthly over the term of the finance agreement. For Florida, Georgia, North Carolina and Texas contracts, an initial service fee of $20 per contract and the first month’s interest are recognized as income at the inception of a contract. The same treatment is applied to the $15 initial service fee and first month’s interest in South Carolina. The initial $20 per contract fee can only be charged once to an insured in a twelve-month period. In accordance with industry practice, finance charges are recognized as income using the “Rule of 78s” method of amortizing finance charge income, which does not materially differ from the interest method of amortizing finance charge income on short term receivables. Late charges are recognized as income when charged. Unearned interest is netted against Premium Finance Contracts and Related Receivables on the balance sheet for reporting purposes.

Premium Finance Contracts and Related Receivable

The Company finances insurance premium on policies for the transportation industry and other commercial enterprises. The term of each contract varies from 3 to 12 monthly payments. Repayment terms are structured such that the contracts will be repaid within the term of the underlying insurance policy, generally less than one year. The contracts are secured by the unearned premium of the insurance carrier which is obligated to pay the Company any unearned premium in the event the insurance policy is cancelled pursuant a power of attorney contained in the finance contract. As of March 31, 2022 and December 31, 2021, the amount of unearned premium on open and cancelled contracts totaled $70,748,780 and $67,929,695, respectively. The annual percentage interest rates on new contracts averaged approximately 14.8% and 15.2% during the three months ended March 31, 2022 and 2021, respectively.

Allowance for Doubtful Accounts

The carrying amount of the Premium Finance Contracts (“Contracts”) is reduced by an allowance for losses that are maintained at a level which, in management’s judgment, is adequate to absorb losses inherit in the Contracts. The amount of the allowance is based upon management’s evaluation of the collectability of the Contracts, including the nature of the accounts, credit concentration, trends, and historical data, specific impaired Contracts, economic conditions, and other risks inherent in the Contracts. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recovery.

In addition, specific allowances are established for accounts over 120 days. Individual contracts are written off against the allowance when collection of the individual contracts appears doubtful. The collectability of outstanding and cancelled contracts is generally secured by collateral in the form of the unearned premiums on the underlying policies and accordingly historical losses tend to be relatively small. The collectability of amounts due from agents is determined by the financial strength of the agency.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Furniture and equipment 5 - 7 years

Computer equipment and software 3 - 5 years

Leasehold improvements 10 years

2. Summary of Significant Accounting Policies (Continued)

Amortization of Loan Origination Costs

Amortization of loan origination costs is computed using the straight-line method over the life of the loan agreement.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions used in valuation of deferred tax assets, allowance for doubtful accounts, depreciable lives of property and equipment, and valuation of stock-based compensation.

Concentration of Credit and Financial Instrument Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and accounts receivable from customers, agents, and insurance companies. The Company maintains its cash balances at three banks. Accounts at these financial institutions are insured by the Federal Deposit Insurance Corporation up to $250,000. Uninsured balances are $234,069 and $0 at March 31, 2022 and December 31, 2021, respectively. The Company mitigates this risk by maintaining its cash balances at high-quality financial institutions. The following table provides a reconciliation between uninsured balances and cash per the balance sheet:

The Company controls its credit risk in accounts receivable through credit standards, limits on exposure, by monitoring the financial condition of insurance companies, by adhering to statutory cancellation policies, and by monitoring and pursuing collections from past due accounts. We cancel policies at the earliest permissible date allowed by the statutory cancellation regulations.

Approximately 54% and 52% of the Company’s business activity is with customers located in Florida for both 2022 and 2021, respectively. Approximately 16% and 23% of the Company’s business activity is with customers located in Georgia for 2022 and 2021, respectively. Approximately 14% and 13% of the Company's business activity is with customers located in North Carolina for 2022 and 2021, respectively. There were no other significant regional, industrial or group concentrations during the three months ended March 31, 2022 and 2021.

