LM Funding America(LMFA) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited financial statements and management's analysis for the quarter ended March 31, 2019 Financial Statements The financial statements for Q1 2019 reflect significant changes due to the IIU acquisition, including increased assets and liabilities, and a widened net loss Condensed Consolidated Balance Sheets The balance sheet shows a substantial increase in total assets and liabilities, primarily driven by the IIU, Inc. acquisition and related financing - Total assets increased significantly to $10.1 million as of March 31, 2019, from $6.1 million at December 31, 2018, primarily due to the recognition of $5.8 million in Goodwill from the acquisition of IIU, Inc[7] - Total liabilities rose to $4.8 million from $251 thousand, mainly driven by a new $3.6 million related party convertible note payable and a new $701 thousand note payable, both related to the IIU acquisition[7] Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2019 ($) | December 31, 2018 ($) | | :--- | :--- | :--- | | Assets | | | | Cash | $3,378,783 | $3,520,753 | | Goodwill | $5,809,786 | $0 | | Total Assets | $10,138,179 | $6,059,568 | | Liabilities | | | | Note payable | $700,876 | $42,875 | | Related party convertible note payable | $3,581,982 | $0 | | Total Liabilities | $4,760,728 | $250,919 | | Total Stockholders' Equity | $5,377,451 | $5,808,649 | Condensed Consolidated Statements of Operations The statements of operations reveal decreased revenues and increased operating expenses, leading to a significantly larger net loss for the quarter - Total revenues for Q1 2019 decreased to $762,699 from $963,733 in Q1 2018, primarily due to lower interest on delinquent association fees and reduced rental revenue, partially offset by $98,768 in new net commission revenue from the recently acquired IIU, Inc[8] - Operating expenses increased to $1.21 million in Q1 2019 from $972,651 in Q1 2018, largely due to a significant rise in professional fees[8] Q1 2019 vs. Q1 2018 Performance (Unaudited) | Metric | Q1 2019 ($) | Q1 2018 ($) | | :--- | :--- | :--- | | Total Revenues | $762,699 | $963,733 | | Total Operating Expenses | $1,211,930 | $972,651 | | Operating Loss | ($449,231) | ($8,918) | | Net Loss | ($457,018) | ($8,918) | | Basic & Diluted Loss Per Share | ($0.15) | ($0.01) | Condensed Consolidated Statements of Cash Flows Cash flow statements indicate increased cash used in operations and a slight decrease in overall cash and cash equivalents for the period - Net cash used in operating activities increased to $269,864 in Q1 2019 from $136,526 in Q1 2018, primarily due to a larger net loss[9] - Net cash provided by investing activities was $146,252 in Q1 2019, compared to $64,457 in Q1 2018, driven by $51,327 in net cash received from the IIU business acquisition and higher proceeds from the sale of real estate assets[9] - The company's cash position decreased by $141,970 during the quarter, ending at $3,378,783 as of March 31, 2019[9] Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased primarily due to the net loss incurred during the quarter, partially offset by warrant exercises - Total stockholders' equity decreased from $5.81 million at the end of 2018 to $5.38 million as of March 31, 2019[10] - The decrease in equity was primarily driven by the net loss of $457,018 for the quarter, which was slightly offset by $22,320 from the exercise of warrants and $3,500 in stock option expense[10] Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the company's business segments, the IIU acquisition, goodwill recognition, and management's going concern assessment - The company operates as a diversified business with two main segments: a specialty finance company providing funding to community associations, and a specialty health insurance broker (IIU, Inc.) acquired on January 16, 2019[13][15][16] - On January 16, 2019, the company acquired 100% of IIU, Inc. for a total purchase price of $5,089,400, including the cancellation of a $1.5 million note and the issuance of a $3.58 million convertible promissory note to the seller, Craven House North America, LLC[41][42][70] - The acquisition of IIU, Inc. resulted in the recognition of $5,809,786 in goodwill on the balance sheet[44][71] - Despite significant operating losses over the past three years, management believes it has sufficient cash to mitigate substantial doubt about its ability to continue as a going concern for the next 12 months[87][89] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Q1 2019 revenue decline, increased operating expenses, widened net loss, and the impact of the IIU acquisition on liquidity - Total revenues decreased by 20.9% in Q1 2019 compared to Q1 2018; while payoff events increased from 81 to 135, average revenue per unit (excluding rental) decreased sharply from $9,152 to $3,824[109][110] - Operating expenses rose by 24.6%, driven by a $268,000 increase in professional fees primarily related to the IIU acquisition, which also added $76,000 in operating expenses not present in the prior year[112] - The net loss for Q1 2019 was $457,000, a significant increase from the $9,000 loss in Q1 2018, attributed to increased costs from the IIU purchase and reduced revenue[116] - As of March 31, 2019, the company had cash of $3.4 million, with total principal indebtedness dramatically increasing to $4.3 million from $43,000 at year-end 2018, mainly due to financing the IIU acquisition[117][120] Quantitative and Qualitative Disclosures About Market Risk The company, as a smaller reporting entity, is exempt from providing specific market risk disclosures - The company is a smaller reporting company and is not required to provide disclosures regarding market risk[123] Controls and Procedures Management concluded that disclosure controls were ineffective due to a material weakness in accounting duty segregation, with plans to address it - Management concluded that disclosure controls and procedures were not effective as of March 31, 2019[127] - A material weakness was identified due to the company's inability to effectively segregate certain accounting duties, a result of its small accounting staff[127][128] - Despite the material weakness, management believes the consolidated financial statements in the report are fairly presented in all material respects[128] - No changes were made to the internal control over financial reporting during the quarter that materially affected, or are likely to materially affect, these controls[130] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other disclosures relevant to the company's operations Legal Proceedings The company is involved in ordinary course litigation but is not a party to any other material legal proceedings - The company is frequently involved in litigation as part of its ordinary course of business, but is not currently a party to any material litigation proceedings outside of this scope[132] Risk Factors No material changes to the previously disclosed risk factors from the 2018 Annual Report on Form 10-K were reported - No material changes from the risk factors disclosed in the Annual Report Form 10-K for the year ended December 31, 2018, were reported[134] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred, and the company updated on the use of $9.0 million from its 2015 IPO proceeds - There were no unregistered sales of securities during the period[135] - From the $9.6 million net proceeds of its 2015 IPO, the company has used $9.0 million as of March 31, 2019, for purposes including debt repayment ($3.11 million), interest payments ($0.89 million), and funding its business operations[138][139] Defaults Upon Senior Securities The company reported no defaults on any senior securities during the period - None[141] Mine Safety Disclosures This disclosure item is not applicable to the company's operations - None[142] Other Information No additional information was reported under this item for the period - None[143] Exhibits This section lists all documents filed as exhibits, including officer certifications and XBRL data files - Lists exhibits filed with the report, such as CEO/CFO certifications (31.1, 31.2, 32.1) and XBRL interactive data files[143][148]