10-Q 1 lmfa-20240331.htm 10-Q 10-Q
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UNITEDSTATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

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 001-37605

 

LM FUNDING AMERICA, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

47-3844457

(State or other jurisdiction of

incorporation or organization)

(I.R.S. employer

identification no.)

 

 

1200 West Platt Street

Suite 100

Tampa, FL

33606

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: 813-222-8996

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

Trading symbol

Name of each exchange on which registered

Common Stock par value $0.001 per share

LMFA

The Nasdaq Stock Market LLC

 

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. Yes No

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). Yes No

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

 

 

 

 

Non-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 No

The registrant had 2,492,964 shares of Common Stock, par value $0.001 per share, outstanding as of May 10, 2024.

 

 

 

 


 

LM FUNDING AMERICA, INC.

TABLE OF CONTENTS

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements

3

 

 

 

LM Funding America, Inc. and Subsidiaries Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023

3

 

 

 

LM Funding America, Inc. and Subsidiaries Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 (unaudited)

4

 

 

 

LM Funding America, Inc. and Subsidiaries Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited)

5

 

 

 

LM Funding America, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (unaudited)

6

Notes to Unaudited Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

 

 

 

Item 4.

Controls and Procedures

34

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

Item 1A.

Risk Factors

35

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

Item 3.

Defaults Upon Senior Securities

35

 

 

 

Item 4.

Mine Safety Disclosures

35

 

 

 

Item 5.

Other Information

35

 

 

 

Item 6.

Exhibits

36

 

 

SIGNATURES

37

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

LM Funding America, Inc. and Subsidiaries Consolidated Balance Sheets

 

 

 

March 31,

 

 

December 31,

 

 

 

2024 (Unaudited)

 

 

2023

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Cash

 

$

827,366

 

 

$

2,401,831

 

Digital Assets (Note 2)

 

 

11,651,969

 

 

 

3,416,256

 

Finance receivables

 

 

27,459

 

 

 

19,221

 

Marketable securities (Note 5)

 

 

15,700

 

 

 

17,860

 

Receivable from sale of Symbiont assets (Note 5)

 

 

200,000

 

 

 

200,000

 

Prepaid expenses and other assets

 

 

2,483,368

 

 

 

4,067,212

 

Income tax receivable

 

 

31,187

 

 

 

31,187

 

Current assets

 

 

15,237,049

 

 

 

10,153,567

 

 

 

 

 

 

 

 

Fixed assets, net (Note 3)

 

 

20,897,314

 

 

 

24,519,610

 

Deposits on mining equipment (Note 4)

 

 

1,117,798

 

 

 

20,837

 

Notes receivable from Seastar Medical Holding Corporation (Note 5)

 

 

-

 

 

 

1,440,498

 

Long-term investments - equity securities (Note 5)

 

 

753,973

 

 

 

156,992

 

Investment in Seastar Medical Holding Corporation (Note 5)

 

 

1,899,484

 

 

 

1,145,486

 

Operating lease - right of use assets (Note 7)

 

 

162,966

 

 

 

189,009

 

Other assets

 

 

86,798

 

 

 

86,798

 

Long-term assets

 

 

24,918,333

 

 

 

27,559,230

 

Total assets

 

$

40,155,382

 

 

$

37,712,797

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

2,042,906

 

 

 

2,064,909

 

Note payable - short-term (Note 6)

 

 

325,669

 

 

 

567,586

 

Due to related parties (Note 10)

 

 

55,290

 

 

 

22,845

 

Current portion of lease liability (Note 7)

 

 

114,148

 

 

 

110,384

 

Total current liabilities

 

 

2,538,013

 

 

 

2,765,724

 

 

 

 

 

 

 

 

Lease liability - net of current portion (Note 7)

 

 

56,148

 

 

 

85,775

 

Long-term liabilities

 

 

56,148

 

 

 

85,775

 

Total liabilities

 

 

2,594,161

 

 

 

2,851,499

 

 

 

 

 

 

 

 

Stockholders' equity (Note 8)

 

 

 

 

 

 

Preferred stock, par value $.001; 150,000,000 shares authorized; no shares issued and outstanding as of March 31, 2024 and December 31, 2023

 

 

-

 

 

 

-

 

Common stock, par value $.001; 350,000,000 shares authorized; 2,492,964 shares issued and outstanding as of March 31, 2024 and 2,492,964  as of December 31, 2023

 

 

2,493

 

 

 

2,493

 

Additional paid-in capital

 

 

95,327,227

 

 

 

95,145,376

 

Accumulated deficit

 

 

(56,857,610

)

 

 

(58,961,461

)

Total LM Funding America stockholders' equity

 

 

38,472,110

 

 

 

36,186,408

 

   Non-controlling interest

 

 

(910,889

)

 

 

(1,325,110

)

Total stockholders' equity

 

 

37,561,221

 

 

 

34,861,298

 

Total liabilities and stockholders’ equity

 

$

40,155,382

 

 

$

37,712,797

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3


 

LM Funding America, Inc. and Subsidiaries Consolidated Statements of Operations (unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenues:

 

 

 

 

 

 

Digital mining revenues

 

$

4,597,908

 

 

$

2,090,851

 

Specialty finance revenue

 

 

116,628

 

 

 

182,836

 

Rental revenue

 

 

33,068

 

 

 

39,831

 

           Total revenues

 

 

4,747,604

 

 

 

2,313,518

 

Operating costs and expenses:

 

 

 

 

 

 

Digital mining cost of revenues (exclusive of depreciation and amortization shown below)

 

 

2,654,946

 

 

 

1,667,673

 

Staff costs and payroll

 

 

1,243,026

 

 

 

932,835

 

Depreciation and amortization

 

 

2,426,068

 

 

 

801,873

 

Gain on fair value of Bitcoin, net

 

 

(4,257,515

)

 

 

-

 

Impairment loss on mining equipment

 

 

1,188,058

 

 

 

-

 

Impairment loss on mined digital assets

 

 

-

 

 

 

199,554

 

Realized gain on sale of mined digital assets

 

 

-

 

 

 

(424,333

)

Professional fees

 

 

509,893

 

 

 

572,356

 

Selling, general and administrative

 

 

177,906

 

 

 

239,464

 

Real estate management and disposal

 

 

27,189

 

 

 

31,803

 

Collection costs

 

 

926

 

 

 

9,808

 

Other operating costs

 

 

214,505

 

 

 

251,911

 

Total operating costs and expenses

 

 

4,185,002

 

 