2. Summary of Significant Accounting Policies (Continued)

Cash Surrender Value of Life Insurance

The Company is the owner and beneficiary of a life insurance policy on its president. The cash surrender value relative to the policy in place at March 31, 2022 and December 31, 2021 was $567,464 and $559,877, respectively.

Fair Value of Financial Instruments

The Company’s carrying amounts of financial instruments as defined by Financial Accounting Standards Board (“FASB”) ASC 825, “Disclosures about Fair Value of Financial Instruments”, including finance contract and related receivables, prepaid expenses, drafts payable, accrued expenses and other current liabilities, approximate their fair value due to the relatively short period to maturity for these instruments. The fair value of the line of credit and long-term debt are based on current rates at which the Company could borrow funds with similar remaining maturities and the carrying value approximates fair value.

Income Taxes

The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

Uncertain tax positions are recognized only when the Company believes it is more likely than not that the tax position will be upheld on examination by the taxing authorities based on the merits of the position. The Company has no material unrecognized tax benefits and no adjustments to its consolidated financial position, results of operations or cash flows were required as of March 31, 2022.

Tax returns are open to examination by taxing authorities for three years after filing. No income tax returns are currently under examination by taxing authorities. SPFMC and SPFH recognize interest and penalties, if any, related to uncertain tax positions in income tax expense. SPFMC and SPFH did not have any accrued interest or penalties associated with uncertain tax positions as of December 31, 2021.

Stock-Based Compensation

The Company account for stock-based compensation in accordance with FASB ASC Topic No. 718, “Stock Compensation,” which establishes the requirements for expensing equity awards. The Company measures and recognizes as compensation expense the fair value of all share-based payment awards based on estimated grant date fair values. Our stock-based compensation are issuances made to directors, executives, employees and consultants, which includes employee stock options related to our 2019 Equity Incentive Plan and stock warrants. The determination of fair value involves a number of significant estimates. We use the Black Scholes option pricing model to estimate the value of employee stock options and stock warrants which requires a number of assumptions to determine the model inputs. These include the expected volatility of our stock and employee exercise behavior which are based expectations of future developments over the term of the option.

2. Summary of Significant Accounting Policies (Continued)

Earnings per Common Share

The Corporation accounts for earnings (loss) per share in accordance with FASB ASC Topic No. 260 - 10, “Earnings Per Share”, which establishes the requirements for presenting earnings per share (“EPS”). FASB ASC Topic No. 260 - 10 requires the presentation of “basic” and “diluted” EPS on the face of the statement of operations. Basic EPS amounts are calculated using the weighted-average number of common shares outstanding during each period. Diluted EPS assumes the exercise of all stock options, warrants and convertible securities having exercise prices less than the average market price of the common stock during the periods, using the treasury stock method.

For both the three months ended March 31, 2022 and 2021, stock options to purchase 187,400 shares of common stock were outstanding as described in Note 11. 93,700 of these options vested on March 1, 2021 and the remaining 93,700 stock options vested on March 1, 2022. The stock options are anti-dilutive and not included in the calculation of diluted EPS at March 31, 2022 and 2021. For the three months ended March 31, 2022 and 2021, stock warrants to purchase 975,000 and 800,000 shares of common stock were outstanding, respectively, as described in Note 11. Although these stock warrants vested immediately, they are not “in-the-money” and are thus anti-dilutive and not included in the calculation of diluted EPS at March 31, 2022 and 2021. The Series A Convertible Preferred Stock can be converted to common stock at 20% of the prevailing market price over the previous 30-day period at the option of the Company.

Reclassification

In 2021, the Company reconsidered its definition of related party when classifying its notes payable. The Company previously had recorded notes payable due from any stockholder as a related party note. Under the new classification, only notes payable to officers, directors, greater than 5% shareholders, and insiders are considered related party notes. See Footnote 9 and Footnote 10 for more information on the notes payable. The effect of this reclassification on the consolidated statement of cash flows for the three months ended March 31, 2021 is as follows:

2. Summary of Significant Accounting Policies (Continued)

Leases

The Company recognizes and measures its leases in accordance with ASC Topic 842, “Leases”. The Company determines if an arrangement is a lease, or contains a lease, at inception of a contract and when the terms of an existing contract are changed. The Company recognizes a lease liability and a right of use (ROU) asset at the commencement date of the lease. The lease liability is initially and subsequently recognized based on the present value of its future lease payments calculated using the Company’s incremental borrowing rate.

