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.) |
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(Address of principal executive offices) |
(Zip code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on which registered |
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 |
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Accelerated filer |
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Smaller reporting company |
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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
LM FUNDING AMERICA, INC.
TABLE OF CONTENTS
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PART I. |
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
LM Funding America, Inc. and Subsidiaries Consolidated Balance Sheets
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March 31, |
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December 31, |
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2023 |
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2022 |
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(Unaudited) |
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Assets |
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Cash |
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$ |
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$ |
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Digital Assets (Note 2) |
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Finance receivables |
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Marketable securities (Note 5) |
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Notes receivable from Seastar Medical Holding Corporation (Note 5) |
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- |
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Prepaid expenses and other assets |
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Income tax receivable |
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Current assets |
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Fixed assets, net (Note 3) |
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Deposits on mining equipment (Note 4) |
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Hosting services deposit (Note 4) |
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Real estate assets owned |
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Long-term investments - debt security (Note 5) |
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Less: Allowance for losses on debt security (Note 5) |
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Long-term investments - debt security, net (Note 5) |
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Long-term investments - equity securities (Note 5) |
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Investment in Seastar Medical Holding Corporation (Note 5) |
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Notes receivable from Seastar Medical Holding Corporation (Note 5) |
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- |
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Operating lease - right of use assets (Note 8) |
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Other assets |
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Long-term assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders' equity |
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Accounts payable and accrued expenses |
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Note payable - short-term (Note 6) |
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Due to related parties (Note 7) |
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Current portion of lease liability (Note 8) |
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Total current liabilities |
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Lease liability - net of current portion (Note 8) |
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Long-term liabilities |
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Total liabilities |
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Stockholders' equity (Note 9) |
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Preferred stock, par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total LM Funding America stockholders' equity |
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Non-controlling interest |
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Total stockholders' equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Revenues: |
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Digital mining revenues |
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$ |
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$ |
- |
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Specialty finance revenue |
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Rental revenue |
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Total revenues |
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Operating costs and expenses: |
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Digital mining cost of revenues (exclusive of depreciation and amortization shown below) |
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- |
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Staff costs & payroll |
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Professional fees |
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Settlement costs with associations |
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- |
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Selling, general and administrative |
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Real estate management and disposal |
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Depreciation and amortization |
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Collection costs |
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Impairment loss on mined digital assets |
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- |
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Realized gain on sale of mined digital assets |
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- |
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Other operating costs |
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Total operating costs and expenses |
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Operating loss |
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Realized loss on securities |
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- |
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Unrealized gain on convertible debt security |
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- |
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Unrealized gain on marketable securities |
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Impairment loss on prepaid mining machine deposits |
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( |
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Unrealized loss on investment and equity securities |
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( |
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Realized gain on sale of purchased digital assets |
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- |
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Digital assets other income |
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- |
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Other income - coupon sales |
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- |
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Dividend income |
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- |
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Interest income |
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Loss before income taxes |
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$ |
( |
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$ |
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Income tax expense |
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- |
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Net loss |
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$ |
( |
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$ |
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Less: Net loss attributable to non-controlling interest |
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Net loss attributable to LM Funding America Inc. |
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$ |
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$ |
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Basic loss per common share |
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$ |
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$ |
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Diluted loss per common share |
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$ |
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$ |
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Weighted average number of common shares outstanding |
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Basic |
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Diluted |
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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)
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Three Months ended March 31, |
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2023 |
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2022 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to cash used in operating activities |
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Depreciation and amortization |
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Noncash lease expense |
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Stock compensation |
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- |
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Stock option expense |
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Accrued investment income |
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( |
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Digital assets other income |
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- |
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Impairment loss on digital assets |
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- |
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Impairment loss on prepaid mining machine deposits |
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- |
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Unrealized gain on convertible debt security |
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- |
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( |
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Unrealized gain on marketable securities |
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Unrealized loss on investment and equity securities |
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Realized loss on securities |
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- |
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Realized gain on sale of digital assets |
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Proceeds from securities |
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- |
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Change in operating assets and liabilities: |
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Prepaid expenses and other assets |
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Advances (repayments) to related party |
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Accounts payable and accrued expenses |
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Stablecoin |
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- |
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Mining of digital assets |
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- |
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Proceeds from sale of digital assets |
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- |
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Lease liability payments |
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( |
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( |
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Deferred taxes and taxes payable |
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- |
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( |
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Income taxes receivable |
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- |
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Net cash used in operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Net collections of finance receivables - original product |
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- |
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Net collections of finance receivables - special product |
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Capital expenditures |
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- |
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Investment in note receivable |
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- |
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Collection of note receivable |
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Investment in digital assets |
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( |
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- |
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Proceeds from sale of purchased digital assets |
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- |
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Deposits for mining equipment |
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( |
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Net cash provided by (used in) investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Insurance financing repayments |
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( |
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Insurance financing |
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- |
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Net cash used in financing activities |
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( |
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NET DECREASE IN CASH |
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( |
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CASH - BEGINNING OF YEAR |
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CASH - END OF YEAR |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES |
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ROU assets and operating lease obligation recognized |
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$ |
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$ |
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Reclassification of mining equipment deposit to fixed assets, net |
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$ |
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$ |
- |
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SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION |
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Cash paid for taxes |
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$ |
- |
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$ |
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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, 2023 and 2022
(unaudited)
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Common Stock |
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Shares |
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Amount |
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Additional paid-in capital |
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Accumulated Deficit |
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Non-Controlling Interest |
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Total Equity |
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Balance - December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Common stock issued for services |
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( |
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- |
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- |
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- |
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Stock compensation |
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- |
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- |
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- |
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- |
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Stock option expense |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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( |
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( |
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Balance - March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Balance - December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Stock option expense |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
) |
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( |
) |
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( |
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Balance - March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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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, 2023
(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; LMFA Financing LLC, formed on November 23, 2020, and LMFAO Sponsor LLC, formed on October 29, 2020. Additionally, USDM has formed various
The Company also from time to time organizes other subsidiaries to serve a specific purpose or hold a specific asset.