 

4,282,944

 

            Operating income (loss)

 

 

562,602

 

 

 

(1,969,426

)

Unrealized gain (loss) on marketable securities

 

 

(2,160

)

 

 

5,790

 

Impairment loss on prepaid machine deposits

 

 

-

 

 

 

(36,691

)

Unrealized gain (loss) on investment and equity securities

 

 

1,350,979

 

 

 

(5,822,854

)

Gain on fair value of purchased Bitcoin, net

 

 

57,926

 

 

 

-

 

Realized gain on sale of purchased digital assets

 

 

-

 

 

 

1,917

 

Loss on disposal of assets

 

 

(8,170

)

 

 

-

 

Other income - coupon sales

 

 

4,490

 

 

 

603,591

 

Interest expense

 

 

(70,826

)

 

 

-

 

Interest income

 

 

9,125

 

 

 

55,077

 

Income (loss) before income taxes

 

 

1,903,966

 

 

 

(7,162,596

)

Income tax expense

 

 

-

 

 

 

-

 

Net income (loss)

 

$

1,903,966

 

 

$

(7,162,596

)

Less: loss (income) attributable to non-controlling interest

 

 

(414,221

)

 

 

1,776,264

 

Net income (loss) attributable to LM Funding America Inc.

 

$

1,489,745

 

 

$

(5,386,332

)

 

 

 

 

 

 

 

Basic income (loss) per common share

 

$

0.61

 

 

$

(2.41

)

Diluted income (loss) per common share

 

$

0.61

 

 

$

(2.41

)

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

Basic

 

 

2,428,203

 

 

 

2,232,964

 

Diluted

 

 

2,428,203

 

 

 

2,232,964

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

4


 

LM Funding America, Inc. and Subsidiaries Consolidated Statements of Cash Flows

(unaudited)

 

Three Months ended March 31,

 

 

2024

 

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income (loss)

 

$

1,903,966

 

 

$

(7,162,596

)

Adjustments to reconcile net income (loss) to net cash used in operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

2,426,068

 

 

 

801,873

 

Noncash lease expense

 

 

26,043

 

 

 

23,224

 

Stock compensation

 

 

71,047

 

 

 

-

 

Stock option expense

 

 

110,804

 

 

 

194,356

 

Accrued investment income

 

 

(8,568

)

 

 

(53,734

)

Digital assets other income

 

 

(4,490

)

 

 

-

 

Gain on fair value of Bitcoin, net

 

 

(4,315,441

)

 

 

-

 

Impairment loss on mining machines

 

 

1,188,058

 

 

 

-

 

Impairment loss on digital assets

 

 

-

 

 

 

199,554

 

Impairment loss on hosting deposits

 

 

-

 

 

 

36,691

 

Unrealized loss (gain) on marketable securities

 

 

2,160

 

 

 

(5,790

)

Unrealized loss (gain) on investment and equity securities

 

 

(1,350,979

)

 

 

5,822,854

 

Loss on disposal of fixed assets

 

 

8,170

 

 

 

-

 

Realized gain on sale of digital assets

 

 

-

 

 

 

(426,250

)

Change in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

1,583,843

 

 

 

36,473

 

Advances (repayments) to related party

 

 

32,445

 

 

 

(12,659

)

Accounts payable and accrued expenses

 

 

(22,003

)

 

 

111,486

 

Mining of digital assets

 

 

(4,597,908

)

 

 

(2,090,851

)

Proceeds from sale of digital assets

 

 

-

 

 

 

1,455,141

 

Lease liability payments

 

 

(25,863

)

 

 

(22,243

)

Net cash used in operating activities

 

 

(2,972,648

)

 

 

(1,092,471

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Net collections of finance receivables - original product

 

 

(8,238

)

 

 

-

 

Net collections of finance receivables - special product

 

 

-

 

 

 

4,695

 

Capital expenditures

 

 

-

 

 

 

(263,596

)

Collection of notes receivable

 

 

1,449,066

 

 

 

1,644,834

 

Investment in digital assets

 

 

-

 

 

 

(35,157

)

Proceeds from sale of digital assets

 

 

1,296,233

 

 

 

33,675

 

Deposits for mining equipment

 

 

(1,096,961

)

 

 

(923,687

)

Net cash from investing activities

 

 

1,640,100

 

 

 

460,764

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Insurance financing repayments

 

 

(241,917

)

 

 

(177,393

)

Net cash used in financing activities

 

 

(241,917

)

 

 

(177,393

)

NET DECREASE IN CASH

 

 

(1,574,465

)

 

 

(809,100

)

CASH - BEGINNING OF PERIOD

 

 

2,401,831

 

 

 

4,238,006

 

CASH - END OF PERIOD

 

$

827,366

 

 

$

3,428,906

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

ROU assets and operating lease obligation recognized

 

$

-

 

 

$

21,887

 

Reclassification of mining equipment deposit to fixed assets, net

 

$

-

 

 

$

54,876

 

Change in accounting principle (see Note 1)

 

$

614,106

 

 

$

-

 

SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION

 

 

 

 

 

 

Cash paid for taxes

 

$

-

 

 

$

-

 

Cash paid for interest

 

$

-

 

 

$

-

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5


 

LM Funding America, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2024 and 2023

(unaudited)

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional paid-in capital

 

 

Accumulated Deficit

 

 

Non-Controlling Interest

 

 

Total Equity

 

Balance - December 31, 2022

 

 

2,232,964

 

 

$

2,233

 

 

$

92,206,200

 

 

$

(43,017,207

)

 

$

1,606,003

 

 

$

50,797,229

 

Stock option expense

 

 

-

 

 

 

-

 

 

 

194,356

 

 

 

-

 

 

 

-

 

 

 

194,356

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,386,332

)

 

 

(1,776,264

)

 

 

(7,162,596

)

Balance - March 31, 2023

 

 

2,232,964

 

 

$

2,233

 

 

$

92,400,556

 

 

$

(48,403,539

)

 

$

(170,261

)

 

$

43,828,989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2023

 

 

2,492,964

 

 

$

2,493

 

 

$

95,145,376

 

 

$

(58,961,461

)

 

$

(1,325,110

)

 

$

34,861,298

 

Stock option expense

 

 

-

 

 

 

-

 

 

 

110,804

 

 

 

-

 

 

 

-

 

 

 

110,804

 

Stock compensation

 

 

-

 

 

 

-

 

 

 

71,047

 

 

 

-

 

 

 

-

 

 

 

71,047

 

Cumulative effect of change in accounting principle (See Note 1)

 

 

 

 

 

 

 

 

 

 

 

614,106

 

 

 

 

 

 

614,106

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,489,745

 

 

 

414,221

 

 

 

1,903,966

 

Balance - March 31, 2024

 

 

2,492,964

 

 

$

2,493

 

 

$

95,327,227

 

 

$

(56,857,610

)

 

$

(910,889

)

 

$

37,561,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6


 

LM FUNDING AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2024

(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 is the sole member of several entities including LM Funding, LLC, which was organized in January 2008, US Digital Mining and Hosting Co., LLC, which was formed on September 10, 2021 (“US Digital”); LMFA Financing LLC, formed on November 23, 2020, and LMFAO Sponsor LLC, formed on October 29, 2020 (LMFA is a majority member of LMFAO Sponsor LLC). Additionally, US Digital has formed various 100% owned subsidiaries to engage in business in various states in connection with its Bitcoin mining business.

