Note 12 - Notes Payable

12 Months Ended

Dec. 31, 2021

Note 12 – Notes Payable

The following table summarizes the Company's notes payable:

					December 31, 2021
	Currency	Balance as of December 31, 2020			Notes Issued		Note Payments			Balance as of December 31, 2021
Digital asset notes payable
Fixed Term Loan of Virtual Currency I	USDC	$	8,500,000		$	—	$	—		$	8,500,000
Fixed Term Loan of Virtual Currency II	USDC		—			1,800,000		(1,800,000	) ²³		—
Fixed Term Loan of Virtual Currency III	USDC		—			1,200,000		(1,200,000	)		—
Fixed Term Loan of Virtual Currency IV	USDC		—			1,000,000		(1,000,000	)		—
Fixed Term Loan of Virtual Currency V	USDC		—			1,000,000		(1,000,000	)		—
Fixed Term Loan of Virtual Currency VI	BUSD		—			50,000,000		(50,000,000	)		—
Open Term Loans of Virtual Currency I	USDC		—			17,700,000		(14,200,000	)		3,500,000
Open Term Loan of Virtual Currency II	USDC		—			2,200,000		(2,200,000	)		—
Open Term Loan of Virtual Currency III	USDC		—			6,250,000		—			6,250,000
Open Term Loans	USD		—			57,650,000		(9,000,000	)		48,650,000
Fixed Term Loan I	USD		—			7,878,000		(7,878,000	)²⁴		—
Fixed Term Loan IV	USD		—			1,510,500		(1,510,500	)		—
Fixed Term Loan V	USD		—			2,016,000		(2,016,000	)		—
Fixed Term Loan VI	USD		—			4,080,000		(4,080,000	)		—
Fixed Term Loan VII (fka Fixed Term Loan II & III)	USD		—			3,211,200		(3,211,200	)		—
Digital Currency Line of Credit	BTC/ETH		—			40,615,330		(7,656,375	)		32,958,954
Total digital asset notes payable			8,500,000			198,111,030		(106,752,075	)		99,858,954
Paycheck Protection Program Note Payable	USD		1,199,900			—		—			1,199,900
Participation Agreement Note Payable	USD		1,830,054	²⁵		6,825,932		(2,155,987	)		6,500,000
Credit Facility Note Payable	USD		—			2,925,524		(2,925,524	)		—
Total notes payable		$	11,529,954		$	207,862,486	$	(111,833,586	)	$	107,558,854

Future principal repayments are as follows:

	Amount
2022		6,500,000
Other²⁶		101,058,854
Total	$	107,558,854

Digital Asset Notes Payable

As of December 31, 2021 and 2020, the outstanding balance on the digital asset notes payable was $99,858,954 and $8,500,000, respectively, which is presented in Notes Payable on the Consolidated Balance Sheet. For the years ended December 31, 2021 and 2020, the Company recorded interest expense of $5,771,729 and $202,604, respectively, which is included as a component of interest expense on the Consolidated Statements of Operations. As of December 31, 2021 and 2020, accrued interest was $1,325,364 and $—, respectively on the Consolidated Balance Sheet.

²³ The Company repaid the digital asset loan with U.S. dollars.

²⁴ The Company repaid $4,600,000 of the USD loan in digital assets and $3,278,000 in U.S. dollars.

²⁵ As of December 31, 2020, the balance of the Participation Agreement includes accrued interest on the loan of $30,054

²⁶ Other includes the future principal repayments for the Open Term Loans and Open Term Loans of Virtual Currency.

Virtual Currency Line of Credit

In July 2021, the Company began entering into digital currency lines of credit with various counterparties. The Company borrows BTC and ETH from counterparties at fixed rates for use in connection with the Company's lending, trading and other business activities. The line of credit has an open term and bears an interest rate ranging from 6.5% to 9.0%. As of December 31, 2021, the line of credit had a token balance of 675 BTC and 475 ETH. The total balance on the line of credit as of December 31, 2021 is $32,958,954. For the year ended December 31, 2021, a fair value adjustment on the digital currency borrowed of $1,140,884 was recorded and is reflected in the Consolidated Statements of Operations.