Recent Accounting Pronouncements

There were no recent accounting pronouncements that have a material impact on the financial statements of the Company.

3. Premium Finance Contracts, Related Receivable and Allowance for Doubtful Accounts

Premium Finance Contracts and Related Receivable represent monthly payments due on insurance premium finance contracts. The Company finances insurance policies over periods from three months to one year for businesses and consumers who make an initial down payment of, on average, 25 percent of the insurance policy amounts. The entire amount of the contract is recorded including amounts due for finance charges and services charges. These receivables are reported net of unearned interest for financial statements purposes. Amounts due from agents represent balances related to (1) an agent’s unearned commission due to a policy cancellation and (2) down payments collected by the agents on behalf of the insured, which are due to us. Receivables from insurance premium finance contracts cancelled are due from the insurance companies.

At March 31, 2022 and December 31, 2021, premium finance contract and agents’ receivable consists of the following:

The allowance for doubtful accounts at March 31, 2022 and December 31, 2021 are as follows:

3. Premium Finance Contracts, Related Receivable and Allowance for Doubtful Accounts (Continued)

Activity in the allowance for doubtful accounts for the three months ended March 31, 2022 and the year ended December 31, 2021 are as follows:

The Company maintains its allowance at gross amounts, which includes allowances for write-offs of unearned revenues. Provisions and write-offs per the footnote table above are displayed at gross amounts, which include provisions and write-offs of unearned revenues. These write-offs are appropriately split between the principal (i.e. bad debt expense) and interest/fee (i.e. contra-revenue) portions on the income statement. The following table shows a reconciliation between the total provision per the footnote and bad debt expense on the consolidated statement of operations:

4. Property and Equipment, Net

The Company’s property and equipment consists of the following:

The Company recorded depreciation expense of $4,541 and $7,873, respectively for the three months ended March 31, 2022 and 2021, respectively.

5. Leases

The Company accounts for leases in accordance with ASC Topic 842. In March 2021, the Company renewed its office lease with Marlenko Acquisitions, LLC. The new two-year lease is identical to the previous lease and expires on February 28, 2023 with a one-year option to renew. The right-of-use asset and operating lease liability at the execution of this lease totaled $235,335. The Company used its incremental borrowing rate of 5.25% for all operating leases as of March 31, 2022 and December 31, 2021.

Office lease – On March 1, 2021, the Company entered into a two (2) year lease for an office facility located in Miami Florida with an entity controlled by our CEO and related parties. The lease has a one-time renewal option for one year which management is reasonably certain will be exercised. The lease is $7,450 per month and expires in February 2024, including the renewal option (see Note 12).

Secure facility lease – On September 11, 2017, the Company entered into a five (5) year lease for a secure facility located in Miami Florida. The lease has a no renewal option. The lease is $1,233 per month and expires in August 2022.

Copier lease – On October 14, 2019 the Company entered into a copier lease. The right to use asset and lease liability at inception of the copier lease was $68,799. The Company used its incremental borrowing rate of 5.25% to determine the present value of the lease payment. The cost of the copier lease is $1,116 per month and expires October 14, 2024 with a one-year renewal option which the Company expects to exercise.

Server lease – On December 7, 2021, the Company entered into a five-year lease for computer hardware. The lease contains a bargain purchase option, which the Company intends to exercise. The Company recorded this lease as a finance lease. The fixed asset and lease liability at inception of the lease was $66,281 and $65,801, respectively. The Company used its incremental borrowing rate of 5.25% to determine the present value of the lease payment. The lease payments are $1,249 per month through December 2026.