LMFAO Sponsor LLC formed a majority owned subsidiary LMF Acquisition Opportunities Inc. (“LMAO”) on October 29, 2020 which was organized as a special purpose acquisition company that that completed an initial public offering in January 2021, whereupon the company ceased to be majority owned by LMFA. LMF Acquisition Opportunities Inc. was subsequently merged with Seastar Medical Holding Corporation on October 28, 2022.

The Company also from time to time organizes other subsidiaries to serve a specific purpose or hold a specific asset.

Lines of Business

The Company currently operates two lines of business: our cryptocurrency mining business and our specialty finance business.

The Bitcoin mining operation deploys our computing power to mine Bitcoin on the Bitcoin network. We conduct this business through our wholly owned subsidiary, US Digital, a Florida limited liability company, which we formed in 2021 to develop and operate our cryptocurrency mining business.

With respect to our specialty finance business, the Company has historically engaged in the business of providing 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.

Bitcoin Mining Business

We obtain Bitcoin as a result of our mining operations, and we sell Bitcoin from time to time, to support our operations and strategic growth. We plan to convert our Bitcoin to U.S. dollars. We may engage in regular trading of Bitcoin or engage in hedging activities related to our holding of Bitcoin. However, our decisions to hold or sell Bitcoin at any given time may be impacted by the Bitcoin market, which has been historically characterized by significant volatility. Currently, we do not use a formula or specific methodology to determine whether or when we will sell Bitcoin that we hold, or the number of Bitcoins we will sell. Rather, decisions to hold or sell Bitcoins are currently determined by management based on working cash needs and by monitoring the market in real time.

As of March 31, 2024 and December 31, 2023, the Company had approximately 5,900 machines installed, which amounted to operating units capable of producing over 615 petahash and 615 petahash, respectively per second (“EH/s”) of computing power.

Specialty Finance Company

In our specialty finance business, 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.

Principles of Consolidation

The 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 100% owned subsidiary limited liability companies); LM Funding of Colorado, LLC; LM Funding of Washington, LLC; LM Funding of Illinois, LLC; US Digital (includes all 100% owned subsidiary limited liability companies) and LMF SPE #2, LLC and various single purpose limited liability corporations owned by REO Management Holdings, LLC which own various properties. It also includes LMFA Sponsor, LLC (a 69.5% owned subsidiary). All significant intercompany balances have been eliminated in consolidation.

7


 

Basis of Presentation

The accompanying unaudited 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 consolidated financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and March 31, 2023, respectively are unaudited. In the opinion of management, the interim 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, 2023, 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, 2023.

Recently adopted accounting pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-08, Intangible - Goodwill and Other -Crypto Assets (Subtopic 350-60) (“ASC 350-60”). ASC 350-60 requires entities with certain crypto assets to subsequently measure such assets at fair value, with changes in fair value recorded in net income in each reporting period. In addition, entities are required to provide additional disclosures about the holdings of certain crypto assets. Crypto assets that meet all the following criteria are within the scope of the ASC 350-60:

(1) meet the definition of intangible assets as defined in the Codification

(2) do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets

(3) are created or reside on a distributed ledger based on blockchain or similar technology

(4) are secured through cryptography

(5) are fungible, and

(6) are not created or issued by the reporting entity or its related parties.

Bitcoin, which is the sole crypto asset mined by the Company, meets each of these criteria. For all entities, the ASC 350-60 amendments are effective for fiscal years beginning after December 15, 2024, including interim periods within those years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued (or made available for issuance). If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. The Company has elected to early adopt the new guidance effective January 1, 2024 resulting in a $614 thousand cumulative-effect change to adjust the Company's Bitcoin held on January 1, 2024 with the corresponding entry to beginning accumulated deficit.

Segment and Reporting Unit Information

Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Chief Executive Officer and1 Chief Financial Officer of the Company comprise the CODM, as a group. The Company has two operating segments as of March 31, 2024, which we refer to as Specialty Finance and Mining Operations. Our corporate oversight function and other components that may earn revenues that are only incidental to the activities of the Company are aggregated and included in the “All Other” category. Refer to Note 9 - Segment Information.

Reclassification

Certain prior period immaterial amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.

Liquidity

The accompanying consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The evaluation of going concern under the accounting guidance requires significant judgment which involves the Company to consider that it has historically incurred losses in recent years as it has prepared to grow its business through expansion and acquisition opportunities. The Company must also consider its current liquidity as well as future market and economic conditions that may be deemed outside the control of the Company as it relates to obtaining financing and generating future profits. As of March 31, 2024, the Company had $0.8 million available cash on-hand and Bitcoin with a fair market value of $11.7 million. After considering its current liquidity and future market and economic conditions, the Company has concluded there is no substantial doubt about the Company’s ability to continue as a going concern.

8


 

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates include the evaluation of probable losses on balances due from a related party, the realization of deferred tax assets, the evaluation of contingent losses related to litigation and reserves on notes receivables. We consider our critical accounting estimates to be those related to long-lived asset impairment assessments. Our estimates may change, however, as new events occur and additional information is obtained, and any such changes will be recognized in the consolidated financial statements.

Cash

The Company maintains cash balances at several financial institutions that are insured under the Federal Deposit Insurance Corporation’s (“FDIC”) Transition Account Guarantee Program. Balances with the financial institutions may exceed federally insured limits. We have approximately $492,000 of cash in various institutions that exceed the FDIC or SIPC insurance coverage limit of $250,000.

