Quarterly report pursuant to Section 13 or 15(d)

Investments

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

Note 9. Investments

 

Short-term Investments

Short-term investments consist of a convertible debt investment. The Company entered into an agreement with BORQS Technologies Inc. (“Borqs”) (Nasdaq: BRQS) in February 2021 under which the Company agreed to purchase Senior Secured Convertible Promissory Notes (“Notes”) of Borqs up to an aggregate principal amount of $5 million.  The Company’s purchase of the Notes was a part of a larger transaction in which an aggregate of $20 million in Notes were sold by Borqs in a private transaction to several institutional and individual investors, including the Company.  The Notes become due in February 2023, have an annual interest rate of 8%, are convertible into ordinary shares of Borqs at a 10% discount from the market price, and have 90% warrant coverage (with the warrants exercisable at 110% of the conversion price. The Company received 2,922,078 warrants which had a nominal value on the grant date. One-third of the Notes ($1,666,667) were funded by the Company at the execution of definitive agreements for the transaction, and two-thirds of the Notes ($3,333,333) were purchased and funded upon the satisfaction of certain conditions, including effectiveness of a registration statement that was deemed effective on May 3, 2021 and the Company completed this funding on May 6, 2021.  In June 2021, the Company exercised a cashless exercise of the Borqs warrants and received 5,956,544 common shares of Borqs. The Company subsequently sold those Borqs common shares in June 2021 and recognized $8.5 million in proceeds, all of which was recognized as a realized gain on securities in 2021.

During the three months ended September 30, 2021, the Company converted $4,100,000 of the Borqs convertible note plus accrued interest of $131,760 into 5,960,829 shares. The remaining Borqs convertible note plus accrued interest ($929,195) can be converted into common shares at a conversion price of $0.6534 per share or 1,422,091 shares. The fair value of the convertible note plus accrued interest are based on their classification as trading securities and as such are reported at fair value. As of September 30, 2021 the Company considered the fair value of the Borq convertible note to be equal to the fair value of the stock on September 30, 2021 or $0.592 per share times the number of shares that it could be converted into based on a conversion price of $0.6534 or 1,422,091 shares which have a fair value of $841,878.   As of September 30, 2021, our re-measurement resulted in an unrealized loss of $87,316 and is included within “Unrealized gain on convertible debt security”.  The Company classified the 5,960,829 shares as marketable securities  and subsequently sold 587,530 shares in the nine months ending September 30, 2021

 

 

 

September 30, 2021

 

 

 

(Unaudited)

 

Convertible note

 

$

841,878

 

End of period

 

$

841,878

 

 

 

 

 

 

September 30, 2021

 

 

 

(Unaudited)

 

Beginning of year

 

 

-

 

Investment in convertible debt security

 

$

5,000,000

 

Accrued interest income on convertible debt security

 

 

160,954

 

Convertible debt and interest converted into marketable shares

 

 

(4,231,760

)

Unrealized loss on convertible debt security

 

 

(87,316

)

End of period

 

$

841,878

 

 

The Company entered into a Loan Agreement (the “Investor Loan Agreement”) in December 2020 with a private investor (“Investor”) pursuant to which the Investor agreed to provide consulting services and make one or more non-recourse loans to the Company in a principal amount of up to the purchase price of the Borqs loan receivables purchased by the Company. The Investor Loan Agreement does not provide a fixed rate of interest, and the Company and Investor agreed to split the net proceeds from the Company sales of the settlement shares, with the Company receiving one-third of the net proceeds after a return of Investor’s principal and the Investor receiving return of principal plus two-thirds of the net proceeds thereafter.

 

In the first three months ended March 31, 2021, the Company recognized a $5.7 million gain on the Borqs loan receivables loan transaction in which we acquired $18.2 million of Borqs debt for $15.5 million and converted the debt into Borqs common stock and subsequently sold such shares for $32.6 million, provided $11.3 million to the Investor and realized a $5.7 million gain.

 

Marketable Securities

 

Our marketable equity securities are publicly traded stocks measured at fair value using quoted prices for identical assets in active markets and classified as Level 1 within the fair value hierarchy. Marketable equity securities as of September 30, 2021 and December 31, 2020 are as follows:

 

 

Cost

 

 

Gross Unrealized Gain (Loss)

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable equity securities, September 30, 2021

 

$

3,958,678

 

 

$

(478,448

)

 

$

3,480,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable equity securities, December 31, 2020

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company sold 587,530 shares of Borqs shares for approximately $397,800 and realized a loss of approximately $173,300.

 

Digital Assets, net

 

Digital assets as of September 30, 2021 are as follows:

 

During the nine months ended September 30, 2021, the Company purchased and received an aggregate of $909 thousand in Bitcoin and $511 thousand in Ether cryptocurrency. These digital assets are recorded at cost, net of any impairment losses incurred since acquisition. During the three and nine months ended September 30, 2021, we recorded $24,000 and $24,000, respectively of impairment losses on such digital assets. As of September 30, 2021, the carrying value of our digital assets held was $1.4 million, which reflects cumulative impairments of approximately $24,000. The fair market value of such digital assets held as of September 30, 2021 was $1.4 million. The impairment loss was included within “Impairment loss on digital assets” in the consolidated statements of operations

 

Long-term Investments

 

In connection with LMF Acquisition Opportunities Inc (“LMAO”) initial public offering in January 2021, the Company’s affiliate LMFA Sponsor LLC purchased an aggregate 5,738,000 private placement warrants from LMAO (“Private Placement Warrants”) at a price of $1.00 per whole warrant. Each Private Placement Warrant is exercisable for one share of LMAO’s Class A common stock at a price of $11.50 per share, and as such meets the definition of a derivative as outlined within ASC 815, Derivatives and Hedging. The Private Placement Warrants are recorded at fair value and are classified in long-term "Investments" on the consolidated balance sheet. The fair value of the Private Placement Warrants is classified as level 3 in the fair value hierarchy as the calculation is dependent upon company specific adjustments to the observable trading price of LMAO’s public warrants for lack of marketability and related risk of forfeiture should no business combination occur. Subsequent changes in fair value will be recorded in the income statement during the period of the change. As of September 30, 2021, our re-measurement resulted in an unrealized loss of $3,626,400 and is included within "Unrealized gain (loss) on investment and equity securities" within our consolidated statements of operations.

