Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes for the Nine Months ended September 30, 2022, and with the Annual Report on Form 10-K for the year ended December 31, 2021
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs, and plans and objectives of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” “believes,” or the negative thereof or any variation thereon or similar terminology or expressions.
We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties, and assumptions about us that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Important factors which could materially affect our results and our future performance include, without limitation:
•our ability to retain the listing of our securities on the Nasdaq Capital market,
•our ability to obtain funds to purchase receivables,
•the early stage of our cryptocurrency mining business and our lack of operating history in such business,
•volatility surrounding the value of Bitcoin and other cryptocurrencies,
•the uncertainty surrounding the cryptocurrency mining business in general,
•bankruptcy or financial problems of our hosting vendors in our mining business,
•reliance to date on a single model of Bitcoin miner,
•the ability to scale our mining business,
•our ability to purchase defaulted consumer Association receivables at appropriate prices,
•competition to acquire such receivables,
•our dependence upon third party law firms to service our accounts,
•our ability to manage growth or declines in the our business,
•changes in government regulations that affect our ability to collect sufficient amounts on our defaulted consumer Association receivables,
•the impact of class action suits and other litigation on our business or operations,
•our ability to keep our software systems updated to operate our business,
•our ability to employ and retain qualified employees,
•our ability to establish and maintain internal accounting controls,
•changes in the credit or capital markets,
•changes in interest rates,
•deterioration in economic conditions,
•the spread of the novel coronavirus (COVID-19), its impact on the economy generally and, more specifically, the specialty finance industries,
•negative press regarding the debt collection industry which may have a negative impact on a debtor’s willingness to pay the debt we acquire, and
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•other factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and Item 1A of this Quarterly Report on Form 10-Q.
Except as required by law, we assume no duty to update or revise any forward-looking statements.
Overview
LM Funding America, Inc. (“we”, “our”, “LMFA” or the “Company”) currently has two lines of business: a specialty finance business and our recently commenced 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 have started purchasing Accounts on varying terms tailored to suit each Association’s financial needs, including under our New Neighbor Guaranty™ program.
On September 15, 2021, we announced our plan to operate in the Bitcoin mining ecosystem, and we commenced Bitcoin mining operations in September 2022. This business operation deploys our computing power to mine Bitcoin and validate transactions on the Bitcoin network. We believe that developments in Bitcoin mining have created an opportunity for us to deploy capital and conduct large-scale mining operations in the United States. 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.
Specialty Finance Business
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.
Cryptocurrency Mining Business
Cryptocurrency Mining Business
During 2021, we committed to purchasing an aggregate of 5,046 Bitcoin S19J Pro Antminer cryptocurrency mining machines for an aggregate purchase price of $31.6 million (the “Mining Machines”) from Bitmain. This contract allowed for a reduction in purchase price if Bitcoin price declined prior to shipment. As such, because the price of Bitcoin has declined since we entered into the purchase contract, we have received reductions against the total purchase price. We anticipate we will receive the remaining Mining Machines to be delivered in batches over an estimated delivery timeframe from October 2022 through November 2022. The purchase agreements between us and Bitmain relating to the Mining Machines (the “Bitmain Purchase Agreements”) required us to pay $7.9 million or 25% of the total purchase price as a non-refundable deposit for the Mining Machines within 7 days of the date of the
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signing of the respective Bitmain Purchase Agreements, and additional 35% of the batch price at least 6 months prior to shipment of such batch, and the remaining 40% of each batch price one month prior to the shipment of the batch. We have received 4,212 Mining Machines as of September 30, 2022 under these purchase agreements. Due to the variable nature of the contract, we have been credited an aggregate total of approximately $7.2 million toward the 40% purchase price that is normally paid upon the shipment of a batch.
On August 31, 2022, the Company committed to purchasing an additional 400 Bitcoin Miner S19J Pro machines from Bitmain for an aggregate purchase price of approximately $1.3 million. The purchase agreement provides for delivery of the machines in November 2022. As required under the contract, the Company paid the full purchase price within 7 days of the date of the signing of the agreement and the payment is not refundable. This contract is also subject to variable pricing adjustments.
