Quarterly report pursuant to Section 13 or 15(d)

Subsequent Events

v3.21.2
Subsequent Events
9 Months Ended
Sep. 30, 2021
Subsequent Events [Abstract]  
Subsequent Events

Note 10. Subsequent Events

Public Equity Offering

On October 18, 2021, the Company entered into an Underwriting Agreement with Maxim Group LLC on behalf of itself and as representative of the underwriters named therein (the “Underwriting Agreement”), pursuant to which the Company issued and sold, in an underwritten public offering (the “Public Offering”), 6,315,780 units, with each unit consisting of one share of common stock, $0.001 par value per share (“Common Stock”), and one warrant to purchase one share of Common Stock (the “Common Warrants”). The units were sold to the public at the price of $4.75 per unit.

On October 19, 2021, the Public Offering closed, resulting in gross proceeds to the Company of approximately $30,000,000, before deducting the underwriting discounts and commissions and estimated offering expenses.  The Company also granted to the underwriter a 45-day option to purchase up to an additional 947,367 shares of Common Stock (“Option Shares”) and/or warrants (“Option Warrants”) to purchase up to 947,367 shares of Common Stock (the “Over-Allotment Option”). The underwriter partially exercised the Over-Allotment Option, and the Company thereby issued and sold the additional 947,367 Option Warrants, in a simultaneous closing with the Public Offering on October 19, 2021. On October 20, 2021, the underwriter exercised the remainder of the Over-Allotment Option, and the Company thereby issued and sold the additional 947,367 Option Shares (the “October 20 Over-Allotment Closing”).

The Common Warrants issued in the offering are immediately exercisable and entitle the holder to purchase one share of Common Stock at an exercise price equal to $5.00 and expire on the fifth anniversary of the issuance date. The Common Warrants may be exercised on a cashless basis if there is no effective registration statement available for the resale of the shares of common stock underlying such warrants.

The Company agreed to an underwriting discount of 8% of the public offering price of the Units sold in this offering. In addition, the Company issued to Maxim Group LLC (or its designee) warrants to purchase to purchase an aggregate of 3% of the number of shares of Common Stock sold in the Public Offering, which warrants entitle the holder to purchase up to an aggregate of 217,894 shares of Common Stock after the October 20 Over-Allotment Closing (the “Representative’s Warrants”). The Representative’s Warrants have an exercise price equal to $5.94, which is 110% of the offering price in the Public Offering. The Representative’s Warrants may be exercised on a cashless basis and will be exercisable six months following the closing date until April 16, 2025.

Material Contracts

On October 6, 2021, the Company entered into a sale and purchase agreement (the “Second Bitmain Purchase Agreement”) with Bitmain Technologies Limited (“Seller”) pursuant to which the Company agreed to purchase, and Seller agreed to supply to the Company, an aggregate of 4,044 Bitcoin S19J Pro Antminer cryptocurrency mining machines for an aggregate purchase price of $25.3 million (the “Mining Machines”).  The Second Bitmain Purchase Agreement provides for delivery of the Mining Machines in batches over an estimated delivery timeframe starting in April 2022 and continuing through September 2022.  The Second Bitmain Purchase Agreement requires the Company to pay a non-refundable deposit of $6.3 million or 25% of the total purchase price for the Mining Machines within 7 days of the date of the signing of the Second Bitmain Purchase Agreement, 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.  The Purchase Agreement contains other customary terms, provisions, and conditions. The Company paid the $6.3 million deposit on October 15, 2021.

On October 6, 2021, US Digital, our wholly-owned subsidiary 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 Uptimeagreed 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 $3,125,000 of which 75% or $2.3 million is due as a non-refundable down payment within 7 business days of the effective date of the Uptime Purchase Agreement and the remaining 25% is due within five business days after US Digital delivers a “notice of completion” of the equipment. The Uptime Purchase Agreement contains other customary terms, provisions, and conditions. The $2.3 million down payment was paid on October 15, 2021.

US Digital also entered into a hosting agreement (“Hosting Agreement”) with Uptime Hosting LLC 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.