 

Long-term investments as of September 30, 2021 consist of the following:

 

 

 

 

 

 

 

 

September 30, 2021

 

 

 

 

(Unaudited)

 

 

LMF Acquisition Opportunities Inc. warrants

 

$

2,111,584

 

 

End of period

 

$

2,111,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2021

 

 

 

 

(Unaudited)

 

 

Beginning of year

 

$

-

 

 

Investments in affiliate

 

 

5,738,000

 

 

Unrealized loss on investment in affiliate

 

 

(3,626,416

)

 

End of period

 

$

2,111,584

 

 

 

 

 

 

 

 

 

 Investment in Unconsolidated Affiliates

 

LMF Acquisition Opportunities Inc.

 

The Company is the sponsor of LMF Acquisition Opportunities, Inc. (“LMAO”), a special purpose acquisition company that completed an initial public offering in January 2021.   Prior to LMAO’s initial public offering, LMFA Sponsor LLC (“Sponsor”), a 70% owned subsidiary of the Company, organized and initially capitalized LMAO by a $25,000 purchase of Class B shares par value $0.0001 per share, of LMAO. At the time of the initial public offering of LMAO, Sponsor purchased Private Placement Warrants that allow it to purchase 5,738,000 shares of Class A common stock at an exercise price of $11.50.  The Class B shares and Private Placement Warrants were issued to and are held by Sponsor.  The shares of Class B common stock of LMAO held by Sponsor will automatically convert into shares of LMAO’s Class A common stock on a one-for-one basis at the time of LMAO’s initial business combination and are subject to certain transfer restrictions.

 

The registration statement for LMAO’s initial public offering (the “LMAO IPO”) was declared effective on January 25, 2021 and on January 28, 2021, LMAO consummated the LMAO IPO with the sale of 10,350,000 units (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $103,500,000. The Units trade on the NASDAQ Capital Market under the ticker symbol “LMAOU”. After the securities comprising the units began separate trading on March 18, 2021, the shares of Class A common stock and warrants were listed on NASDAQ under the symbols “LMAO” and “LMAOW,” respectively.  Simultaneously with the closing of the LMAO IPO, LMAO consummated the sale of the Private Placement Warrants at a price of $1.00 per Private Placement Warrant in a private placement to Sponsor generating gross proceeds of $5,738,000.

As a result of the LMAO IPO, we ceased having a controlling financial interest in LMAO as of January 28, 2021Additionally, as our retained investment in LMAO qualifies for equity-method accounting, we were required to remeasure our retained interest in LMAO at fair value and include any resulting adjustments as part of a gain or loss recognized on deconsolidation. The fair value calculation related to our retained interest in LMAO is dependent upon company-specific adjustments applied to the observable trading price of LMAO’s Class A common stock.

 

The Company’s investment in the Sponsor represents 70.5% of the Sponsor’s initial risk capital. The LMAO IPO closed on January 28, 2021 and proceeds from LMAO’s IPO totaled $103.5 million. If LMAO does not complete a business combination within 18 months from the closing of LMAO’s IPO, the proceeds from the sale of the Private Placement Warrants (after LMAO IPO transaction costs) will be used to fund the redemption of the shares sold in the LMAO IPO (subject to the requirements of applicable law), and the private warrants will expire without value. The Sponsor holds approximately 20% of the total common shares (Class A and Class B) in LMAO along with the 5,738,000 Private Placement Warrants. The Sponsor is managed by the Company. The Company has determined that as a result of the LMAO IPO, we ceased having a controlling financial interest in LMAO as of January 25, 2021. The

Company, therefore, accounts for the Sponsor under the equity method of accounting. Additionally, as our retained investment in LMAO qualifies for equity-method accounting, we were required to remeasure our retained interest at fair value and include any resulting adjustments as part of a gain or loss recognized on deconsolidation. The fair value calculation related to our retained interest in LMAO is dependent upon company-specific adjustments applied to both the observable trading price of LMAO’s Class A common stock and the transaction price of the January 28, 2021 and the related risk of forfeiture should LMAO not consummate a business combination. As a result of the remeasurement of our retained interest in LMAO, we recognized for the Nine Months ended September 30, 2021, an unrealized gain on securities of $4.65 million. within our consolidated statements of operations.

 

 

 

September 30, 2021

 

 

 

 

(Unaudited)

 

 

LMF Acquisition Opportunities Inc. common stock

 

$

4,676,130

 

 

End of period

 

$

4,676,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2021

 

 

 

 

(Unaudited)

 

 

Beginning of year

 

$

25,000

 

 

Unrealized gain on initial investment in affiliate

 

 

4,651,130

 

 

End of period

 

$

4,676,130

 

 

 

 

 

 

 

 

The net unrealized gain (loss) on securities from the Company’s investment in LMAO’s Class B shares and warrants totaled ($0.1) million and $1.0 million, respectively for the Three and Nine Months ended September 30, 2021.