Digital Assets

Bitcoin are included in current assets in the consolidated balance sheets due to the Company’s ability to sell Bitcoin in a highly liquid marketplace and such Bitcoin holdings are expected to be realized in cash or sold or consumed during the normal operating cycle of the Company. As a result of adopting ASC 350-60 on January 1, 2024, Bitcoin is measured at fair value as of each reporting period (see Recently Issued Accounting Pronouncements). The fair value of Bitcoin is measured using the period-end closing Bitcoin price from its principal market in accordance with ASC 820, Fair Value Measurement. Since Bitcoin is traded on a 24-hour period, the Company utilizes the price as of midnight UTC time, which aligns with the Company's revenue recognition cut-off. The increase and decrease in fair value from each reporting period is reflected on the consolidated statements of operation as "Gain on fair value of Bitcoin, net". The Company sells Bitcoin and such gains and losses from such transactions are measured as the difference between the cash proceeds and the carrying basis of Bitcoin as determined on a First In-First Out ("FIFO") basis and are recorded within "Gain on fair value of Bitcoin, net".

Prior to issuance of the ASU 2023-08 and adoption of ASC 350-60, Bitcoin were recorded at cost less impairment and were classified as indefinite-lived intangible assets in accordance with ASC 350, Intangibles — Goodwill and Other. An intangible asset with an indefinite useful life was not amortized but was assessed for impairment annually, or more frequently, when events or changes in circumstances occurred indicating that it was more likely than not that the carrying amount of the indefinite-lived asset exceeded its fair value. The Company determined the fair value of Bitcoin in accordance with ASC 820, Fair Value Measurement, based on lowest intraday quoted prices from our principal market for such assets (Level 1 inputs). We performed an analysis each month to identify whether events or changes in circumstances indicate that it is more likely than not that our digital assets were impaired. If the carrying value of a digital asset exceeded the fair value so determined, an impairment loss had occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the fair value. To the extent an impairment loss was recognized, the loss established the new cost basis of the asset and subsequent reversal of impairment losses was not permitted under ASC 350, Intangibles – Goodwill and Other. Additionally, in the previous guidance, subsequent increases in Bitcoin prices are not allowed to be recorded (unrealized gains) unless the Bitcoin is sold, at which point the gain is recognized. Accordingly, gains (losses) recognized on fair value of Bitcoin in fiscal year 2024 are not comparable to fiscal year 2023.

Bitcoin, which is non-cash consideration earned by the Company through its mining activities, are included as a reconciling item as a cash outflow within operating activities on the accompanying consolidated statements of cash flows. The cash proceeds from the sales of Bitcoin are classified based on the holding period in which the Bitcoin are held. ASC 350-60 specifies that Bitcoin converted nearly immediately into cash would qualify as cash flows from operating activities and all other sales would qualify as investing activities. In prior fiscal periods, the Company did not hold its Bitcoin for extended periods of time and such sales proceeds prior to the adoption of ASC 350-60 were reported as cash flows from operating activities. Upon adoption of ASC 350-60, the Company evaluates its sales of Bitcoin and will record Bitcoin sold nearly immediately as operating cash flows and the remainder will be recorded as investing activities. During the quarter ended March 31, 2024, all proceeds from Bitcoin sales were classified as investing activities.

9


 

Investment in Securities

Investment in Securities includes investments in common stocks 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.

Investments in Unconsolidated Entities

We account for investments in less than 50% owned and more than 20% owned entities using the equity method of accounting. Because we have elected the fair value option for these securities, unrealized holding gains and losses during the period are included in other income within the Consolidated Statements of Operation.

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.

Fixed Assets

The Company capitalizes all acquisitions of fixed assets in excess of $500. Fixed assets are stated at cost, net of accumulated depreciation. State and local use tax for equipment shipped from overseas is generally accrued on a quarterly basis at the time equipment is placed in service and is paid to the state in which the equipment is being utilized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets and commences once the assets are ready for their intended use. Fixed assets are comprised of furniture, computer, office equipment, buildings and mining machines with assigned useful lives of 3 to 30 years.

The Company classifies mining machine deposit payments within "Deposits on mining equipment" in the consolidated balance sheets. As mining machines are received, the respective cost of the mining machines plus the related shipping and customs fees are reclassified from "Deposits on mining equipment" to "Fixed assets, net" in the consolidated balance sheet. Refer to Note 4 - Deposits on Mining Equipment and Hosting Services. In addition, as part of its periodic review of its fixed asset groups during the fourth quarter of 2023, the Company changed the estimated useful life for its mining machines from 5 years to 4 years. The change was accounted for on a prospective basis.

The Company operates in an emerging industry for which limited data is available to make estimates of the useful economic lives of mining machines. To the extent that any of the assumptions underlying management’s estimate of useful life of its mining machines are subject to revision in a future reporting period, either as a result of changes in circumstances or through the availability of greater quantities of data, then the estimated useful life could change and have a prospective impact on depreciation expense and the carrying amounts of these assets.

Equipment Purchases

We ordered 300 S21 Bitmain machines in January 2024 for an aggregate purchase price of approximately $1.1 million which were delivered in two shipments, March 2024 and April 2024.

Right to Use Assets

The Company capitalizes all leased assets pursuant to ASU 2016-02, Leases (Topic 842), which requires lessees to recognize right-of-use assets and lease liability, initially measured at present value of the lease payments, on its balance sheet for leases with terms longer than 12 months and classified as either financing or operating leases. As of March 31, 2024 and December 31, 2023 right to use assets, net of accumulated amortization, was $163 thousand and $189 thousand.


Impairment of Long-Lived Assets

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment amount is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. There was $1.2 million and nil impairment loss recorded on fixed assets during the three months ended March 31, 2024 and 2023, respectively. Refer to Note 3 - Fixed Assets.

Hosting Contracts

On September 5, 2022, the Company, through its wholly-owned subsidiary US Digital, entered into a hosting agreement (the “Core Hosting Agreement”) with Core Scientific Inc. (“Core”) pursuant to which Core, under various additional orders, agreed to host approximately 3,000 of the Company's Bitcoin miner machines at a secure location and provide power, maintenance and other services specified in the contract with a term of one year, with automatic renewals unless either party notifies the other party in writing not less than ninety (90) calendar days before such renewal of its desire for the order not to renew unless terminated sooner pursuant to the terms of the Core Hosting Agreement. The Company entered into a number of amendments in 2023 and 2024 that resulted in

10


 

Core hosting a total of approximately 4,870 miners. The amended Hosting Agreement results in the terms of the hosting arrangement expiring with respect to approximately 4,400 miners on May 31, 2024 while allowing the terms of the hosting arrangement to continue with respect to approximately 800 miners through December 31, 2024.

