UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
(Exact name of Registrant as specified in its charter)
|
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification no.) |
|
|
|
|
(Address of principal executive offices) |
(Zip code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
Trading symbol |
Name of each exchange on which registered |
|
|
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
|
|
|
|
|
☑ |
Smaller reporting company |
|
|
|
|
|
|
Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The registrant had
LM FUNDING AMERICA, INC.
TABLE OF CONTENTS
|
|
Page |
|
|
|
PART I. |
3 |
|
|
|
|
Item 1. |
3 |
|
|
|
|
|
3 |
|
|
|
|
|
4 |
|
|
|
|
|
5 |
|
|
|
|
|
6 |
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
|
|
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
|
|
|
Item 3. |
26 |
|
|
|
|
Item 4. |
26 |
|
|
|
|
PART II. |
28 |
|
|
|
|
Item 1. |
28 |
|
|
|
|
Item 1A. |
28 |
|
|
|
|
Item 2. |
28 |
|
|
|
|
Item 3. |
28 |
|
|
|
|
Item 5. |
28 |
|
|
|
|
Item 6. |
29 |
|
|
|
|
30 |
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
LM Funding America, Inc. and Subsidiaries Condensed Consolidated Balance Sheets
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
|
(Unaudited) |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Cash |
|
$ |
|
|
|
$ |
|
|
Finance receivables: |
|
|
|
|
|
|
|
|
Original product - net |
|
|
|
|
|
|
|
|
Special product - New Neighbor Guaranty program, net of allowance for credit losses of |
|
|
|
|
|
|
|
|
Short-term investments - convertible debt securities (Note 7) |
|
|
|
|
|
|
|
|
Marketable securities (Note 7) |
|
|
|
|
|
|
|
|
Short-term investments - debt security (Note 7) |
|
|
|
|
|
|
|
|
Prepaid expenses and other assets |
|
|
|
|
|
|
|
|
Income tax receivable (Note 4) |
|
|
|
|
|
|
- |
|
Note receivable from related party (Note 7) |
|
|
|
|
|
|
- |
|
Digital assets, net (Note 9) |
|
|
|
|
|
|
- |
|
Current assets |
|
|
|
|
|
|
|
|
Fixed assets, net |
|
|
|
|
|
|
|
|
Real estate assets owned |
|
|
|
|
|
|
|
|
Operating lease - right of use assets (Note 5) |
|
|
|
|
|
|
|
|
Long-term investments - equity securities (Note 7) |
|
|
|
|
|
|
|
|
Investments in unconsolidated affiliates (Note 7) |
|
|
|
|
|
|
|
|
Deposit on mining equipment (Note 8) |
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
Long-term assets |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
Note payable - short-term (Note 3) |
|
|
|
|
|
|
|
|
Due to related party (Note 2) |
|
|
|
|
|
|
|
|
Current portion of lease liability (Note 5) |
|
|
|
|
|
|
|
|
Income tax payable (Note 4) |
|
|
- |
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
- |
|
Total current liabilities |
|
|
|
|
|
|
|
|
Lease liability - long-term (Note 5) |
|
|
|
|
|
|
- |
|
Long-term liabilities |
|
|
|
|
|
|
- |
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, par value $ |
|
|
|
|
|
|
|
|
Common stock, par value $ |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Total stockholders’ equity |
|
|
|
|
|
|
|
|
Non-controlling interest |
|
|
( |
) |
|
|
|
|
Total stockholders’ equity |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
3
LM Funding America, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (unaudited)
|
|
For the Three Months Ended March 31, |
|
|
|||||
|
|
2022 |
|
|
2021 |
|
|
||
Revenues: |
|
|
|
|
|
|
|
|
|
Interest on delinquent association fees |
|
$ |
|
|
|
$ |
|
|
|
Administrative and late fees |
|
|
|
|
|
|
|
|
|
Recoveries in excess of cost - special product |
|
|
|
|
|
|
|
|
|
Underwriting and other revenues |
|
|
|
|
|
|
|
|
|
Rental revenue |
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
Staff costs and payroll |
|
|
|
|
|
|
|
|
|
Professional fees |
|
|
|
|
|
|
|
|
|
Settlement costs with associations |
|
|
|
|
|
|
- |
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
Recovery of cost from related party receivable |
|
|
- |
|
|
|
( |
) |
|
Real estate management and disposal |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Collection costs |
|
|
( |
) |
|
|
|
|
|
Other operating expenses |
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
Realized gain (loss) on securities |
|
|
( |
) |
|
|
|
|
|
Unrealized gain on convertible debt security |
|
|
|
|
|
|
- |
|
|
Unrealized gain on marketable securities |
|
|
|
|
|
|
- |
|
|
Unrealized gain (loss) on investment and equity securities |
|
|
( |
) |
|
|
|
|
|
Digital assets other income |
|
|
|
|
|
|
- |
|
|
Interest income |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
- |
|
|
|
( |
) |
|
Dividend income |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