On November 4, 2021, LM Funding America, Inc. (the “Company”) entered into strategic alliance agreements (the “Strategic Alliance Agreements”) with each of OTC Miners Corp. (“OTC Miners”) and Spartan Crest Capital Corp. (“Spartan”).  The Strategic Alliance Agreements generally provide that OTC Miners and Spartan will work together with the Company and collaborate with the Company regarding the Company’s cryptocurrency mining business strategy and planned business operations.  The agreements contemplate that each of OTC Miners and Spartan will provide ongoing consulting and advisory services to the Company on a non-exclusive basis over a one-year period with respect to the bitcoin mining business and industry and that the parties will meet periodically to collaborate and share information regarding the industry, the equipment used in the industry, key industry relationships, and financing options.  In consideration of the strategic alliances and related services and benefits, the Company will issue 100,000 shares of restricted common stock to each of OTC Miners and Spartan and will pay OTC Miners $1,250,000 to cover anticipate expenses of OTC Miners in connection with its activities under the strategic alliance.  The Company also agreed to pay OTC Miners a fee of 3% of the aggregate consideration of any strategic transaction completed by Company that the Company and OTC Miners jointly agree to pursue.  The Strategic Alliance Agreements have a term of one year each.

 

2021 Omnibus Incentive Plan

On October 27, 2021, the Board of Directors (the “Board”) of LM Funding America, Inc. (the “Company”, “we”, or “our”) adopted the LM Funding America, Inc. 2021 Omnibus Incentive Plan (the “Plan” or the “2021 Omnibus Plan”).  The Plan authorizes the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to our employees and any of our parent and subsidiary corporations’ employees, and the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to our employees, directors and consultants and any of our future subsidiary corporations’ employees and consultants.  

The Plan became effective on October 27, 2021, provided that no options or stock appreciation rights granted under the Plan will be exercisable and no shares or restricted stock units may be granted under the Plan unless and until the Plan has been approved by the stockholders of the Company, which approval must occur on or within twelve (12) months of the date on which the Plan became effective.  Upon the adoption of the Plan, the Board terminated the LM Funding America, Inc. 2015 Omnibus Incentive Plan, provided that such plan will continue to govern outstanding awards previously made under such plan.

 

Management Employment Contracts

On October 27, 2021, the Company and Bruce Rodgers entered into an Amended and Restated Employment Agreement under which Mr. Rodgers will continue to serve as the Chief Executive Officer of the Company (the “Rodgers Employment Agreement”).  The Rodgers Employment Agreement provides for an annual base salary of $750,000, and it provides that Mr. Rodgers may be granted annual bonuses at the discretion of the Board of Directors and may participate in the Company’s equity incentive plans on the same terms as other senior executives.  The agreement also provides that, in consideration of the Company’s failure to make quarterly stock

grants to Mr. Rodgers as provided in his prior employment agreement, the Company will grant to Mr. Rodgers 48,662 fully vested restricted shares under the 2021 Omnibus Plan upon the approval of the 2021 Omnibus Plan by the Company’s stockholders. Under the Rodgers Employment Agreement, Mr. Rodgers is entitled to participate in all of the Company’s pension, life insurance, health insurance, disability insurance and other benefit plans on the same basis as the Company’s other employee officers participate.  The agreement also provides for a $15,000,000 lump-sum cash bonus upon any change of control (as defined in the agreement) during the term of the agreement that does not involve a sale of the Company, or a bonus of 2% of the transaction value if the change of control is a Company Sale, and all unvested restricted shares will vest upon a change of control.  The term of the Rodgers Employment Agreement is through September 30, 2023 and is automatically renewed each year unless notice of non-renewal is provided by the Company or Mr. Rodgers at least 30 days prior to the renewal date. Mr. Rodgers will receive the base salary due under the employment agreement for a period of 36 months after termination if terminated “without cause” (including a non-renewal of the agreement by the Company) or he terminates his own employment for a “good reason event”, as those terms are defined in the agreement, in addition to any accrued bonus as of the termination date and the accelerated vesting of any unvested options and other equity awards. Mr. Rodgers’ employment agreement contains certain non-competition covenants and confidentiality provisions.  