As required under the Core Hosting Agreement, the Company has paid approximately $1.5 million as of March 31, 2024 and $2.2 million as of December 31, 2023 as a deposit. Under the terms of the amended Hosting Agreement, the deposit for the miners that will be removed in May 2024 is being applied to our invoices. In December 2022, Core filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas. Core's bankruptcy filing has not negatively impacted our mining ability at their sites as of the date of this filing.

On May 5, 2023, the Company entered into a hosting agreement (the “GIGA Hosting Agreement”) with GIGA Energy Inc. (“GIGA”) pursuant to which GIGA agreed to host 1,080 of the Company's Bitcoin Miner S19J Pro machines at a secure location and provide power, maintenance and other services specified in the contract with a term of one year. On April 12, 2024, the Company amended the contract to allow for an extension of the contract with a 60 day termination notice. As required under the GIGA Hosting Agreement, the Company paid $173 thousand as a pre-payment in May 2023 and paid a refundable deposit of $173 thousand in August 2023.

Revenue Recognition – Bitcoin Mining

We recognize revenue in accordance with generally accepted accounting principles as outlined in ASC 606, Revenue From Contracts with Customers, which requires that five steps be followed in evaluating revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.

Our accounting policy on revenue recognition for our Bitcoin mining segment is provided below.

Step 1: The Company enters into a contract with a Bitcoin mining pool operator (i.e., the customer) to provide computing power to the mining pools. The contract is terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company starts providing computing power to the mining pool operator (which occurs daily at midnight Universal Time Coordinated (UTC)). When participating in ratable share pools, in exchange for providing computing power the Company is entitled to a fractional share of the Bitcoin award the mining pool operator receives for successfully adding a block to the blockchain, plus a fractional share of the transaction fees attached to that blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. When participating in a Full Pay Per Share (“FPPS”) mining pool, in exchange for providing computing power to the pool the Company is entitled to compensation, calculated on a daily basis, at an amount that approximates the total Bitcoin that could have been mined using the Company’s computing power, calculated on a look-back basis across previous blocks using the pools hash rate index. Applying the criteria per ASC 606-10-25-1, the contract arises at the point that the Company provides computing power to the mining pool operator, which is beginning contract day at midnight UTC (contract inception), because customer consumption is in tandem with daily earnings of delivery of the computing power.

Step 2: In order to identify the performance obligations in a contract with a customer, the Company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met:

• The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct); and

• The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).

Based on these criteria, the Company has a single performance obligation in providing computing power services (i.e., hashrate) to the mining pool operator (i.e., customer). The performance obligation of computing power services is fulfilled daily over-time, as opposed to a point in time, because the Company provides the hashrate throughout the day and the customer simultaneously obtains control of it and uses the asset to produce Bitcoin. The Company has full control of the mining equipment utilized in the mining pool and if the Company determines it will increase or decrease the processing power of its machines and/or fleet (i.e., for repairs or when power costs are excessive) the computing power provided to the customer will be reduced.

Step 3: The transaction consideration the Company earns is non-cash digital consideration in the form of Bitcoin, which the Company measures at fair value on the date earned at the daily closing price, which is not materially different from the fair value at contract inception.

The transaction consideration the Company earns is all variable since it is dependent on the daily computing power provided by the Company under the FPPS model and total Bitcoin earned by the under the ratable share model. The Company’s Bitcoins earned through the contractual payout formula is not known until the Company’s computational hashrate contributed over the daily measurement period is fulfilled over-time daily between midnight-to-midnight UTC time. The Company’s proportionate amount of the global network transaction fee rewards earned are calculated at the end of each transactional day (midnight to midnight). There are no other forms of

11


 

variable considerations, such as discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or other similar items.

The Company does not constrain this variable consideration because it is probable that a significant reversal in the amount of revenue recognized from the contract will not occur when the uncertainty is subsequently resolved and recognizes the noncash consideration on the same day that control is transferred, which is the same day as contract inception.

Step 4: The transaction price is allocated to the single performance obligation upon verification for the provision of computing power to the mining pool operator, and total Bitcoin rewards earned by the pool, when applicable under a ratable share model. There is a single performance obligation (i.e., computing power or (hashrate) for the contract; therefore, all consideration from the mining pool operator is allocated to this single performance obligation.

Step 5: The Company’s performance is complete in transferring the hashrate service over-time (midnight to midnight) to the customer and the customer obtains control of that asset.

In exchange for providing computing power, the Company is entitled to a pro-rata share of the fixed Bitcoin awards earned over the measurement period, plus a pro-rata fractional share of the global transaction fee rewards for the respective measurement period, less net digital asset fees due to the mining pool operator over the measurement period, as applicable. The transaction consideration the Company receives is non-cash consideration, in the form of Bitcoin. The Company measures the Bitcoin at fair value on the date earned using the closing price of Bitcoin on the date earned (midnight UTC), which is not materially different from the fair value at contract inception.

There are no deferred revenues or other liability obligations recorded by the Company since there are no payments in advance of the performance. At the end of the 24 hour “midnight-to-midnight” period, there are no remaining performance obligations.

Bitcoin earned by the Company through its mining activities are included within operating activities on the accompanying consolidated statements of cash flows.

Cost of Revenues

The Company includes energy costs and external co-location mining hosting fees in cost of revenues. Depreciation of mining machines is included within "Depreciation and amortization" in the Consolidated Statements of Operations.

Revenue Recognition - Specialty Finance

Accounting Standards Codification (“ASC”) 606 of the Financial Accounting Standards Board (“FASB”) states an entity needs to conclude at the inception of the contract that collectability of the consideration to which it will be entitled in exchange for the goods and services that will be transferred to the customer is probable. That is, in some circumstances, an entity may not need to assess its ability to collect all of the consideration in the contract. The Company provides funding to Associations by purchasing their rights under delinquent accounts from unpaid assessments due from property owners. Collections on the Accounts may vary greatly in both the timing and amount ultimately recovered compared with the total revenues earned on the Accounts because of a variety of economic and social factors affecting the real estate environment in general.