( |
) |
|
|
|
|
|
Income tax expense |
|
|
- |
|
|
|
( |
) |
|
Net income (loss) |
|
|
( |
) |
|
|
|
|
|
Less: Net income (loss) attributable to non-controlling interest |
|
|
|
|
|
|
( |
) |
|
Net income (loss) attributable to LM Funding America Inc. |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share: |
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share - net income (loss) - attributable to LM Funding |
|
$ |
( |
) |
|
$ |
|
|
|
Diluted income (loss) per common share - net income (loss) - attributable to LM Funding |
|
$ |
( |
) |
|
$ |
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
4
LM Funding America, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows
(unaudited)
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
Adjustments to reconcile net loss to cash used in operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Right to use non cash lease expense |
|
|
|
|
|
|
|
|
Stock compensation |
|
|
|
|
|
|
- |
|
Stock option expense |
|
|
|
|
|
|
- |
|
Accrued investment income |
|
|
( |
) |
|
|
( |
) |
Digital assets other income |
|
|
( |
) |
|
|
|
|
Gain on deconsolidation of affiliate |
|
|
- |
|
|
|
( |
) |
Unrealized gain on convertible debt security |
|
|
( |
) |
|
|
- |
|
Unrealized gain on marketable securities |
|
|
( |
) |
|
|
( |
) |
Unrealized loss on investment and equity securities |
|
|
|
|
|
|
- |
|
Realized (gain) loss on securities |
|
|
|
|
|
|
( |
) |
Proceeds from securities |
|
|
|
|
|
|
|
|
Investment in convertible note receivable converted into marketable security |
|
|
- |
|
|
|
( |
) |
Change in assets and liabilities |
|
|
|
|
|
|
|
|
Prepaid expenses and other assets |
|
|
|
|
|
|
|
|
Digital assets, net |
|
|
( |
) |
|
|
- |
|
Accounts payable and accrued expenses |
|
|
( |
) |
|
|
|
|
Advances (repayments) from related party |
|
|
|
|
|
|
|
|
Lease liability payments |
|
|
( |
) |
|
|
( |
) |
Income tax payable |
|
|
( |
) |
|
|
|
|
Income tax receivable |
|
|
( |
) |
|
|
- |
|
Net cash provided by (used in) operating activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net collections of finance receivables - original product |
|
|
( |
) |
|
|
|
|
Net collections of finance receivables - special product |
|
|
( |
) |
|
|
( |
) |
Payments for real estate assets owned |
|
|
- |
|
|
|
( |
) |
Deposit for mining equipment |
|
|
( |
) |
|
|
- |
|
Investment in convertible note receivable |
|
|
- |
|
|
|
( |
) |
Loan to purchase securities |
|
|
- |
|
|
|
|
|
Investment in note receivable - related party |
|
|
( |
) |
|
|
- |
|
Repayment of loan to purchase securities |
|
|
- |
|
|
|
( |
) |
Investment in unconsolidated affiliate |
|
|
- |
|
|
|
( |
) |
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Principal repayments |
|
|
- |
|
|
|
( |
) |
Insurance financing repayments |
|
|
( |
) |
|
|
( |
) |
Exercise of warrants |
|
|
- |
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
( |
) |
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
|
( |
) |
|
|
|
|
CASH - BEGINNING OF YEAR |
|
|
|
|
|
|
|
|
CASH - END OF YEAR |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASHFLOW INFORMATION |
|
|
|
|
|
|
|
|
ROU assets and operating lease obligation recognized |
|
$ |
|
|
|
$ |
- |
|
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash paid for taxes |
|
$ |
|
|
|
|
- |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
For the Three Months Ended March 31, 2022 and 2021
(unaudited)
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Shares |
|
|
Amount |
|
|
Additional paid in capital |
|
|
Accumulated Deficit |
|
|
Non-Controlling Interest |
|
|
Total Equity |
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for warrants exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Stock issued for services |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Stock compensation |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Stock option expense |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance - March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
LM FUNDING AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2022
(UNAUDITED)
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
LM Funding America, Inc. (“we”, “our”, “LMFA” or the “Company”) was formed as a Delaware corporation on April 20, 2015. LMFA was formed for the purpose of completing a public offering and related transactions in order to carry on the business of LM Funding, LLC and its subsidiaries (the “Predecessor”). LMFA is the sole member of LM Funding, LLC and operates and controls all of its businesses and affairs.
