LM Funding America Stock

LM Funding America, Inc. operates as a diversified holding company.

The company has two lines of business: it commenced cryptocurrency mining business and its historical specialty finance business.

In 2021, the company announced its plan to operate in the Bitcoin mining ecosystem, and it commenced Bitcoin mining operations in 2022. This business operation deploys its computing power to mine Bitcoin and validate transactions on the Bitcoin network. The company conducts this business through a wholly owned subsidiary, US Digital Mining and Hosting Co, LLC, (US Digital), which it formed to develop and operate its cryptocurrency mining business.

With respect to its 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. The company offers incorporated nonprofit community associations, which it refers to as 'Associations', a variety of financial products customized to each Association's financial needs. The company's 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, the company provides funding against such delinquent accounts, which it refers 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 the company's original product offering, it also purchases Accounts on varying terms tailored to suit each Association's financial needs, including under its New Neighbor Guaranty program.

Cryptocurrency Mining Business

The company obtains Bitcoin as a result of its mining operations, and it sells Bitcoin from time to time, to support its operations and strategic growth. The company plans to convert its Bitcoin to U.S. dollars. The company engages in regular trading of Bitcoin or engages in hedging activities related to its holding of Bitcoin.

Equipment Purchases

In 2022, the company committed to purchasing an additional 400 Bitcoin Miner S19J Pro machines from Bitmain, which were delivered in December 2022.

Additionally, on September 20, 2022, the company committed to purchasing 200 Bitcoin Miner S19 XP machines from Bitmain. There were 204 S19 XP machines delivered in January 2023.

The company purchased an additional 65 S19 XP machines on December 20, 2022 and another 125 S19 XP machines on January 15, 2023 from Bitmain.

As of March 27, 2023, the company had approximately 3,700 machines with hashing capacity of approximately 0.37 EH/s. The company had approximately 1,900 S19J Pro Antminer machines representing approximately 0.19 EH/s hashing power in storage awaiting placement at a hosting site.

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 agreed to host the 1,200 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, with automatic renewals unless the company or Core notifies the other 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. In October 2022, the company entered into additional orders with Core under the Core Hosting Agreement to host an additional 1,778 machines. As of March 27, 2023, Core had energized 2,978 of the company's machines located at their sites with a hashing capacity of approximately 0.30 EH/s on a daily basis.

On January 26, 2023, the company entered into a hosting agreement (the 'Phoenix Hosting Agreement') with Phoenix Industries Inc. (Phoenix) pursuant to which Phoenix agreed to host 228 of the company's Bitcoin Miner S19J Pro machines at a secure location and provides power, maintenance, and other services specified in the contract with a term of two years. This Phoenix Hosting Agreement renews automatically for an additional two years if it provides written notice to Phoenix of its desire of renewal at least sixty (60) days in advance of the conclusion of the initial term of two years, unless terminated sooner pursuant to the terms of the Phoenix Hosting Agreement. These machines were energized in January 2023. As of March 27, 2023, Phoenix has energized 228 machines located at their sites with hashing capacity of approximately 0.02 EH/s on a daily basis.

On March 9, 2023, the company entered into a hosting agreement (the 'Longbow Hosting Agreement') with Longbow HostCo LLC. (Longbow) pursuant to which Longbow agreed to host 500 of the company's Bitcoin Miner S19J Pro machines at a secure location and provides power, maintenance, and other services specified in the contract with a term of two years. As required under the Longbow Hosting Agreement, the company paid approximately $157 thousand as a deposit in March 2023. These machines were energized in March 2023. As of March 27, 2023, Longbow had energized 500 of the company's machines located at their sites with hashing capacity of approximately 0.05 EH/s on a daily basis.

On June 21, 2022, the company entered into a Master Agreement, dated effective as of June 20, 2022, with Compute North LLC ('Compute North') under which Compute North had agreed to host up to 4,200 of US Digital's Bitcoin Miner S19J Pro machines and provides colocation, management, and other services (the 'Master Agreement'). The term of the Master Agreement was for 60 months, subject to earlier termination in specified circumstances. The company moved the 2,690 machines from Compute North into a storage facility during January and February 2023.

Specialty Finance Business

In the company's specialty finance business, it purchases an Association's right to receive a portion of the Association's collected proceeds from owners. After taking assignment of an Association's right to receive a portion of the Association's proceeds from the collection of delinquent assessments, the company engages 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, the company typically fund an amount equal to or less than the statutory minimum an Association could recover on a delinquent account for each Account, which it refers 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 it 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, the company has developed proprietary software for servicing Accounts, which it enables law firms to service Accounts efficiently and profitably.

Materials and Suppliers

The company engages in the operation of high efficiency Bitcoin mining machines. All of the machines it purchased this year were manufactured by Bitmain, one of the preeminent manufacturers of Bitcoin mining rigs.

Competition

Within North America, the company's major competitors, including Marathon Digital Holdings, Riot Blockchain, Inc., Core Scientific, Inc., Bitfarms LTD., Iris Energy Limited, and Clean Spark.

Government Regulation

As the regulatory and legal environment evolves, the company is subject to new laws, such as further regulation by the SEC (Securities and Exchange Commission), CFTC (Commodity Futures Trading Commission), and other agencies, which affects its mining and other activities.

History

LM Funding America, Inc. was founded in 2008.