The Company’s contracts with its specialty finance customers have very specific performance obligations. The Company has determined that the known amount of cash to be realized or realizable on its revenue generating activities cannot be reasonably estimate and as such, classifies its finance receivables as nonaccrual and recognizes revenues in the accompanying statements of income on the cash basis or cost recovery method in accordance with ASC 310-10, Receivables. The Company’s operations also consist of rental revenue earned from tenants under leasing arrangements which provide for rent income. The leases have been accounted for as operating leases. For operating leases, revenue is recorded based on cash rental payments was collected during the period. The Company analyzed its remaining revenue streams and concluded there were no changes in revenue recognition with the adoption of the new standard.

Under ASC 606, the Company applies the cash basis method to its original product and the cost recovery method to its special product as follows:

Finance Receivables—Original Product: Under the Company’s original product, delinquent assessments are funded only up to the Super Lien Amount as discussed above. Recoverability of funded amounts is generally assured because of the protection of the Super Lien Amount. As such, payments by unit owners on the Company’s original product are recorded to income when received in accordance with the provisions of the Florida Statute (718.116(3)) and the provisions of the purchase agreements entered into between the Company and Associations. Those provisions require that all payments be applied in the following order: first to interest, then to late fees, then to costs of collection, then to legal fees expended by the Company and then to assessments owed. In accordance with the cash basis method of recognizing revenue and the provisions of the statute, the Company records revenues for interest and late fees when cash is received. In the event the Company determines the ultimate collectability of amounts funded under its original product are in doubt, payments are applied to first reduce the funded or principal amount.

12


 

Finance Receivables—Special Product (New Neighbor Guaranty program): During 2012, the Company began offering associations an alternative product under the New Neighbor Guaranty program whereby the Company will fund amounts in excess of the Super Lien Amount. Under this special product, the Company purchases substantially all of the delinquent assessments owed to the association, in addition to all accrued interest and late fees, in exchange for payment by the Company of (i) a negotiated amount or (ii) on a going forward basis, all monthly assessments due for a period up to 48 months. Under these arrangements, the Company considers the collection of amounts funded is not assured and under the cost recovery method, cash collected is applied to first reduce the carrying value of the funded or principal amount with any remaining proceeds applied next to interest, late fees, legal fees, collection costs and any amounts due to the Association. Any excess proceeds still remaining are recognized as revenues. If the future proceeds collected are lower than the Company’s funded or principal amount, then a loss is recognized.

Net Commission Revenue: The Company acts as an agent in providing health travel insurance policies. As a result, the Company revenue is recorded at net. The Company has determined that the known amount of cash to be realized or realizable on its revenue generating activities can be reasonably estimated and as such, classifies its receivables as accrual and recognizes revenues in the accompanying statements of income on the accrual basis. If a policy is not effective as of the end of a period, then the associated revenue and underwriting costs are deferred until the effective date. The majority of the commission revenue is underwritten by two policy underwriters who pays the Company commissions.

Coupon Sales

From time to time the Company receives coupons from Bitmain to incentivize purchases of equipment. Coupons have a stated face value in dollars and can be applied against future invoices for purchased machines. Coupons are transferable and there are not restrictions on the sale to third parties. Occasionally, the Company sells coupons to third parties in exchange for cash consideration or digital assets. As there is currently no active market for the buying and selling of Bitmain coupons, the Company has determined that the fair value of coupons received is nil at the time of receipt therefore revenue associated with the sale of such coupons is not recognized until the sale transaction has been completed and consideration has been received from the third party. During the three months ended March 31, 2024 and March 31, 2023, the Company sold Bitmain coupons for $4 thousand and $604 thousand, which was recognized as other income within "Other income - coupon sales" in the Consolidated Statements of Operations.

Income Taxes

The Company’s calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. The Company recognizes tax liabilities for uncertain tax positions based on management’s estimate of whether it is more likely than not that additional taxes will be required. The Company had no uncertain tax positions as of March 31, 2024 and December 31, 2023.

Deferred income taxes are recognized in the consolidated financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences arise from net operating losses, differences in depreciation methods of archived images, and property and equipment, stock-based and other compensation, and other accrued expenses. A valuation allowance is established when it is determined that it is more likely than not that some or all of the deferred tax assets will not be realized.

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S., or the various state jurisdictions, may be materially different from managements estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. Interest and penalties are included in tax expense.

Income tax expense/(benefit) from operations for the three months ended March 31, 2024 and 2023 was $nil in each period, which resulted primarily from maintaining a full valuation allowance against the Company's deferred tax assets.

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.

The weighted average shares used in calculating income per share for the three months ended March 31, 2024 includes 65 thousand restricted shares that were legally issued during the year ended December 31, 2023 and vested during the three months ended March 31, 2024 based on their respective vesting date and excludes 22 thousand restricted shares that were legally issued during the year ended December 31, 2023 but not vested as of March 31, 2024. No issuance or vesting of restricted shares occurred during the three months ended March 31, 2023.

Diluted income (loss) per share for the periods equal to basic income (loss) per share as the effect of any convertible notes, stock-based compensation awards or stock warrants would be anti-dilutive.

The anti-dilutive stock-based compensation awards consisted of:

13


 





 

 

 

 

 





March 31, 2024

 



December 31, 2023

 

Stock Options



 

599,597

 



 

599,597

 

Stock Warrants



 

1,274,807

 



 

1,274,807

 

Restricted Shares



 

21,667

 

 

 

86,667

 

 

Contingencies

The Company accrues for contingent obligations, including estimated legal costs, when the obligation is probable and the amount is reasonably estimable. As facts concerning contingencies become known, the Company reassesses its position and makes appropriate adjustments to the consolidated financial statements. Estimates that are particularly sensitive to future changes include those related to tax, legal and other regulatory matters.

Stock-Based Compensation

The Company records all equity-based incentive grants to employees and non-employee members of the Company’s Board of Directors in operating expenses in the Company’s Consolidated Statements of Operations based on their fair values determined on the date of grant. Stock-based compensation expense, reduced for estimated forfeitures, is recognized over the requisite service period of the award, which is generally the vesting term of the outstanding equity awards. The expense attribution method is straight-line or accelerated graded-vesting depending on the nature of the award.

Non-cash Activities

ROU assets and operating lease obligation recognized - Due to the execution of its office equipment operating lease during the three months ended March 31, 2024 and 2023, the Company recognized a lease liability and ROU asset associated with the lease in the amount of nil and $22 thousand, respectively.

Reclassification of mining equipment deposit to fixed assets, net - During the three months ended March 31, 2024 and 2023 as mining machines were received, the Company reclassified nil and $55 thousand of mining machine costs plus related shipping and customs fees from "Deposits on mining equipment" to "Fixed assets, net" in the consolidated balance sheets, respectively.