LM Funding, LLC, a Florida limited liability company organized in January 2008 under the terms of an Operating Agreement effective January 8, 2008 as amended, had
The Company created
We are a specialty finance company that provides funding to nonprofit community associations primarily located in the state of Florida. We offer incorporated nonprofit community associations, which we refer to as “Associations,” a variety of financial products customized to each Association’s financial needs. Our original product offering consists of providing funding to Associations by purchasing their rights under delinquent accounts that are selected by the Associations arising from unpaid Association assessments. Historically, we provided funding against such delinquent accounts, which we refer to as “Accounts,” in exchange for a portion of the proceeds collected by the Associations from the account debtors on the Accounts. In addition to our original product offering, we have started purchasing Accounts on varying terms tailored to suit each Association’s financial needs, including under our New Neighbor Guaranty™ program.
During 2020, we began exploring other specialty finance business opportunities that are complementary to or that can leverage our historical business.
Specialty Finance Company
We purchase an Association’s right to receive a portion of the Association’s collected proceeds from owners that are not paying their assessments. After taking assignment of an Association’s right to receive a portion of the Association’s proceeds from the collection of delinquent assessments, we engage law firms to perform collection work on a deferred billing basis wherein the law firms receive payment upon collection from the account debtors or a predetermined contracted amount if payment from account debtors is less than legal fees and costs owed. Under this business model, we typically fund an amount equal to or less than the statutory minimum an Association could recover on a delinquent account for each Account, which we refer to as the “Super Lien Amount”. Upon collection of an Account, the law firm working on the Account, on behalf of the Association, generally distributes to us the funded amount, interest, and administrative late fees, with the law firm retaining legal fees and costs collected, and the Association retaining the balance of the collection. In connection with this line of business, we have developed proprietary software for servicing Accounts, which we believe enables law firms to service Accounts efficiently and profitably.
Under our New Neighbor Guaranty program, an Association will generally assign substantially all of its outstanding indebtedness and accruals on its delinquent units to us in exchange for payment by us of monthly dues on each delinquent unit. This simultaneously eliminates a substantial portion of the Association’s balance sheet bad debts and assists the Association to meet its budget by receiving guaranteed monthly payments on its delinquent units and relieving the Association from paying legal fees and costs to collect its bad debts. We believe that the combined features of the program enhance the value of the underlying real estate in an Association and the value of an Association’s delinquent receivables.
Because we acquire and collect on the delinquent receivables of Associations, the Account debtors are third parties about whom we have little or no information. Therefore, we cannot predict when any given Account will be paid off or how much it will yield. In assessing the risk of purchasing Accounts, we review the property values of the underlying units, the governing documents of the relevant Association, and the total number of delinquent receivables held by the Association.
7
Specialty Finance Products
Original Product
Our original product relies upon Florida statutory provisions that effectively protect the principal amount invested by us in each Account. In particular, Section 718.116(1), Florida Statutes, makes purchasers and sellers of a unit in an Association jointly and severally liable for all past due assessments, interest, late fees, legal fees, and costs payable to the Association. As discussed above, the Florida Statutes grants to Associations a so-called “super lien”, which is a category of lien that is given a statutorily higher priority than all other types of liens other than property tax liens. The amount of the Association’s priority over a first mortgage holder that takes title to a property through foreclosure (or deed in lieu), referred to as the Super Lien Amount, is limited to twelve months’ past due assessments or, if less, one percent (
The Statutes specify that the rate of interest an association (or its assignor) may charge on delinquent assessments is equal to the rate set forth in the association’s declaration or bylaws. In Florida if a rate is not specified, the statutory rate is equal to
In other states in which we have offered our original product, which are currently only in Washington, Colorado and Illinois, we rely on statutes that we believe are similar to the above-described Florida statutes in relevant respects.
New Neighbor Guaranty
In 2012, we developed a new product, the New Neighbor Guaranty, wherein an Association assigns substantially all of its outstanding indebtedness and accruals on its delinquent units to us in exchange for payments in an amount equal to the regular ongoing monthly or quarterly assessments for delinquent units when those amounts would be due to the Association. We assume both the payment and collection obligations for these assigned Accounts under this product. This simultaneously eliminates an Association’s balance sheet bad debts and assists the Association to meet its budget by receiving guaranteed assessment payments on its delinquent units and relieving the Association from paying legal fees and costs to collect its bad debts. We believe that the combined features of the product enhance the value of the underlying real estate in an Association and the value of an Association’s delinquent receivables.
