Valuation and Market Risks - The valuation of life insurance policies is uncertain, with potential material adverse impacts on the company's business due to erroneous valuations [70]. - The company's returns on life settlement policies are highly dependent on accurate life expectancy forecasts, which may be affected by changes in longevity trends [71]. - The secondary market for life insurance policies has grown significantly, but the availability of quality policies is limited, which could adversely affect the company's ability to execute its strategy [78]. - Increased competition from life insurance companies offering enhanced cash surrender values may impact the company's ability to acquire policies [80]. - The company faces risks related to fraud in the origination and sale of life insurance policies, which could adversely affect returns [86]. - Public perception and regulatory scrutiny of the life settlement industry may negatively impact the company's investments and operations [83]. - The company may face claims from life insurance companies or regulatory authorities, which could have a material adverse impact on its business [89]. - The company may face challenges in liquidating its life insurance policies, which could materially affect its business [120]. - The liquidation value of life insurance policies is crucial for meeting cash flow needs, but selling them may not always be viable due to market conditions and uncertainties [121]. - The company assumes credit risk associated with life insurance companies, which could adversely affect profits if these companies fail to pay out [122]. - The insolvency of insurance companies could limit the value and collectability of life insurance policies, with state guaranty associations capping coverage at $300,000 or lower per insured [124]. Regulatory and Compliance Risks - Regulatory changes could impose additional burdens on the company, particularly if life settlements are classified as securities [91]. - The SEC has not recommended defining life settlements as securities, which could lead to increased regulatory requirements for the Company [94]. - The Company may face fines and sanctions for non-compliance with U.S. state securities laws related to life settlements [95]. - The Company intends to comply with all applicable federal and state securities laws, but failure to do so could result in significant penalties [96]. - The Company could be required to register as an investment company under the Investment Company Act, necessitating a change in its business model [99]. - The Company is subject to various U.S. privacy laws, and non-compliance could lead to regulatory actions and financial penalties [104]. - Changes in tax regulations could negatively impact cash flows and operational results, highlighting the importance of regulatory compliance [154]. - The company has limited experience in managing a publicly traded entity, which may affect its operational effectiveness and regulatory compliance [151]. Financial Performance and Position - Total revenues for 2023 reached $66,401,451, a significant increase compared to the previous year [399]. - Net income attributable to common stockholders for 2023 was $9,516,626, down from $31,682,275 in 2022, reflecting a decrease of approximately 70% [403]. - Earnings per share (EPS) for 2023 were $0.17 (basic) and $0.16 (diluted), compared to $0.63 for both in 2022 [403]. - Total liabilities increased to $167,755,991 in 2023, up from $30,945,150 in 2022, indicating a growth of over 442% [399]. - Stockholders' equity rose to $164,070,076 in 2023, compared to $28,149,697 in 2022, representing an increase of approximately 484% [399]. - Operating income for 2023 was reported at $24,125,882, with total operating expenses amounting to $35,785,192 [399]. - The company reported a gross profit of $59,911,074 for 2023, reflecting strong revenue generation capabilities [399]. - The total cost of revenue for 2023 was $6,490,377, which includes stock-based compensation [399]. - The company experienced a loss on the change in fair value of warrant liability amounting to $4,204,360 [399]. - The total current liabilities for 2023 were $23,326,331, a notable increase from $1,302,409 in 2022 [399]. - Net income for 2023 was $9,034,487, a decrease of 72% compared to $32,386,974 in 2022 [410]. - Total cash used in operating activities was $(64,523,149) in 2023, compared to cash provided of $10,693,254 in 2022 [410]. - The company issued long-term debt of $99,201,328 in 2023, significantly up from $30,028,640 in 2022 [412]. - Cash and cash equivalents at the end of the period were $25,588,668, down from $30,052,823 at the beginning of the period [412]. - The total assets of consolidated variable interest entities (VIEs) increased to $77,132,592 in 2023 from $30,073,972 in 2022 [425]. Strategic Initiatives and Growth - The merger with LMA and Abacus was completed on June 30, 2023, marking a significant strategic move for the company [415]. - The Company obtained a 70% ownership interest in LMX, which had no operating activity prior to the agreement, and included its results in consolidated financial statements for the year ended December 31, 2023 [426]. - The Company provided $144,721 of working capital funding for the year ended December 31, 2023, compared to $347,013 for the year ended December 31, 2022 [430]. - The company is engaged in the buying and selling of life settlement policies, indicating ongoing market expansion efforts [417]. - The company may require additional financing for future growth opportunities, which may not be available on favorable terms [145]. - Future pandemics, rising interest rates, and inflation could disrupt the company's ability to originate life settlement policies, adversely impacting financial performance [134]. Operational Challenges - The company relies on third-party data for tracking life settlement policies, and failures in these systems could lead to financial losses [85]. - The Company relies on data processing systems for critical operations, and any security breaches could materially impact its business [101]. - The company must maintain insurable interest in life insurance policies, and failure to do so could render policies unenforceable [114]. - The Company is responsible for paying premiums on life insurance policies, and failure to do so could result in policy lapses and financial losses [116]. - Life insurance companies may increase costs of insurance premiums, adversely affecting the Company's returns on its investments [119]. - The company may need to raise additional capital to refinance existing debt or support operations, which could be impacted by economic conditions and credit ratings [162]. Accounting and Reporting - The company has identified material weaknesses in internal control over financial reporting as of December 31, 2022, which were remediated by December 31, 2023 [135]. - The company may face increased operating costs and resource allocation challenges due to the implementation of required accounting practices and policies [143]. - The company qualifies as an "emerging growth company," allowing it to rely on exemptions from certain disclosure requirements, which may affect the attractiveness of its securities to investors [148]. - The Company accounts for life insurance settlement policies under the fair value method for policies purchased after June 30, 2023, impacting future revenue recognition [436]. - The Company has not recognized any impairments for property and equipment during the years ended December 31, 2023 and 2022, indicating stable asset performance [450]. - Goodwill and intangible assets are evaluated for recoverability annually, with no impairments recognized during the reporting periods [452]. - The company has no significant internal-use software capitalized, with amortization over an estimated useful life of 3 years [455]. - The company recognizes revenue from origination services when the performance obligation is satisfied, typically upon closing of the transaction [462]. - The company has determined that it is acting as the principal in transactions involving agent and broker commissions, maintaining control over the services performed [464]. - Three customers accounted for 49%, 14%, and 12% of active management revenue for the year ended December 31, 2023, highlighting customer concentration risk [478].
Abacus Life(ABL) - 2023 Q4 - Annual Report