Additionally, on September 20, 2022, the Company committed to purchasing 200 Bitcoin Miner S19 XP machines from Bitmain for an aggregate purchase price of approximately $1.3 million. Under the provisions of the contract, the machines are expected to be delivered in January 2023. As required under the contract, the Company paid a non-refundable deposit of $265 thousand within 7 days of the date of the signing of the agreement. An additional 30% payment of the purchase price is due 4 months prior to shipment and the remaining 50% of the purchase price is due 15 days prior to shipment. This contract is also subject to variable pricing adjustments.
During the Nine Months ended September 30, 2022 the Company paid approximately $12.7 million to Bitmain for deposits related to mining equipment and payments of $635 thousand were made to various shipping vendors for transportation and customs costs related to the equipment. Since the inception of our contracts with Bitmain, we have paid an aggregate of approximately $27.0 million to Bitmain and related vendors relating to the purchase of these machines through September 30, 2022, and expect to pay an additional $1.0 million under the Bitmain contracts through the completion of the delivery of the machines.
In October 2021, we also entered into a sale and purchase agreement (the “Uptime Purchase Agreement”) with Uptime Armory LLC (“Uptime”) pursuant to which US Digital agreed to purchase, and Uptime agreed to supply to US Digital, an aggregate of 18 modified 40-foot cargo containers (“POD5ive containers”) that will be designed to hold and operate 280 S19 Pro Antminers manufactured by Bitmain. The purchase price of the POD5ive containers totals $3.15 million, of which $2.4 million or 75% was paid in 2021 as a non-refundable down payment and the remaining 25% was paid after Uptime delivered a “notice of completion” of the equipment. No containers have been delivered as of September 30, 2022.
On the same effective date, US Digital also entered into a hosting agreement with Uptime Hosting LLC (the “Hosting Agreement”) to host the Company’s 18 POD5ive containers at a secure location and provide power, maintenance and other services specified in the contract for 6 cents per kilowatt with a term of one year. Under the Hosting Agreement we paid a deposit of $0.8 million in 2021 and were required to pay an additional deposit for each container three months prior to delivery at the hosting site of $44 thousand and a final deposit for each container one month prior to arrival at the hosting site of $44 thousand. The deposits paid for hosting services under the Hosting Agreement are refundable. On June 29, 2022, the Company and Uptime Hosting LLC entered into a Release and Termination Agreement in which the Hosting Agreement was terminated and Uptime Hosting LLC agreed to pay the $0.8 million. The $0.8 million deposit paid for hosting services under the Hosting Agreement is included within Prepaid expenses and other assets on the consolidated balance sheet as of September 30, 2022. However, the $0.8 million deposit has not been returned, and on September 2, 2022, we filed in Florida circuit court a legal action against Uptime Hosting LLC in an action styled US Digital Mining and Hosting Co, LLC v. Uptime Hosting, LLC (Fla. 13thCir. Ct. Sept. 2, 2022) for the return of the deposit and other damages, alleging breach of contract and violation of the Florida Deceptive and Unfair Trade Practices Act. Uptime Hosting LLC has answered the complaint with affirmative defenses and counterclaims for fraudulent inducement and rescission, which we believe are without merit. The Company has not accrued a loss contingency related to this matter based on management’s assessment of the collectability of the refundable deposit.
On November 8, 2022, we filed an action in Florida circuit court against Uptime Armory, LLC and Bit5ive, LLC in a case styled US Digital Mining and Hosting Co. LLC v. Uptime Amory, LLC and Bit5ive, LLC (Fla. 11th Cir. Ct., November 8, 2022). In that action, we alleged breach of contract and violation of the Florida Deceptive and Unfair Trade Practices Act and are seeking, among other things, damages of $3.15 million for non-delivery of the 18 POD5ive containers. The defendants in this action have not yet answered the complaint.
