Business Context and Reporting Period
This Form 8-K is filed by Five Oaks Investment Corp. (not Lument Finance Trust, Inc.) on March 21, 2016. The report addresses a material accounting error regarding the classification of unrealized losses on two Non-Agency RMBS Interest-Only (IO) securities and a separate administrative oversight regarding omitted financial statements for the 2012 pre-IPO period.
Key Financial Metrics and Restatement Impact
The filing details a restatement of previously issued financial statements for the quarters ended June 30, 2015, and September 30, 2015. The error involved reporting unrealized losses through Other Comprehensive Income (OCI) instead of the Statement of Operations. Key impacts include:
- Quarter Ended June 30, 2015: Net income attributable to common stockholders decreases by $232,273 (from $3,162,596 to $2,930,323). Basic and diluted EPS decrease from $0.21 to $0.20.
- Six Months Ended June 30, 2015: Net loss increases by $232,273 (from $2,848,240 to $3,080,513). Loss per share increases from $0.19 to $0.21.
- Quarter Ended September 30, 2015: Net loss increases by $393,685 (from $2,185,546 to $2,579,231). Loss per share increases from $0.15 to $0.18.
- Nine Months Ended September 30, 2015: Net loss increases by $625,958 (from $5,033,786 to $5,659,744). Loss per share increases from $0.34 to $0.38.
- Liquidity and Cash Flow: The restatement has no effect on reported liquidity or cash flows from operating, financing, or investing activities.
Material Changes and Internal Controls
The filing discloses a material weakness in internal controls over financial reporting. The Audit Committee and management determined that internal controls were not effective as of June 30, 2015, September 30, 2015, and December 31, 2015, due to the accounting error. Additionally, disclosure controls and procedures were deemed ineffective as of December 31, 2014, and March 31, 2015, due to an administrative oversight that failed to include financial statements for the period from May 16, 2012, to December 31, 2012, in the 2014 Annual Report.
Guidance, Outlook, and Contingencies
The Company intends to file its 2015 Annual Report on Form 10-K as soon as practicable, which will include the restated financial information in Note 20. Future Quarterly Reports on Form 10-Q for the quarters ended June 30, 2016, and September 30, 2016, will restate comparable prior periods. The previously issued Impacted 10-Qs will not be amended. The filing includes standard forward-looking statement disclaimers regarding risks and uncertainties affecting future business prospects and liquidity.
Investor Verification Checklist
- Verify the upcoming 2015 Form 10-K filing for the restated financial data in Note 20.
- Confirm the revised EPS and net income/loss figures for the 2015 interim periods in future 10-Q filings.
- Review the Company's remediation plan for the identified material weaknesses in internal controls over financial reporting.
- Ensure the 2012 pre-IPO financial statements are properly included in the 2015 10-K.