Change in equity due to change in accounting principal ASC 350-60 - The Company has elected to early adopt the new guidance effective January 1, 2024 resulting in a $614 thousand cumulative-effect change to adjust the Company's Bitcoin held on January 1, 2024 with the corresponding entry to beginning accumulated deficit.

 

 

14


 

Note 2. Digital Asset

Digital assets consisted of the following:

 

 

March 31, 2024

 

 

December 31, 2023

 

 

March 31, 2023

 

Bitcoin

$

 

11,637,319

 

 

$

3,406,096

 

 

$

1,751,914

 

Tether

 

 

14,650

 

 

 

10,160

 

 

 

-

 

Total digital assets

$

 

11,651,969

 

 

$

3,416,256

 

 

$

1,751,914

 

 

 

 

 

 

 

 

 

 

 

Bitcoin

 

 

 

 

 

 

 

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

March 31, 2023

 

Number of Bitcoin held

 

 

163.4

 

 

 

95.1

 

 

 

83.6

 

Carrying basis - per Bitcoin

 

$

48,046

 

 

$

35,816

 

 

$

20,956

 

Fair value - per Bitcoin

 

$

71,306

 

 

$

42,273

 

 

$

28,486

 

Carrying basis of Bitcoin

 

$

7,850,671

 

 

$

3,406,096

 

 

$

1,751,914

 

Fair value of Bitcoin

 

$

11,637,319

 

 

$

4,020,202

 

 

$

2,381,442

 

 

The carrying basis represents the valuation of Bitcoin at the time the Company earns the Bitcoin through mining activities. The carrying basis for Bitcoin held prior to the adoption of ASU 2023-08 was determined on the "cost less impairment" basis. Fair value of Bitcoin was determined using Level 1 inputs.

The following table presents a roll-forward of Bitcoin for the three months ended March 31, 2024, based on the fair value model under ASU 2023-08:

 

 

 

March 31, 2024

 

Bitcoin as of December 31, 2023

$

 

3,406,096

 

Cumulative effect of the adoption of ASU 2023-08 (See Note 1)

 

 

614,106

 

Beginning balance: Bitcoin as of January 1, 2024

 

 

4,020,202

 

Addition of Bitcoin from mining activities

 

 

4,597,908

 

Disposition of Bitcoin from sales

 

 

(1,296,232

)

Gain on fair value of Bitcoin, net

 

 

4,315,441

 

End of period

$

 

11,637,319

 

 

During the three months ended March 31, 2024, the Company realized total gains on Bitcoin of $519 thousand and did not realize any losses on Bitcoin.

 

The following table presents a roll-forward of Bitcoin for the three months ended March 31, 2023, prior to the adoption of ASU 2023-08, based on the cost less impairment model under ASC 350:

 

 

 

March 31, 2023

 

Beginning of year

 

$

888,026

 

Purchase of Bitcoin

 

 

35,157

 

Production of Bitcoin

 

 

2,090,851

 

Impairment loss on mined Bitcoin

 

 

(199,554

)

Carrying amount of Bitcoin sold

 

 

(1,062,566

)

End of period

 

 

1,751,914

 

 

15


 

Note 3. Fixed Assets, net

The components of fixed assets as of March 31, 2024 and December 31, 2023 are as follows:

 

 

Useful Life (Years)

 

March 31, 2024

 

 

December 31, 2023

 

Mining machines

 

4

 

$

 

28,602,298

 

 

$

 

29,799,782

 

Real estate assets owned

 

30

 

 

 

80,057

 

 

 

 

80,057

 

Furniture, computer and office equipment

 

3-5

 

 

 

230,062

 

 

 

 

230,063

 

Gross fixed assets

 

 

 

 

 

28,912,417

 

 

 

 

30,109,902

 

Less: accumulated depreciation

 

 

 

 

 

(8,015,103

)

 

 

 

(5,590,292

)

Fixed assets, net

 

 

 

$

 

20,897,314

 

 

$

 

24,519,610

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2024 and December 31, 2023, there were approximately 5,900 mining machines in service at various hosting sites. The Company’s depreciation expense recognized for the three months ended March 31, 2024 and 2023 was $2.4 million and $0.8 million, respectively.

In order to accommodate an expected incoming shipment of S21 mining machines in April 2024, management identified 365 mining machines at a Core hosting facility that would require relocation. As part of its impairment testing management considered the possible cashflows and probabilities associated with the relocation and continued use of 365 mining machines at a separate hosting facility location and the potential sale of such assets to a third party. Based on the assessment performed, management concluded a sale was probable and an impairment of $1.2M on the mining machines was recorded as of March 31, 2024, which was calculated as the net carrying value of the 365 mining machines of $1.3M less the expected sales price of $79 thousand. The loss was recorded on our Consolidated Statements of Operations as "Impairment loss on mining equipment" for the three months ended March 31, 2024.

On April 16, 2024, the 365 mining machines were sold to a third party for $79 thousand. There was no additional loss recognized upon the asset sale.

There was no impairment loss recorded on fixed assets during the three months ended March 31, 2023.

Note 4. Deposits on Mining Equipment and Hosting Services

As further described in Note 1, the Company has entered into a series of mining machine purchase agreements, hosting and colocation service agreements in connection with our cryptocurrency mining operations which required deposits to be paid in advance of the respective asset or service being received.

As of March 31, 2024 and December 31, 2023, the Company has a total of $1.1 million and $20 thousand, respectively, classified as "Deposits on mining equipment".

As of March 31, 2024 and December 31, 2023, the Company has a total of $1.7 million and 3.1 million in hosting deposits, respectively, classified as "Prepaid expenses and Other assets" as these assets are associated with hosting contracts that expire in 2024.

Note 5. Investments

Marketable Securities

Our marketable equity securities are publicly traded stocks measured at fair value using quoted prices for identical assets in active markets and classified as Level 1 within the fair value hierarchy. Marketable equity securities as of March 31, 2024 and December 31, 2023, and activity for the three months ended March 31, 2024 and year ended December 31, 2023, are as follows:

 

 

Cost

 

 

Cost of Shares Sold

 

 

Gross Unrealized Gain (Loss)

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Marketable equity securities, March 31, 2024

 

$

17,860

 

 

$

-

 

 

$

(2,160

)

 

$

15,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Marketable equity securities, December 31, 2023

 

$

743,906

 

 

$

(739,616

)

 

$

13,570

 

 

$

17,860

 

 

No marketable securities were sold during the three months ended March 31, 2024 and 2023.

