10-K: LM Funding America Details Securities and Mining Operations in 10-K Filing

LM Funding America's 10-K filing details its registered securities, cryptocurrency mining operations, and specialty finance business as of December 31, 2023.

Summary

• LM Funding America, Inc. primarily operates in two sectors: cryptocurrency mining and specialty finance.
• The company is authorized to issue 350,000,000 shares of common stock and 150,000,000 shares of preferred stock.
• As of December 31, 2023, there were 1,274,807 outstanding warrants to purchase common stock.
• A one-for-six reverse stock split was effected on March 12, 2024.
• The company's cryptocurrency mining operations began in late September 2022 and use approximately 5,900 active machines with a hashing capacity of approximately 0.61 EH/s as of March 8, 2024.
• The company's specialty finance business focuses on purchasing delinquent accounts from nonprofit community associations, primarily in Florida.
• The company has an equity distribution agreement with Maxim Group LLC for up to $4.7 million in at-the-market offerings, but no shares were sold under this program in 2023.
• The company purchased substantially all assets of Symbiont.io, LLC for $2.6 million in June 2023 and sold them for $2.0 million in December 2023.
• The company has paid approximately $28.0 million to Bitmain and related vendors for mining machines through December 31, 2023.
• The company has hosting agreements with Core Scientific, Longbow Host Co LLC, and GIGA Energy Inc. for its mining machines.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the company is expanding its mining operations and has secured hosting agreements, it faces significant risks related to Bitcoin volatility, competition, and regulatory uncertainty. The financial results show a net loss, indicating challenges in achieving profitability.

Positives

• The company has a significant number of mining machines in operation, with a hashing capacity of approximately 0.61 EH/s.
• The company has secured hosting agreements with multiple providers.
• The company has a proprietary software for servicing accounts in its specialty finance business.
• The company has a New Neighbor Guaranty program that provides guaranteed monthly payments to associations on delinquent units.
• The company has a diverse range of financial products customized to each association's financial needs.

Negatives

• The company's business is heavily dependent on the volatile price of Bitcoin.
• The company's mining costs may exceed mining revenues.
• The company relies on third-party law firms to service its accounts.
• The company's accounts are all located in Florida, making it vulnerable to regional economic downturns.
• The company may not be able to recover sufficient amounts on its accounts to fund operations.
• The company has a limited operating history in the cryptocurrency mining business.

Risks

• The company's quarterly operating results may fluctuate, causing the stock price to decline.
• The company may need additional financing in the future, which may not be available on acceptable terms.
• The company's cryptocurrency mining business is in an early stage of development and may not achieve profitability.
• The company is exposed to pricing risk and volatility associated with the value of Bitcoin.
• The company faces the risk of the development and acceptance of competing blockchain platforms or technologies.
• The company is vulnerable to severe weather conditions and natural disasters.
• The company may be subject to new laws and regulations applicable to mining Bitcoin.
• The company may not be able to purchase accounts at favorable prices or on sufficiently favorable terms.
• The company's common shares could be delisted from the Nasdaq Capital Market.
• The company may identify material weaknesses in its internal control over financial reporting in the future.

Future Outlook

The company expects to continue increasing its computing power through 2024 and beyond and plans to convert its Bitcoin to U.S. dollars. The company also expects to enter into additional agreements to purchase more miners in the coming years.

Management Comments

• Decisions to hold or sell Bitcoins are currently determined by management by monitoring the market in real time.
• The company believes its principal competitive advantages include its energy background, a combination of owned, operated, and co-located miners and facilities, its strategic use of the Bitcoin it mines to fund operations growth, and its commitment to sustainable business practices, including sourcing renewable energy.

Industry Context

The document highlights the company's entry into the competitive cryptocurrency mining industry, which is characterized by volatility and dependence on specialized hardware. The company also operates in the specialty finance sector, which is subject to regulatory and economic risks.

Comparison to Industry Standards

• The company's hashrate of 0.61 EH/s is a key metric for evaluating its position in the Bitcoin mining industry, but it is not compared to specific competitors in the document.
• The company's reliance on Bitmain for mining machines is common in the industry, but also presents a supply chain risk.
• The company's hosting agreements with Core Scientific, Longbow Host Co LLC, and GIGA Energy Inc. are typical for mining operations, but the bankruptcy of Core Scientific highlights the risks associated with third-party hosting.
• The company's specialty finance business is focused on a niche market, which is different from the broader consumer finance industry.

Legal Proceedings

• The company is involved in a legal dispute with Uptime Armory LLC and Bit5ive, LLC regarding the non-delivery of mining containers.
• The company is involved in a legal action against Uptime Hosting LLC for the return of a deposit and other damages.

Related Party Transactions

• The company has a service agreement with BLG Association Law, PLLC, a law firm in which the company's CEO is a 50% owner.
• The company shares office space and personnel with BLG Association Law, PLLC.
• The company has a note receivable from Seastar Medical Holding Corporation, a company in which the company has an investment.

Stakeholder Impact

• Shareholders face risks related to the volatility of the company's stock price and the cryptocurrency market.
• Employees may be affected by the company's financial performance and strategic decisions.
• Customers of the specialty finance business may be impacted by changes in the company's policies and procedures.
• Suppliers of mining equipment and hosting services are subject to the company's financial stability and operational decisions.
• Creditors may be impacted by the company's ability to repay its debts.

Next Steps

• The company expects to receive an additional 300 S-21 miners in the second quarter of 2024.
• The company expects to enter into additional agreements to purchase more miners in the coming years.
• The company will continue to monitor and proactively engage in dialogue on legislative matters related to its industry.

Key Dates

Keywords

cryptocurrency mining, Bitcoin, specialty finance, community associations, delinquent accounts, warrants, reverse stock split, hosting agreements, mining machines, hashrate