 

On October 27, 2021, the Company and Richard Russell entered into an Amended and Restated Employment Agreement under which Mr. Russell will continue to serve as the Chief Financial Officer of the Company (the “Russell Employment Agreement”).  The Russell Employment Agreement provides for an annual base salary of $500,000, and it provides that Mr. Russell may be granted annual bonuses at the discretion of the Board of Directors and may participate in the Company’s equity incentive plans on the same terms as other senior executives.  The agreement also provides that, in consideration of the Company’s failure to make quarterly stock grants to Mr. Russell as provided in his prior employment agreement, the Company will grant to Mr. Russell 25,279 fully vested restricted shares under the 2021 Omnibus Plan upon the approval of the 2021 Omnibus Plan by the Company’s stockholders. Under the Russell Employment Agreement, Mr. Russell is entitled to participate in all of the Company’s pension, life insurance, health insurance, disability insurance and other benefit plans on the same basis as the Company’s other employee officers participate.  The agreement also provides for a $10,000,000 lump-sum cash bonus upon any change of control (as defined in the agreement) during the term of the agreement that does not involve a sale of the Company, or a bonus of 2% of the transaction value if the change of control is a Company, an all unvested restricted shares will vest upon a change of control.  The term of the Russell  Employment Agreement is through September 30, 2023 and is automatically renewed each year unless notice of non-renewal is provided by the Company or Mr. Russell at least 30 days prior to the renewal date. Mr. Russell will receive the base salary due under the employment agreement for a period of 36 months after termination if terminated “without cause” (including a non-renewal of the agreement by the Company) or he terminates his own employment for a “good reason event”, as those terms are defined in the agreement, in addition to any accrued bonus as of the termination date and the accelerated vesting of any unvested options and other equity awards. Mr. Russell’s employment agreement contains certain non-competition covenants and confidentiality provisions.  

 

On October 27, 2021, the Company and Ryan Duran entered into an Employment Agreement under which Mr. Duran will serve as the Executive Vice President of Operations of the Company (the “Duran Employment Agreement”).  The Duran Employment Agreement provides for an annual base salary of $175,000, and it provides that Mr. Duran may be granted annual bonuses at the discretion of the Board of Directors and may participate in the Company’s equity incentive plans on the same terms as other senior executives.  The agreement provides that Mr. Duran is entitled to participate in all of the Company’s pension, life insurance, health insurance, disability insurance and other benefit plans on the same basis as the Company’s other employee officers participate.  The term of the Duran Employment Agreement is through September 30, 2023 and is automatically renewed each year unless notice of non-renewal is provided by the Company or Mr. Duran at least 30 days prior to the renewal date. Mr. Duran will be entitled to a lump sum severance payment of three times his base salary if he is terminated “without cause” (including a non-renewal of the agreement by the Company) or he terminates his own employment for a “good reason event”, as those terms are defined in the agreement, in addition to any accrued bonus as of the termination date and the accelerated vesting of any unvested options and other equity awards. Mr. Duran’s employment agreement contains certain non-competition covenants and confidentiality provisions.  

 

On October 28, 2021, options to purchase 1,800,000 shares, 1,800,000 shares, and 175,000 shares of common stock were granted to Bruce Rodgers, Richard Russell, and Ryan Duran, respectively. The options were granted under the 2021 Omnibus Plan, have an exercise price of $5.95 per share (the closing price of our common stock on October 27, 2021), and will not be exercisable unless our stockholders approve the 2021 Omnibus Plan within one year of the adoption of the Plan.  The options otherwise vest as to one-third of the option shares on the first anniversary of the date of grant and as to one-thirty sixth (1/36th) of the option shares on a monthly basis thereafter, provided that the executive is in continuous employment or service to the Company through the applicable vesting date.  Unvested options will vest on an accelerated basis upon a change of control of the Company (as defined in 2021 Omnibus Plan) or upon our common stock achieving a $12.00 closing price for ten consecutive trading days.  The options will expire 10 years from the date of grant and otherwise generally terminate early within 90 days after a termination of employment (or 12 months due to death or disability).