 

16


 

Notes receivable from Sale of Symbiont assets

The Company entered into a secured promissory note and loan agreement with Symbiont.IO, Inc. (“Symbiont”) on December 1, 2021 under which the Company loaned Symbiont an aggregate principal amount of $2 million bearing interest at a rate of 16% per annum. The outstanding principal, plus any accrued and unpaid interest, became due and payable on December 1, 2022 but was not paid. The Symbiont note was secured by a first priority perfected security interest in the assets of Symbiont.

Symbiont filed for bankruptcy on December 1, 2022. On June 5, 2023, the Company purchased substantially all of the assets of Symbiont (the “Symbiont Assets”) by means of a credit bid of the full amount of the note payable owed by Symbiont to the Company. The Symbiont Assets were comprised principally of intellectual property and software code relating to Symbiont’s financial services blockchain enterprise platform. The assets were recorded as intangible assets at an amount equal to the total consideration of $2.8 million.

On December 26, 2023, the Company entered into an asset purchase agreement with Platonic Holdings, Inc. (“Platonic”) pursuant to which we agreed to sell to Platonic the Symbiont Assets. The sale of the Symbiont Assets closed on December 27, 2023. The sales proceeds were $2.0 million, of which $0.2 million is being held in a customary indemnity escrow until December 26, 2024. Amounts held in escrow are recorded as "Receivable from the sale of Symbiont assets" in the consolidated balance sheets as of March 31, 2024 and December 31, 2023.

Notes receivable from Seastar Medical Holding Corporation

As of March 31, 2024, there was no outstanding principal and accrued interest and as of December 31, 2023, there was $1,127 thousand of principal and $13 thousand of accrued interest on the Amended Sponsor Note included in "Note receivable from Seastar Medical Holding Corporation" on the consolidated balance sheets.

As of March 31, 2024, there was no outstanding principal and accrued interest and as of December 31, 2023, there was $296 thousand of principal and $3 thousand of accrued interest on the amended LMFA Note in "Notes receivable from Seastar Medical Holding Corporation" on the consolidated balance sheets.

On January 29, 2024 Seastar fully repaid the remaining balance of principal and accrued interest on the Notes which totaled approximately $1.4 million as of the payoff date.

 

 

March 31, 2024

 

 

December 31, 2023

 

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 Notes receivable from Seastar Medical Holding Corporation

$

-

 

 

$

1,440,498

 

 

$

2,216,649

 

 End of period

$

-

 

 

$

1,440,498

 

 

$

2,216,649

 

 

 

 

 

 

 

 

 

 

March 31, 2024

 

 

 

 

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 Beginning of year

$

1,440,498

 

 

 

 

 

$

3,807,749

 

 Repayment of Seastar Medical Holding Corporation notes receivable

 

(1,449,066

)

 

 

 

 

 

(1,644,834

)

 Accrued interest income

 

8,568

 

 

 

 

 

 

53,734

 

  End of period

$

-

 

 

 

 

 

$

2,216,649

 

Long-term Investments

Long-term investments held to maturity in equity securities consist of the following:

 

LMF Acquisition Opportunities Inc. and SeaStar Medical - Warrants

The Company, through its affiliate LMFA Sponsor LLC ("Sponsor"), owns an aggregate 5,738,000 private placement warrants in SeaStar Medical, Inc., a Delaware corporation (“SeaStar Medical”). For the three months ended March 31, 2024 and 2023, our re-measurement of the fair value of the private placement warrants resulted in an unrealized gain of approximately $597 thousand and unrealized loss of $26 thousand, respectively. The unrealized loss is included within "Unrealized gain on investment and equity securities" within the consolidated statements of operations.

Long-term investments for the SMHC (formerly LMAO) warrants consist of the following:

17


 

 

March 31, 2024

 

 

December 31, 2023

 

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 Seastar Medical Holding Corporation (formerly LMAO) warrants

$

753,973

 

 

$

156,992

 

 

$

437,924

 

 End of period

$

753,973

 

 

$

156,992

 

 

$

437,924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2024

 

 

 

 

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 Beginning of year

$

156,992

 

 

 

 

 

$

464,778

 

 Unrealized gain (loss) on equity securities

 

596,981

 

 

 

 

 

 

(26,854

)

 End of period

$

753,973

 

 

 

 

 

$

437,924

 

 

SeaStar Medical Holding Corporation - Common Stock

As of March 31, 2024 and December 31, 2023, Sponsor holds 2,587,500 shares, or approximately 3.4% of the total common shares of SeaStar Medical, along with 5,738,000 private placement warrants. Taking into consideration the approximately 30% minority interest in Sponsor, the percentage of ownership in the total common shares of SeaStar Medical that is attributable to the Company is approximately 2.4%.

Our investment in SeaStar Medical common stock qualifies for equity-method accounting, for which we have elected the fair value option which requires the Company to remeasure our retained interest in SeaStar Medical at fair value and include any resulting adjustments as part of a gain or loss on investment. The fair value calculation related to our retained interest in SeaStar Medical is based upon the observable trading price of SeaStar Medicals Class A common stock.

The Company determined that our investment in SeaStar Medical meets the criteria for the equity method of accounting, for which we have elected the fair value option. We remeasure our retained interest in SeaStar Medical's common stock at fair value and include any resulting adjustments as part of our gain or loss on investments. The fair value of our retained interest in SeaStar Medical's common stock is classified as Level 1 in the fair value hierarchy as the fair value is based upon the observable trading price of ICU common stock. The trading price of ICU common stock as of March 31, 2024 and 2023 was $0.73 and $1.86 per share, respectively.

Changes in fair value are recorded in the income statement during the period of change. For the three months ended March 31, 2024 and 2023, our re-measurement of the fair value of ICU common stock resulted in an unrealized gain of approximately $0.8 million and unrealized loss of approximately $5.8 million, respectively. The unrealized gain (loss) is included within "Unrealized gain (loss) on investment and equity securities" within the consolidated statements of operations.

Long-term investments for the SeaStar Medical common stock consist of the following:

 

March 31, 2024

 

 

December 31, 2023

 

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 Seastar Medical Holding Corporation common stock

$

1,899,484

 

 

$

1,145,486

 

 

$

4,812,750

 

 End of period

$

1,899,484

 

 

$

1,145,486

 

 

$

4,812,750

 

 

 

 

 

 

 

 

 

 

 

March 31, 2024

 

 

 

 

 

March 31, 2023