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 has agreed to host up to 4,200 of US Digital’s Bitcoin Miner S19J Pro machines (100 TH/s) and provide colocation, management and other services (the “Master Agreement”). The term of the Master Agreement is for 60 months, subject to earlier termination in specified circumstances. The Company paid a non-refundable co-location deposit of $1.3 million on June 21, 2022 under the Master Agreement. Compute North filed for Chapter 11 bankruptcy on September 22, 2022. Compute North has not energized any of our 2,690 machines located at their site.
On September 6, 2022, the Company entered into hosting agreement (the “Core Hosting Agreement”) with Core Scientific Inc. (“Core”) pursuant to which Core agreed to host the Company’s 1,200 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 and thereafter automatically renews
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for the periods indicated in the Order. As required under the Core Hosting Agreement, the Company paid approximately $942 thousand as a deposit on September 2, 2022.
During September 2022, 848 mining machines were placed into service and we commenced mining operations. These machines are located at one of the Core hosting locations.
Recent Developments
COVID-19 Update
Although COVID-19 is currently not material to our results of operations, there is uncertainty relating to the potential future impact on our business. While our employees currently have the ability and are encouraged to work remotely, such measures have and may continue to have an impact on employee attendance or productivity, which, along with the possibility of employees’ illness, may adversely affect our operations. The extent to which COVID-19 impacts our operations, or our ability to obtain financing should we require it, will depend on future developments which are uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 re-emerge and the actions taken by governments and private businesses to contain COVID-19 to treat its impact, among others. If the disruptions posed by COVID-19 continue for an extended period of time, financial markets may not be available to the Company for raising capital in order to fund future growth. Should the Company not be able to obtain financing when required, in the amounts necessary or under terms which are economically feasible, we may be required to reduce planned future growth and/or the scope of our operations.
Corporate History and Reorganization
The Company was originally organized in January 2008 as a Florida limited liability company under the name LM Funding, LLC. Prior to our initial public offering in 2015, all of our business was conducted through LM Funding, LLC and its subsidiaries. Immediately prior to our initial public offering in October 2015, the members of the LM Funding, LLC contributed all of their membership interests to LM Funding America, Inc., a Delaware corporation incorporated on April 20, 2015 (“LMFA”), in exchange for shares of the common stock of LMFA. Immediately after such contribution and exchange, the former members of LM Funding, LLC became the holders of 100% of the issued and outstanding common stock of LMFA, thereby making LM Funding, LLC a wholly-owned subsidiary of LMFA.
The Company organized two new subsidiaries in 2020: LMFA Financing LLC, a Florida limited liability company, on November 21, 2020, and LMFAO Sponsor LLC, a Florida limited liability company, on October 29, 2020. LMFAO Sponsor LLC organized a subsidiary, LMF Acquisition Opportunities Inc., on October 29, 2020. LM Funding America Inc. organized a subsidiary, US Digital Mining and Hosting Co., LLC., on September 10, 2021.
Results of Operations
The Three Months Ended September 30, 2022 compared with the Three Months Ended September 30, 2021
Revenues
During the Three Months ended September 30, 2022, total revenues decreased by $36 thousand, to $188 thousand from $224 thousand in the Three Months ended September 30, 2021.
Interest on delinquent association fees decreased by $71 thousand to $58 thousand for the Three Months ended September 30, 2022 from $129 thousand Three Months ended September 30, 2021. Underwriting and origination fees for the Three Months ended September 30, 2022 decreased $17 thousand to $12 thousand from $29 thousand for the Three Months ended September 30, 2021. Rental revenues increased in the Three Months ended September 30, 2022 by $4 thousand to $41 thousand from $37 thousand for the Three Months ended September 30, 2021.
Digital mining revenues increased to $42 thousand for the Three Months ended September 30, 2022 from nil for the Three Months ended September 30, 2021, due to the commencement of our digital mining operations in late September 2022.
