PALISADE BIO, INC. Debt Disclosure

6. Debt

Financing Agreements

In June and October 2020, the Company entered into agreements to finance certain insurance policies at a stated interest rate of 8.35% and payable over ten months. In April and May 2021, the Company entered into additional agreements to finance additional insurance policies (“Additional Financing Agreements”). The Additional Financing Agreements have a stated interest of 3.57% and 6.67%, respectively, and are payable over a nine- and ten-month

period, respectively. The agreements are secured by the associated insurance policies. As of December 31, 2021 and December 31, 2020, the aggregate remaining balance due under the financing agreements was $87,000 and $22,000, respectively. The remaining minimum debt payment associated with the insurance financing arrangements was paid in the first quarter of 2022 and concurrent with this final payment, the Company renewed the associated insurance policies.

Other than the final insurance financing arrangements payments due, as of December 31, 2021, the Company has no other minimum debt payments required in 2022 or thereafter.

Unsecured Promissory Notes

December 2019 Note

On December 18, 2019, the Company issued an unsecured promissory note for a principal sum of $100,000 to a consultant as payment for consulting services performed in 2019 (the “December 2019 Note”). The December 2019 Note had a maturity date in December 2020. The outstanding principal under the December 2019 note accrued interest at the annual rate of five percent simple interest. All principal plus accrued interest on the note was due and payable the earlier of the date which the Company closes on five million or more in revenue or gross financing proceeds or the maturity date. The maturity of the December 2019 Note was extended to March 19, 2021 and again to June 19, 2021. As of December 31, 2020, the outstanding balance of this note, including accrued interest was $105,000. The entire amount of principal and accrued interest on the December 2019 Note was repaid in June 2021.

July 2020 Note

On July 9, 2020, the Company issued an unsecured promissory note for a principal sum of $125,000 with an original issue discount of 20 percent (the “July 2020 Note”). There were no issuance costs related to this transaction. Interest accrues on the unpaid principal amount at a rate equal to ten percent per annum, compounded annually. Principal and any accrued but unpaid interest under this note was due and payable upon demand of the holder at any time following the earlier to occur of (a) the date on which the Company received at least $1,250,000 in gross proceeds from the issuance of equity securities or securities convertible into or exercisable for equity securities or (b) the 120th day following the issuance date of the note. On November 6, 2020, the Company and the lender mutually agreed to extend the maturity date of the July 2020 Note for an additional 120 days, or through March 6, 2021. No other terms of the original agreement were amended. The Company paid all outstanding accrued interest, which approximated $4,000, in conjunction with the amendment and interest will continue to accrue at the original stated interest rate. On March 6, 2021, the maturity date was further extended to June 6, 2021. On May 25, 2021, the Company and the noteholder amended the note to (i) extend the maturity date of the note to November 15, 2021 and (ii) provide for six monthly payments of $21,445 starting June 15, 2021 in full amortization of the Note (the “July 2020 Note Amendment”). In consideration for the July 2020 Note Amendment, the Company issued warrants to the noteholder to purchase an aggregate of 3,000 shares of the Company's common stock at a purchase price of $6.00 per share. The Company accounted for the amendments as a modification. The incremental value of the warrants of $6,000 was recorded as a discount on the debt and is accreted to interest expense over the remaining term of the debt. As of December 31, 2020, the outstanding balance of the July 2020 Note, including accrued interest, was $126,000. The entire amount of principal and accrued interest on the July 2020 Note was repaid in November 2021.

October 2020 Note 

On October 16, 2020, the Company issued an unsecured promissory note for a principal sum of $500,000 with an original issue discount of ten percent. Interest accrued on the unpaid principal amount at a rate equal to ten percent per annum, compounded annually. The note was due and payable 180 days from the issuance date, or April 14, 2021. On May 25, 2021, the Company and the noteholder amended the note to (i) extend the maturity date of the note to November 15, 2021 and (ii) provide for six monthly payments of $90,901 starting June 15, 2021 in full amortization of the Note (the “October 2020 Note Amendment”). As consideration for the October 2020 Note Amendment, the Company issued warrants to the noteholder to purchase an aggregate of 5,000 shares of the Company's common stock at a purchase price of $6.00 per share. This noteholder was considered a related party due to its equity investment in the Company (see Note 12). As of December 31, 2020, the outstanding balance of the October 2020 Note, including

accrued interest, was $510,000. The entire amount of principal and accrued interest on the October 2020 Note was repaid in November 2021.

Senior Secured Promissory Notes

In connection with the transactions contemplated by the Merger, (i) the Company entered into the Securities Purchase Agreement with the Investor pursuant to which, among other things, the Company agreed to issue the Senior Secured Promissory Notes and the Senior Secured Promissory Note Warrants, and (ii) Seneca and LBS entered into a separate securities purchase agreement with the Investor pursuant to which, among other things, the Investor agreed to invest $20.0 million in cash and cancel any outstanding principal and interest on the Senior Secured Promissory Notes immediately prior to the closing of the Merger in exchange for shares of Series 1 Preferred Stock of LBS to be issued immediately prior to the closing of the Merger and warrants to purchase shares of the Company's common stock to be issued after the closing of the Merger, in private placement transactions.

The Senior Secured Promissory Notes had a first closing on December 17, 2020 and a second closing on February 1, 2021. Each of the closings resulted in the issuance of $1.7 million in aggregate principal of Senior Secured Promissory Notes and Senior Secured Promissory Note Warrants to acquire 94,096 shares of common stock, with an exercise price of $17.71 per share. The third closing was at a date to be determined by the Company between March 16, 2021 and the closing of the Merger. The Company did not elect to draw down the third tranche. At issuance, the fair value of the first tranche of the Senior Secured Promissory Note Warrants exceeded the debt proceeds, resulting in a $0.8 million loss on issuance of debt. At issuance, the fair value of the second tranche of the Senior Secured Promissory Note Warrants exceeded the debt proceeds, resulting in a $0.7 million loss on issuance of debt. The debt was recognized at a zero-dollar carrying value and was being accreted to the principal amount of the debt, on a straight-line basis, through a charge to interest expense in the statement of operations. In connection with the Merger, on April 27, 2021, the outstanding principal and interest on both tranches of the Senior Secured Promissory Notes were cancelled for shares of Series 1 Preferred Stock of the Company. As of December 31, 2021, there is no principal or interest outstanding on the Senior Secured Promissory Notes.

Paycheck Protection Program (“PPP”)

In April 2020, the Company applied for and received $279,000 from the PPP (the “PPP Loan”) as government aid for payroll, rent and utilities. There were no issuance costs related to this transaction. The PPP Loan accrued simple interest at a rate of one percent per annum and has an original maturity date of April 2022. Payments of principal and interest were deferred for the ten-month period following the loan forgiveness period, which is defined as the 8-week or 24-week period following the loan origination date, at which time the loan balance was payable in monthly installments unless the Company applied for, and received, forgiveness in accordance with the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and the terms of the loan executed by the Company and its lender.

On June 5, 2020, the Paycheck Protection Program Flexibility Act (the “PPP Flexibility Act”) was signed into law, extending the PPP Loan forgiveness period from 8 weeks to 24 weeks after loan origination, reducing the required amount of payroll expenditures from 75 percent to 60 percent, removing the prior ban on borrowers taking advantage of payroll tax deferral after loan forgiveness and allowing for the amendment of the maturity date on existing loans from two years to five years.

In January 2021, the Company received notification the PPP Loan was forgiven and recognized a gain a $279,000, in other income in the consolidated statements of operations.