LM Funding America, Inc.

Good morning, ladies and gentlemen, and welcome to the LM Funding Third Quarter 2022 Business Update Conference Call. At this time, all participants are placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mr. David Waldman of Investor Relations. Sir, the floor is yours.

Good morning, and thank you for joining LM Funding America's Third Quarter 2022 Conference Call. On the call with us today are Bruce Rogers, Chief Executive Officer, and Richard Russell, Chief Financial Officer of LM Funding. This morning, the company announced its operating results for the quarter ended September 30, 2022, and its financial condition as of that date. The press release is posted on the company's website, lmfunding.com. In addition, the company has filed its quarterly report on Form 10-Q of the U.S. Securities and Exchange Commission, which can also be accessed on the company's website as well as the SEC's website at www.sec.gov. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. Before management reviews the company's operating results for the quarter ended September 30, 2022, and the company's financial condition at September 30, 2022, we would like to remind everyone that this conference call may contain forward-looking statements. All statements other than statements of historical facts contained in this conference call, including statements regarding our future results of operations, and financial position, strategy, and plans, and our expectations for future operations, our forward-looking statements. These forward-looking statements are based largely on the company's current expectations and projections about future events and trends that it believes may affect its financial condition, results of operations, strategy, short-term and long-term business operations, and objectives and financial needs. These forward-looking statements are subject to various risks, uncertainties, and assumptions, as described in the company's Form 10-K file with the U.S. Securities and Exchange Commission on March 31, 2022. Because of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this conference call may not occur, and actual results could differ materially and adversely from those anticipated and implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although the company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance, or achievements. In addition, neither the company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The company disclaims any duty to update any of these forward-looking statements. All forward-looking statements attributable to the company are expressly qualified in their entirety by these cautionary statements, as well as others made in this conference call. You should evaluate all forward-looking statements made by the company in the context of these risks and uncertainties. With that, I'll now turn the call over to Bruce Rogers. Please go ahead, Bruce.