5. Leases (Continued)

The weighted-average remaining lease term was 2.80 years and 2.99 years as of March 31, 2022 and December 31, 2021, respectively. For the three months ended March 31, 2022 and 2021, the total lease cost was $28,193 and $28,997, respectively.

6. Drafts Payable

Drafts payable outstanding represent unpaid drafts that have not been disbursed by the bank as of the reporting date, on insurance premium finance contracts received by the Company prior to the reporting date. As of March 31, 2022 and December 31, 2021, the draft payable balances are $2,903,180 and $1,935,278, respectively.

7. Line of Credit

Relationship with Woodforest National Bank (“WNB”)

On October 5, 2018, the Company entered into an exclusive twenty-four month loan agreement with Woodforest National Bank for a revolving line of credit in the amount of $25,000,000. The Company recorded $164,396 of loan origination costs. On July 30, 2019, the Company’s line of credit was modified to $27,500,000, maturing October 5, 2020. On October 5, 2020, the Company’s line of credit was extended to a maturity date of January 5, 2021.

Interest expense on this line of credit for the three months ended March 31, 2022 and 2021 totaled approximately $0 and $86,000, respectively. This line of credit was fully paid off on February 3, 2021 (see below).

Relationship with First Horizon Bank (“FHB”)

On February 3, 2021, the Company entered into an exclusive twenty-four month loan agreement with First Horizon Bank for a revolving line of credit in the amount of $35,000,000, which was immediately funded for $25,974,695 to pay off the prior line of credit with WNB. On this date, the line of credit with WNB was fully repaid and terminated. The Company recorded $180,350 of loan origination costs.

At March 31, 2022 and December 31, 2021, the advance rate was 85% of the aggregate unpaid balance of the Company’s eligible accounts receivable. The line of credit is secured by all the Company’s assets and is personally guaranteed by our CEO and a member of the Board of Directors of the Company. The line of credit bears interest at 30 Day Libor plus 2.85% per annum (3.35% at March 31, 2022 and December 31, 2021). The terms of the Line of Credit agreement provide for a minimum interest of 3.35% when the 30 day Libor falls below 0.50%. For the three months ended March 31, 2022 and 2021, the minimum rate of 3.35% was in effect. As of March 31, 2022, the amount of principal outstanding on the line of credit was $32,264,381 and is reported on the consolidated balance sheet net of $38,834 of unamortized loan origination fees. As of December 31, 2021, the amount of principal outstanding on the line of credit was $30,537,067 and is reported on the consolidated balance sheet net of $60,692 of unamortized loan origination fees. Interest expense on this line of credit for the three months ended March 31, 2022 and 2021 totaled approximately $258,000 and $144,000, respectively. The Company recorded amortized loan origination fee for three months ended March 31, 2022 and 2021 of $21,858 and $25,238, respectively.

7. Line of Credit (Continued)

The Company’s agreements with WNB and FHB contain certain financial covenants and restrictions. Under these restrictions, all the Company’s assets are pledged to secure the line of credit, the Company must maintain certain financial ratios such as an adjusted tangible net worth ratio, interest coverage ratio and senior leverage ratio. The loan agreement also provides for certain covenants such as audited financial statements, notice of change of control, budget, permission for any new debt, copy of filings with regulatory bodies, minimum balances. Management believes it was in compliance with the applicable debt covenants as of March 31, 2022 and December 31, 2021.

8. PPP Loan

On April 18, 2020, the Company entered into a $271,000 loan with its primary lender, under a program administered by the Small Business Administration (“SBA”) as part of the Paycheck Protection Program (“PPP”) approved under the “Coronavirus Aid, Relief, and Economic Security Act” (“CARES Act”) (Pub. L. No. 116-136). The loan matures in two (2) years and accrues interest at 1% from the origination of the loan. After a 6 month deferral, interest and principal payments are due monthly. The Note is subject to partial or full forgiveness, the terms of which are dictated by the SBA, the CARES Act, section 7(a)(36) of the Small Business Act, all rules and regulations promulgated thereunder including, without limitation, Interim Final Rule RIN 3245-AH34, subsequent SBA guidance, and the Code of Federal Regulations. In January 2022, the Company appealed the decision by the SBA to reject the Company’s original application for the PPP loan. If this appeal is rejected, the loan will become due immediately. As of March 31, 2022, the Company had not received the final decision on the appeal.