Paycheck Protection Program Note Payable

In May 2020, the Company entered into a Paycheck Protection Program Term Note (the “PPP Loan Payable”) with Alpine Bank in the amount of $1,199,900. The PPP Loan Payable was issued to the Company pursuant to the Coronavirus, Aid, Relief, and Economic Security Act’s (the “CARES Act”) (P.L. 116-136) Paycheck Protection Program (the “Program”). Under the Program, all or a portion of the PPP Loan Payable may be forgiven in accordance with the Program requirements. As of December 31, 2021 and 2020, the outstanding balance on the PPP Loan Payable was $1,199,900, which is presented in Notes Payable on the Consolidated Balance Sheet. The Company has applied for forgiveness for the entire outstanding balance of the PPP Loan Payable and as of December 31, 2021 has not received forgiveness approval from the Small Business Administration.

For the years ended December 31, 2021 and 2020, the Company recorded interest expense of $11,999 and $8,054, respectively, which is included as a component of interest expense on the Consolidated Statements of Operations. As of December 31, 2021 and 2020, accrued interest was $20,053 and $8,054, respectively on the Consolidated Balance Sheet.

Participation Agreement Note Payable

On January 31, 2020, the Company entered into a Participation Agreement with a counterparty to sell participation interests in certain loans with the Company’s customers. The Company receives consideration from the counterparty in the amount of the percentage of participation interest of each loan. The terms in the agreement do not meet the criteria to qualify as a sale under ASC 860. Accordingly, the loans are not removed from the Company's balance sheet. The cash received from the counterparty in exchange for the participation interest is recorded as a liability. The counterparty is entitled to receive payment from the Company on the loan payable when payment is received from the customer. As of January 1, 2021, the counterparty implemented a revised pricing structure. The revised pricing structure no longer consists of collecting any participation fees on a per offering basis based on a certain percentage of the purchase price and is based on a tiered monthly platform fee (the "platform Subscription Fee") determined by the size of the outstanding loan. The Platform Subscription Fee ranges from $2,000 to $30,000 per month.

As of December 31, 2021 and 2020, the principal balance of the participation agreement liability was $6,500,000 and $1,800,000, respectively, and is presented in Notes Payable on the Consolidated Balance Sheet. As of December 31, 2021 and 2020, the accrued interest was $161,093 and $30,054, respectively. Accrued interest is presented in accounts payable and accrued expenses on the Consolidated Balance Sheet. The interest rate was 9.00%, is accrued daily and is calculated on a 360-day basis. For the years ended December 31, 2021 and 2020, the Company recorded interest expense of $506,487 and $113,957, respectively, which is included as a component of interest expense on the Consolidated Statements of Operations. The loan had an initial maturity date of January 22, 2021. On January 22, 2021, the note amount was increased $1,200,000 to $3,000,000, the maturity date was extended through April 22, 2021 and the interest rate was increased to 9.25%. On April 22, 2021, the note amount was decreased $300,000 to $2,700,000, the maturity date was extended through July 22, 2021 and the interest rate was decreased to 9.00%. On May 22, 2021, the Participation Agreement note payable amount was increased $3,000,000 to $5,700,000, the maturity date was extended through February 22, 2022 and the interest rate was increased to 13.00%. In July 2021, the Company refinanced the Participation Agreement and repaid $2,155,987 of the loan balance. In August 2021, the Participation Agreement note payable amount was increased to $5,138,000 with no change to the interest rate of 13.00%. In September 2021, the Participation Agreement note payable amount was increased to $5,329,000 with no change to the interest rate of 13.00%. In October 2021, the note amount was increased $1,131,000 to $6,460,000, the maturity date was extended through July 22, 2022 with no change to the interest rate of 13%. In November 2021, the note amount was increased to $6,500,000, the maturity date extended through August 22, 2022 with no change to the interest rate of 13.00%. In December 2021, the Participation Agreement note payable maturity was extended through September 22, 2022 with no change to the note amount of $6,500,000 and the interest rate of 13.00%.

Credit Facility Note Payable

Starting in February 2021, the Company entered into a credit facility with an exchange and uses credit facilities provided within exchange accounts to conduct trading activity. The credit facilities bear an interest rate of 0.02% per day. The credit facility was repaid in May 2021. The credit facility funds were used to purchase 1,700 ETH. As the ETH is not removable from the exchange until the credit facility is paid back in full and cannot be traded into another digital asset, the balance of ETH is recorded within Digital asset receivable from exchange on the Consolidated Balance Sheets. For the year ended December 31, 2021, the Company recorded $645,637 of interest expense related to the credit facilities, respectively. The credit facility was repaid in May 2021.

Salt Blockchain Inc. 10-K