Thank you, David. Good morning, and thanks to everyone for joining us today. I'd like to begin by saying thank you to all of our investors for your continued support and confidence in the LM funding story. I'm pleased to report that in the third quarter, our Bitcoin mining strategy has taken another step forward as we've been actively mining Bitcoin in September 2022 and have electrified 1,200 of our machines as of November 15th, 2022. The 1,200 machines provide us with a capacity of 120 petahash. We currently believe that by year's end 2022, we will have approximately 2,700 machines electrified and mining Bitcoin, and that our capacity will increase to approximately 270 petash. When we last updated you at the end of the second quarter, we'd anticipated that we would have more than 5,000 miners operational by the fourth quarter of 2022. However, like many others in the industry, we are experiencing issues with one of our third-party hosting companies, Compute North. with whom we had placed nearly 2,700 of our mining machines during the second quarter of 2022. These machines are currently sitting there dormant. We are attempting to regain control of these machines and look for alternative solutions to host these miners. In the third quarter, we opportunistically took advantage of favorable pricing on mining machines and purchased an additional 400 S19J Pro miners and 200 S19XP miners, which we expect to come online between now and March 31st, 2023. We will continue to look for and take advantage of similar opportunities to purchase additional miners when pricing is favorable in order to maximize long-term shareholder value. We would expect that once all of the 5,646 miners that we currently own are electrified in mining, they would provide us with a capacity of approximately 570 petahash. Overall, we continue to believe that the current volatility facing the entire cryptocurrency market is created and will continue to create significant opportunities for us to acquire distressed assets at attractive prices. While the market for Bitcoin may be volatile, the one thing that will not change is our resolve to maintain a disciplined approach of opportunistically purchasing and cost-effectively operating Bitcoin mining machines in order to maximize long-term value for our shareholders. We plan to continue our strategy of hosting with strong credit-worthy third parties. We believe our decision to remain debt-free for now in our strong cash position will serve us well this crypto winter. Regarding our legacy business, providing funding to nonprofit community associations, the business remains relatively unchanged from when we last reported in the second quarter. Our priority going forward continues to be Bitcoin mining, which we believe can potentially transform our business for the foreseeable future. As the sponsor and founding shareholder in LMF Acquisition Opportunities, our special purpose acquisition company, SPAC, we are happy to report that the business combination transaction with Seastar Medical was successfully completed on October 28, 2022. We did this at a time when many other SPACs have been unable to complete business combinations prior to SPAC expiration dates. Seastar Medical's business plan is focused on bringing a critical care therapeutic breakthrough to the market. They're a medical technology company that is seeking FDA approval of its proprietary solutions to reduce the consequences of hyperinflammation on vital organs and an innovative immunomodulatory platform for pediatric and adult acute kidney injury, as well as other programs for acute and chronic inflammations, including conditions associated with COVID-19. Prior to C-Star Medical's therapy, patients experiencing inflammation have had only limited options for treatment. This innovative therapy will provide treatment options that not only treat inflammation, but also helps the body heal. Since the closing of the transaction, C-Star Medical has been busy announcing positive interim data from the company's ongoing open-label clinical trial in a poster presentation at the American Society of of Nephrology Kidney Week 2022 in Orlando, Florida. They gave a poster presentation highlighting preliminary findings from the company's ongoing open-label clinical trial being conducted at five pediatric hospitals across the U.S., evaluating their selective cytophoretic device, also known as the SCD, for the treatment of immunomodulatory dysregulation. CSTAR also announced that its SCD has been included in the consensus statement for pediatric acute kidney injury as part of the first Pediatric Acute Disease Quality Initiative meeting, which builds upon the existing support within the pediatric community for this important therapy. The outcome of the meeting, titled Consensus-Based Recommendations on Priority Activities to Address Acute Kidney Injury in Children, has been published in the Journal of the American Medical Association Network Open. In conclusion, we are encouraged about the prospects for Seastar and believe that they are well positioned to accelerate the execution of their business plan, which we believe will create significant value for the LM funding shareholders. At the same time, we are excited about the prospects for our Bitcoin mining strategy. As we continue to electrify machines and mine Bitcoin, we expect to reinvest the net proceeds of our mined Bitcoin back into the business to buy more miners. further accelerating our business plan. We close the quarter with a strong balance sheet, cash of $10.2 million, working capital of $15.5 million, and no long-term debt. This provides us with a solid foundation and the ability to further invest and drive returns from our Bitcoin mining operations. We continue to be surprised by the disconnect between our stockholders' equity of $62.2 million as of September 30, 2022, which equates to $4.75 per outstanding share, and the price where our shares are currently trading at just 78 cents a share. Our plan is to increase our investor outreach in the future by supplementing our quarterly earnings calls with an increasing number of presentations to investors at upcoming conferences, which will be announced. On that note, I would like to turn the call over to Rick Russell, Chief Financial Officer of LM Funding, who will review the financial results for the three-month period ending September 30, 2022. Rick?

Thanks, Bruce, and good morning, everyone. Revenues for the three-month ended September 30, 2022 totaled $188,000 compared to $224,000 for the three-month ended September 30, 2021, which reflects our shift in focus to Bitcoin mining. Our revenues for the three months ended September 30th, 2022 included 42,000 digital mining revenues as we mined our first Bitcoins during the period. However, because our mining activities didn't commence until late in the quarter, our mining revenues did not have meaningful impact on the quarter's results of operations. Operating expenses totaled $5.5 million for the three months ended September 30th, 2022, compared to $2.4 million for the three months ended September 30th, 2021. The $3.1 million increase is primarily attributable to a $3.6 million increase in non-cash stock compensation, as well as increases in professional fees and other operating expenses as compared to the third quarter of 2021. With three months ended September 30, 2022, the net loss attributed to LSA shareholders was $6.6 million, compared to $5.5 million for three months ended September 30, 2021. Net income in the third quarter of 2022 included an unrealized loss on investment equity securities of $194,000 related to the company's interest in LMF acquisition opportunities. Turning to our balance sheet, as Bruce mentioned earlier, we ended the quarter with $10.2 million of cash and $15.5 million of working capital, which we believe provides sufficient liquidity to execute on our current Bitcoin mining strategy. In addition, we have no long-term debt and ended the quarter with stockholders' equity of $62.2 million, or $4.75 per share. Finally, net cash used by operations was $1.7 million during the nine months ended September 3, 2022, compared to net cash provided by operations of $5.3 million during the nine months ended September 3, 2021. This change in cash provided by operating activities was primarily the result of a non-recurring $14 million in realized gain securities from the Bork's Note transaction during the nine-month period ended September 30, 2021. That completes our prepared remarks. I will now like to open the call for questions. Operator, could you please assist us with that?

Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Thank you. Our first question is coming from Matthew Galinko with Maxon Group. Please go ahead.

Hi, thanks for taking my question and congrats on starting to mine Bitcoin. Can we start with You seem confident that you'll get the remaining miners up and running by the end of the year. Can you go a little bit further into how much of that is in your control and what can you do to make that happen?

Interesting question, Matt. Yeah, what's in our control? In our control are the miners that we have purchased and sent to core, and then the ones we still have coming in on delivery schedules. What's not in our control presently are the miners at Compute North, and we have filed several different approaches to addressing that, and we do not have resolution to that. We're not projecting when the miners at Compute North will come online until we have established some level of control where I can meaningfully tell you what that's going to be.

Got it. Okay. That makes sense.

Outside of... I guess your current equipment that's mining, did that constitute everything you've sent to core?

You mean as we had about 800 and some odd machines at the end of September, the other machines we've put in place through today is I think we said 1,200. The answer is

The number is a hard number that we gave you that has electricity running through them. We have pallets of machines in various trucks. I can't even name how many places right now, but the number we gave you is the firm electrified number. Yes.

Okay. Thanks. So as you have additional machines coming in and, you know, we know that the public challenges, you know, compute north and core are facing, um, What are your alternatives to finding hosting facilities? And does it look like a more fragmented deployment going forward? And I guess talk a little bit about how you manage the challenge of going to more disparate facilities.

You're exactly right. It's very fragmented, 200 here, 300 there, different facilities. Being half full on that, it gives us more geographic flexibility. more power differentiation. There's a lot of benefits to being spread all out. It's a lot of tracking and a lot of hunting and finding places. The meltdown in DeFi has touched all of the Bitcoin world as well, and there's racks that are in various stages of bankruptcy, liquidation, Coming available, machines coming available, can you trade machines that are on racks for machines in boxes now? It's a very dynamic operating environment for the guys manning the phones.

Thanks. Okay, last question before I jump back in the queue. Given that you do have a cash position and In your words, a lot of distressed, I guess, stuff out there. How much cash do you need to operate and mine at this point? And how do you think about your capital structure as you see inexpensive or distressed assets kind of in your crypto wheelhouse as you move into 2023?

The prices are dropping. So the opportunities are there to move. It's just when, where are you going to find the bottom of the market? We, because of the compute North situation, we need to protect our cash because we, we do not have those machines electrified. Once they're electrified depends on the price of Bitcoin, obviously, but at current prices, we should be throwing off cash and able to then look at, at our building cash for sure to deploy. And then how much of the 10 and 15 million numbers are we talking about that we want to deploy? I think that's pretty much the summation of what I wanted to say.

All right. Thank you. I'll jump back in.

Thank you. As there are no further questions in the queue, I will hand it back to management for any closing statements they may have.

Sure. I'd like to thank everyone for participating on our third quarter 2022 conference call. The future is extremely bright for Olympon, and we're excited to have taken the next step on our Bitcoin mining strategy. We have miners actively mining Bitcoin as of November 15, 2022. We've mined our first Bitcoins. We look forward to the momentum continuing as we electrify additional mining machines in the quarters to come. We appreciate the ongoing support of our shareholders and look forward to updating you on our progress and as developments unfold. Thank you.

Thank you, ladies and gentlemen, and this does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. And we thank you for your participation.