As of March 31, 2022 and December 31, 2021, the balance of the PPP loan is as follows:

9. Note Payable – Others

At March 31, 2022 and December 31, 2021, the balances of long-term unsecured notes to unrelated parties are as follows:

These are notes payable to individuals. The notes have interest payable monthly, ranging from 6% to 8% per annum and are unsecured and subordinated. The principal is due on various dates through May 31, 2026. The notes roll-over at periods from 8 months to 4 years on maturity unless the note holder requests repayment through written instructions at least 90 days prior to the expiration date. Interest expense on these notes totaled approximately $128,000 and $112,000 during the three months ended March 31, 2022 and 2021, respectively. The Company received proceeds on these notes of $200,000 and $531,965 for the three months ended March 31, 2022 and 2021, respectively. The Company repaid principal on these notes of $215,000 and $0 for the three months ended March 31, 2022 and 2021, respectively.

10. Note Payable – Stockholders and Related Parties

At March 31, 2022 and December 31, 2021, the balances of long-term notes payable to stockholders and related parties are as follows:

These are notes payable to stockholders and related parties. The notes have interest payable monthly ranging from 6% to 8% per annum and are unsecured and subordinated. The principal is due on various dates through February 28, 2026. The notes roll-over at periods from 8 months to 4 years on maturity unless the note holder requests repayment through written instructions at least 90 days prior to the expiration date. Interest expense on these notes totaled approximately $39,000 and $39,000 during the three months ended March 31, 2022 and 2021, respectively. The Company received proceeds on these notes of $0 and $50,000 for the three months ended March 31, 2022 and 2021, respectively. The Company repaid principal on these notes of $181,302 and $0 for the three months ended March 31, 2022 and 2021, respectively.

In January 2022, the Company exchanged $20,000 of these notes payable for 2,000 shares of Series A Convertible Preferred Stock at a price of $10.00 per share.

11. Equity

Preferred Stock

As of March 31, 2022, the Company was authorized to issue 20 million shares of preferred stock with a par value of $0.001 per share, of which 600,000 shares had been designated as Series A convertible and 101,000 shares had been issued and are outstanding.

In the event of any liquidation, dissolution or winding up of the Company, the holders of preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock, an amount equal to $10 for each share of preferred stock, plus all unpaid dividends that have been accrued, accumulated or declared. The Company may redeem the preferred stock from the holders at any time following the second anniversary of the closing of the original purchase of the preferred stock. The Company shall also have the right to convert any or all of the preferred stock into common stock at a 20% discount to the market price of common shares with written approval of the stockholder.

11. Equity (Continued)

Holders of preferred stock are entitled to receive preferential cumulative dividends, only if declared by the board of directors, at a rate of 7% per annum per share of the liquidation preference amount of $10 per share. During the three months ended March 31, 2022 and 2021, the Board of Directors has declared and paid dividends on the preferred stock of $17,325 and $17,325, respectively. As of March 31, 2022 and December 31, 2021, preferred dividends are in arrears by $17,558 and $17,325, respectively. December 31, 2020 dividends in arrears were declared and paid in January 2021. March 31, 2021 dividends in arrears were declared and paid in April 2021. June 30, 2021 dividends in arrears were declared and paid in July 2021. September 30, 2021 dividends in arrears were declared and paid in October 2021. December 31, 2021 dividends in arrears were declared and paid in January 2022. March 31, 2022 dividends in arrears were declared and paid in April 2022.

Common Stock

As of both March 31, 2022 and December 31, 2021, the Company was authorized to issue 100 million shares of common stock with a par value of $0.001 per share, of which 2,905,016 shares were issued and outstanding.

