Quarterly report pursuant to Section 13 or 15(d)

Subsequent Events

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Subsequent Events
9 Months Ended
Sep. 30, 2018
Subsequent Events [Abstract]  
Subsequent Events

Note 8. Subsequent Events

 

On October 5, 2018, the Company exercised its right to terminate the Purchase Agreement originally entered into on April 2, 2018 with the Investor. The Company also repaid the $500,000 note and accrued interest on October 5, 2018. The Company paid the $200,000 Commitment Fee on November 2, 2018 (see Note 5. Long-Term Debt).

 

On October 30, 2018, LM Funding America, Inc. (the Company) entered into an underwriting agreement (the Underwriting Agreement) with Maxim Group LLC (the Underwriter) with respect to the issuance and sale, in an underwritten public offering (the “Offering”), of (i) 1,005,000 units (the “Units”), with each Unit being comprised of one share of Company common stock, par value $0.001 per share (“Common Stock”), and one warrant to purchase one share of Common Stock (the “Common Warrants”), (ii) 1,495,000 pre-funded units (the “Pre-Funded Units”), with each Pre-Funded Unit being comprised of one pre-funded warrant to purchase one share of Common Stock at an exercise price of $.01 per share (the “Pre-Funded Warrants”) and one Common Warrant. Each Unit was sold for a price of $2.40 per Unit, and each Pre-Funded Unit was sold for a price of $2.39 per Unit.   The shares of Common Stock and Common Warrants included in the Units, and the Common Warrants and Pre-Funded Warrants included in the Pre-Funded Units, were offered together, but the securities included in the Units and Pre-Funded Units are issued separately.

 

Pursuant to the Underwriting Agreement, the Company has granted the Underwriter a 45-day option to purchase up to an additional 375,000 shares of Common Stock and/or Common Warrants and/or Pre-Funded Warrants at price of $2.399999 per shares of Common Stock, $0.000001 per Common Warrant, and $2.389999 per Pre-Funded Unit (the Over-Allotment).

 

Pursuant to the Underwriting Agreement, the Company agreed to issue to the Underwriter warrants (the Underwriter Warrant) to purchase a number of shares of Common Stock equal to an aggregate of 5% of the total number of shares of Common Stock sold in the Offering at an exercise price of $2.64 per share, which is 110% of the public offering price.  The Underwriter Warrant is exercisable for a three-year period beginning six months following the closing of the Offering.  The Underwriter received an underwriting discount equal to 8.0% of the offer price of the aggregate number of Units and Pre-Funded Units sold in the Offering and Over-Allotment. The Company also agreed to reimburse the Underwriter for reasonable out-of-pocket expenses related to the Offering, including, without limitation, the reasonable fees and expenses of counsel to the Underwriter, up to $90,000.

 

The Common Warrants are immediately exercisable at a price of $2.40 per share of Common Stock, subject to adjustment in certain circumstances, and will expire five years from the date of issuance.  The Common Warrants contain a full-ratchet anti-dilution exercise price adjustment upon the issuance of any Common Stock, securities convertible into Common Stock or certain other issuances at a price below the then-existing exercise price of the Common Warrants, with certain exceptions.

 

The Offering closed on November 1, 2018.  A registration statement on Form S-1 relating to the Offering (File No. 333-227203) was declared effective by the Securities and Exchange Commission on October 29, 2018.  The Offering is being made only by means of a prospectus forming a part of the effective registration statement.  Simultaneously with the closing, the Company sold additional Common Warrants to purchase up to 375,000 shares of Common Stock in connection with the partial exercise of the Over-Allotment.  

 

The net proceeds of the Offering are approximately $5.4 million, after deducting the underwriting discounts and commissions and offering expenses and assuming no exercise of the Common Warrants or Underwriter Warrant. The Company intends to use the net proceeds from the Offering for general corporate purposes, including working capital and payment of a past-due $200,000 financing fee to a third-party.  As a result of the Offering, the Company’s stockholders’ equity will exceed $2.5 million and its publicly held shares (i.e., shares not held directly or indirectly by an officer, director, or greater-than-10% of the total shares outstanding) will be approximately 1.1 million shares.

 

On April 2, 2018, the Company issued warrants that allowed for the right to purchase of 40,000 shares of common stock at an exercise price of $6.605 per share. Due to the subsequent issuance of stock and warrants resulting from the Underwriting Agreement, these warrants now have the right to purchase 143,587 shares at an exercise price of $1.84 per share. These warrants have average remaining life of 4.50 years as of September 30, 2018. These warrants expire in the year 2023.

On November 2, 2018, the Company invested part of the proceeds by purchasing a Securities Purchase Agreement (the “IIU SPA”) from IIU Inc. (“IIU”), a possible synergistic Virginia based travel insurance brokerage company controlled by Craven House N.A. (which owns approximately 27% of the Company’s outstanding stock as of November 13, 2018), pursuant to which IIU issued to the Company a Senior Convertible Promissory Note (“IIU Note”) in the original principal amount of $1,500,000 in exchange for a purchase price of $1,500,000.  The maturity date of the Note is 360 dates after the date of issuance (subject to acceleration upon an event of default).  The Note carries a 3.0% interest rate, with accrued but unpaid interest being payable on the Note’s maturity date.  

 

The IIU Note allows the Company the right on or after the maturity date to convert any unpaid principal and accrued and unpaid interest of the IIU Note into shares of IIU based on a conversion amount which is the fair value of the common shares of IIU at the time. The conversion price will be reset if IIU issues or sells common shares, convertibles securities or options at a price per share that is less than the conversion price in effect immediately prior to such issue or sale or deemed issuance or sale of such dilutive issuance.