Operating Expenses
During the Three Months ended September 30, 2022, operating expenses increased approximately $3.0 million, to $5.5 million from approximately $2.4 million for the Three Months ended September 30, 2021. The increase in operating expenses can be attributed to various factors, including $3.6 million increase in stock compensation, $217 thousand increase in professional fees, $102 thousand increase in selling, general and administrative expense and other operating expense increase of $119 thousand, offset in part by a decrease in staff costs and payroll of $1.2 million. The increase in depreciation and amortization expense of $34 thousand and digital mining cost of revenues of $39 thousand is related to the commencement of mining operations in late September. The cost of mining includes the cost of hosting site.
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Professional fees, excluding fees from the BLG service agreement, for the Three Months ended September 30, 2022 were approximately $556 thousand compared with approximately $252 thousand for the Three Months ended September 30, 2021, due primarily to ordinary legal fees and consulting fees related to our digital mining operations. In the ordinary course of our specialty finance business, we are involved in numerous legal proceedings and expenses associated with acquisitions and corporate initiatives. We regularly initiate collection lawsuits, using our network of third-party law firms, against debtors. In addition, debtors occasionally initiate litigation against us.
Legal fees to BLG for the Three Months ended September 30, 2022 were $159 thousand compared to $246 thousand for the Three Months ended September 30, 2021. This decrease is primarily due to the lower service fee charge from BLG. See Note 2. Due to Related Party for further discussion regarding the service agreements with BLG.
Other Income/(Loss)
Unrealized gain (loss) on investment and equity securities - the Company’s investment in LMAO changed due to the LMAO IPO on January 28, 2021. This resulted in LMAO’s deconsolidation from the Company and any changes in fair value will be recorded in the income statement during the period of the change. The Company recognized an unrealized loss on securities of $194 thousand for the Three Months ended September 30, 2022 as compared to a unrealized loss of $123 thousand for the Three Months ended September 30, 2021 from the revaluation of LMAO’s Class B common stock and Private Placement Warrants.
Unrealized gain (loss) on marketable securities - the company incurred an unrealized loss on marketable securities of $13 thousand for the Three Months ended September 30, 2022 as compared to an unrealized loss on securities of $478 thousand for the Three Months ended September 30, 2021.
Impairment of digital assets - the company incurred an impairment of digital assets of $27 thousand for the Three Months ended September 30, 2022 as compared to $24 thousand for the Three Months ended September 30, 2021.
Interest (Income) Expense
During the Three Months ended September 30, 2022, the Company generated net interest income of $86 thousand as compared to $74 thousand of interest income for the Three Months ended September 30, 2021 due to differences in the rates of return and the amount of outstanding interest-bearing investments.
Income Tax Expense
During the Three Months ended September 30, 2022, the Company generated a $5.4 million net loss before income taxes. However, due to a change in estimate from the twelve months ended December 31, 2021 that resulted in a limitation on the use of its net operating loss carryforwards, the Company's income tax due was $1.3 million. The Company recognized a net income tax expense of $1.3 million for the Three Months ended September 30, 2022. The Company recognized $12.6 thousand of income tax expense for the Three Months ended September 30, 2021.
Net Income (Loss)
During the Three Months ended September 30, 2022, net loss was approximately ($6.7) million as compared to net loss of ($5.5) million for the Three Months ended September 30, 2021.
Net Income (Loss) Attributable to Non-Controlling Interest
The Company owns 69.5% of Sponsor. As such, there is ($59) thousand net loss for the Three Months ended September 30, 2022 attributable to the Non-Controlling Interest as compared to ($34) thousand net loss for the Three Months ended September 30, 2021.
Net Income (Loss) Attributable to LM Funding America, Inc.
During the Three Months ended September 30, 2022, net loss was approximately ($6.7) million as compared to net loss of approximately ($5.5) million for the Three Months ended September 30, 2021.
Results of Operations
The Nine Months Ended September 30, 2022 compared with the Nine Months Ended September 30, 2021
Revenues
During the Nine Months ended September 30, 2022, total revenues increased by $46 thousand, to $613 thousand from $567 thousand in the Nine Months ended September 30, 2021.