Before we implement the New Neighbor Guaranty program for an Association we are typically asked to conduct a review of its accounts receivable. After we have conducted the review, we inform the Association which Accounts we are willing to purchase and the terms of such purchase. Once we implement the New Neighbor Guaranty program, we begin making scheduled payments to the Association on the Accounts as if the Association had non-delinquent residents occupying the units underlying the Accounts. Our New Neighbor Guaranty contracts typically allow us to retain all collection proceeds on each Account other than special assessments and accelerated assessment balances. Thus, the Association foregoes the potential benefit of a larger future collection in exchange for the certainty of a steady stream of immediate payments on the Account.
Cryptocurrency Mining Business
On September 15, 2021, we announced that we plan to operate in the Bitcoin mining ecosystem. As of the date of this filing, we have not commenced operations. We aim to deploy the computing power that we will create to mine Bitcoin and validate transactions on the Bitcoin network. We believe that recent developments in Bitcoin mining have created an opportunity for us to deploy capital and conduct large-scale mining operations in the United States. We have formed a new wholly owned subsidiary, US Digital Mining and Hosting Co, LLC, a Florida limited liability company (US Digital), to develop and operate our cryptocurrency mining business.
We have committed to purchasing an aggregate of
In October 2021, we also entered into a sale and purchase agreement (the “Uptime Purchase Agreement”) with Uptime Armory LLC (“Uptime”) pursuant to which US Digital agreed to purchase, and Uptime agreed to supply to US Digital, an aggregate of
8
Reverse Stock Split
Principles of Consolidation
The condensed consolidated financial statements include the accounts of LMFA and its wholly-owned subsidiaries: LM Funding, LLC; LMF October 2010 Fund, LLC; REO Management Holdings, LLC (including all
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The interim condensed consolidated financial statements as of March 31, 2022 and for the Three Months ended March 31, 2022 and March 31, 2021, respectively are unaudited. In the opinion of management, the interim condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to provide a fair statement of the results for the interim periods. The accompanying consolidated balance sheet as of December 31, 2021, is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K for fiscal the year ended December 31, 2021.
Reclassifications
Certain prior period amounts on the balance sheet have been reclassified to conform to the current period presentation.
Digital Assets, net
When applicable, we account for all digital assets other than stablecoin as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other. We have ownership of and control over our digital assets and use third-party custodial services to secure it. The digital assets are initially recorded at cost and are subsequently remeasured on the consolidated balance sheet at cost, net of any impairment losses incurred since acquisition. We account for stablecoin as financial assets in accordance with ASC 310, Receivables. The stablecoin are recorded at amortized cost, which approximates their fair value.
We determine the fair value of our digital assets that are accounted for as intangible assets in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active exchange(s) that we have determined is the principal market for such assets (Level 1 inputs). We perform an analysis each quarter to identify whether events or changes in circumstances indicate that it is more likely than not that our digital assets are impaired. If the current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined.
The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded until realized upon sale, at which point they are presented separately from of any impairment losses.
During the three months ended March 31, 2022, the Company purchased an aggregate of $
9
regulated financial institutions. The Company earns additional Gemini dollars on GUDS holdings, which we earned approximately $
As of March 31, 2022 we had $
There is currently no specific guidance under GAAP or alternative accounting framework for the accounting for digital assets recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.
Investment in Securities
Investment in Securities includes investments in common stocks, note receivables, and convertible notes receivables. Investments in securities are reported at fair value with changes in unrecognized gains or losses included in other income on the income statement. The fair value of the BORQ convertible note receivable is based on its classification as a trading security. The Symbiont note receivable is reported at amortized costs less impairment.
Fair Value of Financial Instruments
FASB ASC 825-10, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet.
Investments in Unconsolidated Entities
We account for investments in less than
Income (Loss) Per Share
Basic income (loss) per share is calculated as net income (loss) to common stockholders divided by the weighted average number of common shares outstanding during the period (as adjusted to give effect to the Reverse Stock Split).
The Company issued approximately
The Company has restated all share amounts to reflect the Reverse Stock Split.