Stock Options

In 2019, the Company’s Board of Directors approved the creation of the 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan provides for the issuance of incentive stock options to designated employees, certain key advisors and non-employee members of the Board of Directors with the opportunity to receive grant awards to acquire, in the aggregate, up to 300,000 shares of the Corporation’s common stock.

A summary of information regarding the stock options outstanding is as follows:

The above outstanding options were granted on March 1, 2020, to designated Officers and employees. Half of the options vested on March 1, 2021 and the other half vested on March 1, 2022. During the three months ended March 31, 2022 and 2021, the Corporation recognized $5,778 and $8,667, respectively, of stock option expense.

11. Equity (Continued)

Stock Warrants

On April 1, 2020, the Company issued 800,000 of previously authorized warrants for the purchase of common stock that are split into two classes of warrants. The 400,000 Class W4 warrants are issued at $.001 Par Value and exercisable at a strike price of $4 for a period of five (5) years. The 400,000 Class W12 warrants are issued at $.001 Par Value and are exercisable at a strike price of $12 for a period of five (5) years. On June 11, 2021, the Company issued 175,000 of previously authorized warrants for the purchase of common stock. The 175,000 Class W4A warrants are issued at $.001 Par Value and exercisable at a strike price of $4 for a period of five (5) years. A summary of information regarding the stock options outstanding is as follows:

The above outstanding warrants were issued on June 11, 2021 and April 1, 2020, to designated Officers, Directors, and consultants with a total fair value of $9,275 and $27,200 on the grant date, respectively. The warrants vested immediately. During the three months ended March 31, 2022 and 2021, the Company recognized $0 and $0, respectively, of stock warrant expense.

12. Related Party Transactions

The Company has engaged in transactions with related parties primarily shareholders, officers and directors and their relatives that involve financing activities and services to the Company. The following discussion summarizes its activities with related parties.

Office lease

The Company entered a three-year lease for its office space in Miami, FL with an entity that is controlled by our CEO and related parties. The Company leases approximately 3,000 square feet of office space. Rent of $7,451 is paid monthly. The lease contract expires in February 2024.

Line of credit

As discussed in Note 7, the Company secured its primary financing in part through the assistance of our CEO and a significant shareholder who guaranteed the loan to the financial institution. The current line of credit with First Horizon Bank was initiated at $35,000,000. In October 2021, the Company increased its line of credit with First Horizon Bank from $35,000,000 to $45,000,000.

Notes payable

As discussed in Note 10, the Company has been advanced funds by its executives, directors, and other related parties. As of March 31, 2022 and December 31, 2021, the amounts advanced were $1,890,000 and $2,091,302, respectively.

12. Related Party Transactions (Continued)

Stock Options

As discussed in Note 11, on March 1, 2020, the Company issued 187,400 stock options, of which 167,400 stock options were issued to officers and directors under the terms of the 2019 Equity Incentive Plan. The impact on earnings from this transaction was a total of $69,338, which has been fully amortized as of March 31, 2022. This transaction also increased additional paid in capital over the same period.

Stock Warrants

As discussed in Note 11, on June 11, 2021 and April 1, 2020, the Company issued 175,000 and 800,000 stock warrants, respectively, of which 175,000 and 800,000 stock warrants, respectively, were issued to officers, directors, and a related party.

13. Commitments and Contingencies

From time-to-time, we may be involved in litigation or be subject to claims arising out of our operations or content appearing on our websites in the normal course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on our company because of defense and settlement costs, diversion of management resources and other factors.

14. Subsequent Events

In April 2022, the Company issued $25,000 of notes payable (related party).

In April 2022, the Board of Directors declared and paid dividends on the Series A convertible preferred stock of $17,558.

In April 2022, the Company issued 65,000 shares of its Series A Convertible Preferred Stock to four accredited investors in exchange for $400,000 cash and exchange of $250,000 of notes payable (others) by the Company at a price of $10.00 per share.