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Interest on delinquent association fees increased by $1 thousand to $271 thousand for the Nine Months ended September 30, 2022 from $270 thousand for the Nine Months ended September 30, 2021. Underwriting and origination fees for the Nine Months ended September 30, 2022 decreased $32 thousand to $55 thousand from $87 thousand for the Nine Months ended September 30, 2021. Rental revenues increased in the Nine Months ended September 30, 2022 by $17 thousand to $120 thousand from $103 thousand for the Nine Months ended September 30, 2021.
Digital mining revenues increased to $42 thousand for the Nine Months ended September 30, 2022 from nil for the Nine Months ended September 30, 2021, due to the commencement of our digital mining operations in late September 2022.
Operating Expenses
During the Nine Months ended September 30, 2022, operating expenses increased approximately $11,317 thousand, to $16,281 thousand from $4,964 thousand for the Nine Months ended September 30, 2021. The increase in operating expenses can be attributed to various factors, including $10,945 thousand increase in stock compensation, $1,180 thousand increase in professional fees and other operating expense increase of $256 thousand offset in part by a $1,481 thousand decrease in compensation costs excluding stock-based compensation.
Professional fees, excluding fees from the BLG service agreement, for the Nine Months ended September 30, 2022 were approximately $1,865 thousand compared with approximately $603 thousand for the Nine Months ended September 30, 2021 due primarily to ordinary legal fees and costs associated with the settlement of a shareholder legal claim and consulting costs related to our digital mining business. In the ordinary course of our specialty finance business, we are involved in numerous legal proceedings and expenses associated with acquisitions and corporate initiatives. We regularly initiate collection lawsuits, using our network of third party law firms, against debtors. In addition, debtors occasionally initiate litigation against us. This included an expense of $275 thousand during the Nine Months ended September 30, 2022 related to the settlement of a legal claim. See Note 5 Commitments and Contingencies for discussion of the claim.
Legal fees for BLG for the Nine Months ended September 30, 2022 were $656 thousand compared to $738 thousand for the Nine Months ended September 30, 2021. Legal fees for the Nine Months ended September 30, 2022 include a $150 thousand termination fee offset by a reduction in the service fee. See Note 2. Due to Related Party for further discussion regarding the service agreements with BLG.
Other Income (Loss)
Realized loss on marketable securities - the Company recognized a $350 thousand realized loss on marketable securities for the Nine Months ended September 30, 2022 as compared to a $13,952 thousand gain for the Nine Months ended September 30, 2021, which was primarily due to a $5.7 million gain on a transaction with Borqs in which the Company acquired debt of Borqs and converted the debt into Borqs common stock and subsequently sold such shares at a gain and an $8.5 million gain related to the exercise of Borqs warrants for common shares in Borqs which were subsequently sold.
Realized gain on convertible debt securities - the company incurred a realized gain on convertible debt securities of $288 thousand for the Nine Months ended September 30, 2022 as compared to nil for the Nine Months ended September 30, 2021.
Unrealized gain (loss) on investment and equity securities - The Company’s investment in LMAO changed due to the LMAO IPO on January 28, 2021. This resulted in LMAO’s deconsolidation from the Company and any changes in fair value will be recorded in the income statement during the period of the change. The Company recognized an unrealized gain on securities of $11.0 million for the Nine Months ended September 30, 2022 as compared to a unrealized gain of $1.0 million for the Nine Months ended September 30, 2021 from the revaluation of LMAO’s Class B common stock and Private Placement Warrants. The change was driven primarily by the impact of LMAO’s pending merger with Seastar Medical, Inc. on the valuation of LMAO’s common shares.
Unrealized gain (loss) on marketable securities - the company incurred an unrealized loss on marketable securities of $37 thousand for the Nine Months ended September 30, 2022 as compared to an unrealized loss on securities of $478 thousand for the Nine Months ended September 30, 2021.
Impairment of digital assets - during the Nine Months ended September 30, 2022, the Company purchased and received an aggregate of 31 Bitcoin for approximately $978 thousand and also received approximately 2.2 Bitcoin, in exchange for digital mining services provided which were valued at approximately $42 thousand. During the Nine Months ended September 30, 2022, we recorded approximately $404 thousand of impairment losses on such digital assets as compared to an impairment loss of $24 thousand for the Nine Months ended September 30, 2021.