Diluted income (loss) per share for the period equals basic loss per share as the effect of any convertible notes, stock based compensation awards or stock warrants would be anti-dilutive.
|
|
As of March 31, |
||
|
|
2022 |
|
2021 |
Stock Options |
|
|
|
|
Stock Warrants |
|
|
|
|
|
|
|
|
|
Note 2. Due to Related Party
Legal services for the Company associated with the collection of delinquent assessments from property owners are performed by a law firm, Business Law Group (“BLG”), which was owned solely by Bruce M. Rodgers, the Chief Executive Officer of LMFA, until and through the date of the Company’s filing initial public offering in 2015. Following the offering in 2015, Mr. Rodgers transferred his interest in BLG to other attorneys at the firm through a redemption of his interest in the firm, and BLG became under control of those lawyers. The law firm has historically performed collection work primarily on a deferred billing basis wherein the law firm receives payment for services rendered upon collection from the property owners or at amounts ultimately subject to negotiations with the Company.
10
Under the agreement, the Company paid BLG a fixed monthly fee of $
On February 1, 2022, the Company consented to the assignment by BLG to the law firm BLG Association Law, PLLC (“BLGAL”) of the Services Agreement, dated April 15, 2015, previously entered into by the Company and Business Law Group, P.A. (the “Services Agreement”). The Services Agreement had set forth the terms under which Business Law Group, P.A. would act as the primary law firm used by the Company and its association clients for the servicing and collection of association accounts. The assignment of the Services Agreement was necessitated by the death of the principal attorney and owner of Business Law Group, P.A. In connection with the assignment, BLGAL agreed to amend the Services Agreement on February 1, 2022, to reduce the monthly compensation payable to the law firm from $
The Company had originally engaged BLG on behalf of many of its Association clients to service and collect the Accounts and to distribute the proceeds as required by Florida law and the provisions of the purchase agreements between LMF and the Associations. This engagement was subsequently assigned to BLGAL as described above. Ms. Gould who is one of our directors, worked as the General Manager of BLG and works as the General Manager of BLGAL .
Amounts collected from property owners and paid to BLG or BLGAL as applicable for the Three Months ended March 31, 2022 and 2021 were approximately $
Under the Services Agreement in effect during the Three Months ended March 31, 2022 and 2021, the Company pays all costs (lien filing fees, process and serve costs) incurred in connection with the collection of amounts due from property owners. Any recovery of these collection costs is accounted for as a reduction in expense incurred. The Company incurred expenses related to these types of costs for the Three Months ended March 31, 2022 and 2021 in the amounts of $
The Company also shares office space and related common expenses with BLGAL (and previously BLG). All shared expenses, including rent, are charged to BLG based on an estimate of actual usage. Any expenses of BLGAL and BLG paid by the Company that have not been reimbursed or settled against other amounts are reflected as due from related parties in the accompanying consolidated balance sheets. BLGAL and BLG, as applicable were charged a total of approximately $
In 2017, the Company assessed the collectability of the amount due from BLG and concluded that even though BLG had repaid $
Amounts payable to BLGAL and BLG, in aggregate as of March 31, 2022 and December 31, 2021 were approximately $
11
Note 3. Debt and Other Financing Arrangements
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
|
|
|
|
|
|
|
|
Financing agreement with FlatIron capital that is unsecured. Down payment of $ |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Note 4. Income Taxes
Prior to the Company’s initial public offering in October 2015, the earnings of the Predecessor, which was a limited liability company taxed as a partnership, were taxable to its members. In connection with the contribution of membership interests to the Company (a C-Corporation formed in 2015), the net income or loss of the Company after the initial public offering is taxable to the Company and reflected in the accompanying consolidated financial statements.
The Company performs an evaluation of the realizability of its deferred tax assets on a quarterly basis. The Company considers all positive and negative evidence available in determining the potential of realizing deferred tax assets, including the scheduled reversal of temporary differences, recent and projected future taxable income and prudent and feasible tax planning strategies. The estimates and assumptions used by the Company in computing the income taxes reflected in the accompanying consolidated financial statements could differ from the actual results reflected in the income tax returns filed during the subsequent year. Adjustments are recorded based on filed returns when finalized or the related adjustments are identified.
Under ASC 740-10-30-5, Income Taxes, deferred tax assets should be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not (i.e., a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. The Company considers all positive and negative evidence available in determining the potential realization of deferred tax assets including, primarily, the recent history of taxable earnings or losses. Based on operating losses reported by the Company during 2022 and 2021, the Company concluded there was not sufficient positive evidence to overcome this recent operating history. As a result, the Company believed that a valuation allowance was necessary based on the more-likely-than-not threshold noted above. The Company had recorded a valuation allowance of approximately $
Significant components of the tax expense (benefit) recognized in the accompanying consolidated statements of operations for the Three Months ended March 31, 2022 and March 31, 2021 are as follows:
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
|
|
||
Current tax benefit |
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
( |
) |
|
$ |
|
|
|
|
State |
|
|
( |
) |
|