The Company currently has
On September 15, 2021, we announced our plan to operate in the Bitcoin mining ecosystem, and we subsequently commenced Bitcoin mining operations in late September 2022. This business operation deploys our computing power to mine Bitcoin and validate transactions on the Bitcoin network. We conduct this business through a wholly owned subsidiary, US Digital Mining and Hosting Co., LLC, a Florida limited liability company ("US Digital"), 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. 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 also purchase Accounts on varying terms tailored to suit each Association’s financial needs, including under our New Neighbor Guaranty program.
Cryptocurrency Mining Business
Bitcoin was introduced in 2008 with the goal of serving as a digital means of exchanging and storing value. Bitcoin is a form of digital currency that depends upon a consensus-based network and a public ledger called a “blockchain”, which contains a record of every Bitcoin transaction ever processed. The Bitcoin network is the first decentralized peer-to-peer payment network, powered by users participating in the consensus protocol, with no central authority or middlemen, that has wide network participation. The authenticity of each Bitcoin transaction is protected through digital signatures that correspond with addresses of users that send and receive Bitcoin. Users have full control over remitting Bitcoin from their own sending addresses. All transactions on the Bitcoin blockchain are transparent, allowing those running the appropriate software to confirm the validity of each transaction. To be recorded on the blockchain, each Bitcoin transaction is validated through a proof-of-work consensus method, which entails solving complex mathematical problems to validate transactions and post them on the blockchain. This process is called mining. Miners are rewarded with Bitcoins, both in the form of newly-created Bitcoins and transaction fees in Bitcoin, for successfully solving the mathematical problems and providing computing power to the network.
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 by monitoring the market in real time.
Factors such as access to computer processing capacity, interconnectivity, electricity cost, environmental factors (such as cooling capacity) and location play important roles in mining. In Bitcoin mining, “hashrate” is a measure of the computing and processing power and speed by which a mining computer mines and processes transactions on the Bitcoin network. We expect to continue increasing our computing power through 2023 and beyond as we expand the number of active mining machines. A company’s
7
computing power measured in hashrate is generally considered to be one of the most important metrics for evaluating Bitcoin mining companies.
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. 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.
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
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, 2023 and for the Three Months ended March 31, 2023 and March 31, 2022, 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, 2022, 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, 2022.
Reclassifications
Certain prior period amounts on the consolidated balance sheets have been reclassified to conform to the current period presentation.
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 and Chief Financial Officer of the Company are determined to comprise the CODM, as a group. The Company has
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Digital Assets
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. Digital assets that are purchased are initially recorded at cost and digital assets that are received in exchange for services provided are recognized at fair value as of the date received. Digital assets are measured 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 cost less impairment, 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 month 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 fair value 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. When applicable, any impairment loss on digital assets held for investment would be recognized during the period incurred within "Impairment loss on digital assets" in other income/expense in the consolidated statements of operations. Impairment loss on mined digital assets would be recognized during the period incurred within "Impairment loss on mined digital assets" in operating costs and expenses in the consolidated statements of operations.
Gains or losses are not recorded until realized upon sale, at which point they are presented separately from any impairment losses. Any realized gain or loss from the sale of digital assets that were purchased as an investment is recorded in other income (loss), while any realized gain or loss from the sale of digital assets that were earned through mining operations would be recognized within operating costs and expenses. The Company accounts for its gains or losses in accordance with the first in first out (“FIFO”) method of accounting.
Digital assets earned by the Company through its mining activities, proceeds from the sale of mined digital assets, realized gain (loss) from the sale of digital assets and the loss on impairment of digital assets are included within operating activities on the consolidated statements of cash flows, where applicable. Purchases of digital assets and proceeds from the sale of purchased digital assets and included within investing activities in the consolidated statements of cash flows.
Equipment Purchases
We ordered 125 S19 XP machines in January 15, 2023 from Bitmain for an aggregate purchase price of approximately $
Fixed Assets
The Company capitalizes all acquisitions of fixed assets in excess of $
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.
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.
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.
Coupon Sales
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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. 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 cash consideration has been received from the third party. During the Three Months ended March 31, 2023, the Company sold Bitmain coupons for approximately $
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