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Interest (Income) Expense
During the Nine Months ended September 30, 2022, the Company earned net interest income of $265 thousand as compared to $164 thousand of interest income for the Nine Months ended September 30, 2021 due to differences in the rates of return and the amount of outstanding interest-bearing investments.
Income Tax Expense
During the Nine Months ended September 30, 2022, the Company generated a $4.9 million net loss before income taxes. However, due to a change in estimate from the twelve months ended December 31, 2021 that resulted in a limitation on the use of its net operating loss carryforwards, the Company's income tax due was $1.3 million. The Company recognized a net income tax expense of $1.3 million for the Nine Months ended September 30, 2022. The Company recognized $29.9 thousand of income tax expense for the Nine Months ended September 30, 2021.
Net Income (Loss)
During the Nine Months ended September 30, 2022, the net loss was ($6.2) million as compared to net income of $10.3 million for the Nine Months ended September 30, 2021.
Net Income Attributable to Non-Controlling Interest
The Company owns 69.5% of Sponsor. As such, there is $3,373 thousand net income for the Nine Months ended September 30, 2022 attributable to the Non-Controlling Interest as compared to $285 thousand net income for the Nine Months ended September 30, 2021.
Net Income (Loss) Attributable to LM Funding America, Inc.
During the Nine Months ended September 30, 2022, the net loss was approximately ($9.5) million as compared to net income of $10.0 million for the Nine Months ended September 30, 2021.
Liquidity and Capital Resources
General
As of September 30, 2022, we had cash and cash equivalents of $10.2 million compared with $32.6 million at December 31, 2021. The Company also had $24 thousand of marketable securities as of September 30, 2022 compared with $2.1 million at December 31, 2021.
Cash from Operations
Net cash used by operations was $1.7 million during the Nine Months ended September 30, 2022 compared with net cash provided by operations of $5.3 million during the Nine Months ended September 30, 2021. This change in cash provided by operating activities was primarily driven by a $14.0 million realized gain on securities from the Borqs Note transactions during the Nine Months ended September 30, 2021.
Cash from Investing Activities
For the Nine Months ended September 30, 2022 net cash used in investing activities was $20.6 million as compared to net cash used in investing activities of $8.8 million for the Nine Months ended September 30, 2021. During the Nine Months ended September 30, 2022, the Company invested $16.5 million in deposits for mining equipment, $978 thousand for digital assets, $350 thousand for a note receivable and $2.8 million in related party notes receivable as compared to $1.6 million in deposits for mining equipment, an investment of $1.4 million for digital assets and an investment of $5.7 million in LMF Acquisition Opportunities Inc (a special purpose acquisition corporation) during the Nine Months ended September 30, 2021. The Company reclassified approximately $22.0 million from Deposits on mining equipment and hosting services to Fixed assets, net in the consolidated balance sheet due to the receipt of 4,212 mining machines during the Nine Months ended September 30, 2022.
Cash from Financing Activities
Net cash used in financing activities was $0.1 million for the Nine Months ended September 30, 2022 compared to $9.4 million provided by financing activities for the Nine Months ended September 30, 2021. At September 30, 2022, the Company paid $115 thousand in repayments of debt. During the Nine Months ended September 30, 2021 the Company received $9.5 million from the exercise of warrants and paid $163 thousand in repayments of debt.
Shareholders’ Equity
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During the Nine Months ended September 30, 2021, holders of our warrants exercised such warrants for approximately 2.3 million shares of common stock for an aggregate of $9.5 million.
Debt
Debt of the Company consisted of the following at September 30, 2022 and December 31, 2021:
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September 30, 2022 |
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December 31,
2021 |
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Financing agreement with FlatIron capital that was unsecured. Down payment of $36,255 was required upfront and equal installment payments of $19,114 were made over a 10 month period. The note matured on May 1, 2022. Annualized interest was 3.95% |
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$ |
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$ |
114,688 |
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$ |
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$ |
114,688 |
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.