Is LMFA About To Go Blockchain?

January 26, 2018 at 3:45 am Leave a comment

  • Much chatter about LMFA Pivot to Blockchain
  • Debt for Equity Swap Made Blockchain Investor Esousa a Top Shareholder
  • Esousa Became Top NETE Holder In Months Prior to NETE’s Blockchain Pivot
  • Company Intro In Wednesday’s PR Suggests New Technology Focus
  • Stock Trading Unusually High Volume
  • LMFA Has Tiny Public Float of 1 Million Shares w/ Nearly Half Sold Short

There has been significant chatter recently about LMFA and whether the company might be preparing to pursue blockchain initiatives.  We have done a very deep dive investigating this question, doing everything from reaching out to management to reviewing every message board post, Tweet, Twit and financial article we could find over the last few months that mentions LMFA.

We found quite a few recent mentions of LMFA with a blockchain angle. What we have found can be broken down into two distinct categories:

1) Talk that LMFA is going blockchain in a hard pivot – like RIOT Blockchain (NASDAQ: RIOT) or Long Blockchain (NASDAQ: LBCC), this rumor has LMFA chucking its existing business and starting to pursue some blockchain based business model. It appears that there were rumors of such a move by LMFA back in November and the stock rose from below $2 to $6.65. The stock gave it all back as days went by with no announcement of such a change from the company and no corporate action that would indicate such a pivot might be in the works.

2) More recently there has been chatter about LMFA taking its proprietary software and tweaking it to work with distributed ledger technology (blockchain) to improve several broken real estate transaction processes (for example marking the short sale process more transparent, secure and transformed to a smoother process generally). This would be made available to condo associations and banks, ostensibly opening up the company’s current business to tens of thousands of new customers, potentially growing the business exponentially.

#1 LMFA is arguably a better prospect for a #1 than the several who have done that very thing (see the chart below). It has a much smaller number of publicly held shares than all the others and it has few shares outstanding than all but one. Additionally, the current market value of all publicly traded shares is at a ridiculously cheap sub $2m price tag. Looking at it from this perspective, a hard pivot doesn’t seem that far-fetched.

#2 This talk was interesting in that it seemed reasonable that a small, conservatively run company might start a blockchain initiative like this to build its existing business.

While we have no first hand knowledge of the company moving to do either #1 or #2 above, we did reach out to the company for comment twice over the past 10 days and received no reply. Additionally, we found a number of things that might lead a reasonable person to believe that this company might very well be on the verge of pursuing blockchain initiatives –

1)  NYC based Esousa Holdings LLC, which is known for investing in blockchain pivots acquired all LMFA long term debt outstanding and converted to equity over the last few weeks.

2) Esousa acquired a similar equity stake in Net Element (NASDAQ: NETE) in the months prior to their pivot to blockchain technology in December.

3) NETE is very simliar to LMFA – FL based, Nasdaq listed company with market cap around $10m and float of < 4 million shares.

4) NETE pivot announcement pushed stock from $4 range to $33+ before settling into trading range around $10.

5) The “Master Exchange” to convert LMFA debt to equity was scheduled to price the stock based on formula related to trading price through February 11 (60 days after start date) but Esousa elected to have that changed from 60 to just 15 days less than a week after seeing the pivot announcement push NETE from $4 range to $33+.

6) Company has been unusually silent. We reached out to the company twice over the last 10 days and the company did not respond. This leads us to believe they could be working on something big that they are not quite ready to talk about.

7) The company’s Wednesday press release announcing the Master Exchange Agreement’s completion.  Did you notice that the company’s press release intro line from its prior releases read –
“LM Funding America, Inc., together with its subsidiaries, is a specialty finance company…”

But as of the closing of the deal that made Esousa (the blockchain pivot investor) one of the top shareholders, that intro line now reads

“LM Funding America, Inc., together with its subsidiaries, is a technology-based specialty finance company”.  A small step, but we have to ask what has changed or is changing that makes the company add “technolgy-based” to their intro line?

8) LMFA’s capital structure, status as one of smallest Nasdaq listed market caps available, small number of shares outstanding and tiny public float make it one of the best prospects for a pivot – even cleaner than some of the recent high profile blockchain pivots (RIOT, Long Blockchain, Netease, etc.).

In summary, we think LMFA is tremendously undervalued and possibly on the verge of a pivot that would bring much more attention to the LMFA story. We think the stock is undervalued whether that occurs or not, but if it does we could see the stock moving much higher in a very short time frame due to the limited number of shares that are in the public float to meet a significant uptick in demand. LMFA’s public float (1.01 million shares) is a little less than 1/2 the size of Net Elements’ (NETE) public float, less than 1/4 the size of Long Blockchain’s (NASDAQ: LBCC) public float and less than 1/6th the size of Riot Blockchain’s (NASDAQ: RIOT) float.

Each of these companies saw a huge spike in share buying and prices following their pivot and each had significantly more shares than LMFA to meet that demand. Adding to the share supply shortage is the fact that nearly 1/2 of LMFA’s 1 million share float is already sold short.. These short positions could be subject to forced buy-ins if LMFA surges in value similar to what we saw with NETE, LBCC or RIOT, meaning that brokers would be aggressively bidding to buy shares to cover those positions, battling traders and investors who are buying to establish a long position. If this “perfect storm” of buying emerges LMFA stock could surge to levels few could contemplate in any normalized trading scenario, in which case those investors who buy LMFA shares at current levels could potentially earn very significant double or even triple digit returns.

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LMFA Update – Short Interest and the True Public Float The Opportunity to Buy Remark Holdings On the Cheap

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