10-Q
falseQ10000880631--12-31P5DP5DP5DP10D0.1The payout on PRSUs vesting in January 2022 was zero.In January 2022, an audit of ManJer’s tax returns (a Jersey-based subsidiary) for the years ended December 31, 2014, 2016, 2017 and 2018 were resolved in favor of ManJer. The settlement, as well as the reduction in unrecognized tax benefits from the lapse of the statute of limitations totaling $19,897 during the three months ended March 31, 2022, was recorded as an income tax benefit with an equal and offsetting amount recorded in other losses, net, to recognize a reduction in the indemnification asset. During the three months ended March 31, 2021, an income tax benefit of $5,171 was recorded along with an equal and offsetting amount in other losses, net.The gross unrecognized tax benefits were accrued in British pounds.Excludes 15,521 participating securities and 31 potentially dilutive non-participating common stock equivalents for the three months ended March 31, 2022 as the Company reported a net loss for the period (shares herein are reported in thousands). Advisory fees previously reported have been revised due to an immaterial error correction. These revisions had no effect on previously reported net income. 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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
    
    
        
    
to
    
        
    
    
.
Commission File Number
001-10932
 
 
WisdomTree Investments, Inc.
(Exact name of registrant as specified in its charter)



Delaware
 
13-3487784
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
   
250 West 34
th
Street
3
rd
Floor
New York, New York
 
10119
(Address of principal executive offices)
 
(Zip Code)
212-801-2080
(Registrant’s telephone number, including area code)
230 Park Avenue, 3
rd
Floor West
New York, NY 10169
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, $0.01 par value
Preferred Stock Purchase Rights
 
WETF
 
The NASDAQ Stock Market LLC
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.

Large accelerated filer      Accelerated filer  
       
Non-accelerated
filer
     Smaller reporting company  
       
         Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
As of April 21, 2022,
there were
 
146,560,232 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.
 
 
 

Table of Contents
WISDOMTREE INVESTMENTS, INC.
Form
10-Q
For the Quarterly Period Ended March 31, 2022
TABLE OF CONTENTS
 
PART I:
       4  
ITEM 1.
       4  
ITEM 2.
       32  
ITEM 3.
       46  
ITEM 4.
       47  
PART II:
       48  
ITEM 1.
       48  
ITEM 1A.
       48  
ITEM 2.
       48  
ITEM 3.
       48  
ITEM 4.
       48  
ITEM 5.
       48  
ITEM 6.
       49  
Unless otherwise indicated, references to “the Company,” “we,” “us,” “our” and “WisdomTree” mean WisdomTree Investments, Inc. and its subsidiaries.
WisdomTree
®
and Modern Alpha
®
are trademarks of WisdomTree Investments, Inc. in the United States and in other countries. All other trademarks are the property of their respective owners.
 
2

Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect our results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in the section entitled “Risk Factors” included in Amendment No. 1 on Form
10-K/A
to our Annual Report on Form
10-K
for the fiscal year ended December 31, 2021. If one or more of these or other risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Report and the documents that we reference in this Report and have filed with the Securities and Exchange Commission, or the SEC, as exhibits to this Report, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.
In particular, forward-looking statements in this Report may include statements about:
 
   
the ultimate duration of the
COVID-19
pandemic, or the war in Ukraine, and its short-term and long-term impact on our business and the global economy;
 
   
anticipated trends, conditions and investor sentiment in the global markets and exchange traded products, or ETPs;
 
   
anticipated levels of inflows into and outflows out of our ETPs;
 
   
our ability to deliver favorable rates of return to investors;
 
   
competition in our business;
 
   
whether we will experience future growth;
 
   
our ability to develop new products and services and their success;
 
   
our ability to maintain current vendors or find new vendors to provide services to us at favorable costs;
 
   
our ability to successfully implement our digital assets strategy, including WisdomTree Prime
, and achieve its objectives;
 
   
our ability to successfully operate and expand our business in
non-U.S.
markets; and
 
   
the effect of laws and regulations that apply to our business.
The forward-looking statements in this Report represent our views as of the date of this Report. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this Report.
 
3

Table of Contents
PART I: FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
 
 
  
March 31,

2022
 
 
December 31,
2021
 
Assets
  
(unaudited)
 
 
 
 
Current assets:
  
 
Cash and cash equivalents
   $ 110,395     $ 140,709  
Securities owned, at fair value (including $15,769 and $18,526 invested in WisdomTree ETFs at March 31, 2022 and
December 31, 2021, respectively)
     133,846       127,166  
Accounts receivable (including
 
$25,743
 
and $25,628 due from related parties at March 31, 2022 and December 31, 2021, respectively)
     35,191       31,864  
Prepaid expenses
     6,177       3,952  
Income taxes receivable
     244        
Other current assets
     327       276  
    
 
 
   
 
 
 
Total current assets
     286,180       303,967  
Fixed assets, net
     559       557  
Indemnification receivable (Note 20)

     1,452       21,925  
Securities
held-to-maturity
     290       308  
Deferred tax assets, net
     3,734       8,881  
Investments (Note 7)

     20,938       14,238  
Right of use assets—operating leases (Note 12)

     424       520  
Goodwill (Note 22)

     85,856       85,856  
Intangible assets (Note 22)

     601,247       601,247  
Other noncurrent assets
  
 
357
 
 
 
361
 
 
  
 
 
 
 
 
 
 
Total assets
  
$
1,001,037
 
 
$
1,037,860
 

  
 
 
 
 
 
 
 
Liabilities and stockholders’ equity
  
 
 
 
 
 
 
 
Liabilities
                
Current liabilities:
                
Fund management and administration payable
   $ 23,795     $ 20,661  
Compensation and benefits payable
     8,986       32,782  
Deferred consideration—gold payments (Note 9)

     17,882       16,739  
Operating lease liabilities (Note 12)

     244       209  
Income taxes payable
           3,979  
Accounts payable and other liabilities
     15,979       9,297  
    
 
 
   
 
 
 
Total current liabilities
     66,886       83,667  
Convertible notes (Note 10)

     319,269       318,624  
Deferred consideration—gold payments (Note 9)
     227,295       211,323  
Operating lease liabilities (Note 12)

     189       328  
Other noncurrent liabilities (Note 20)

     1,452       21,925  
    
 
 
   
 
 
 
Total liabilities
     615,091       635,867  
 
 
 
 
 
 
 
 
 
Preferred stock – Series A
Non-Voting
Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding;
redemption value of $81,207 and $90,741 at March 31, 2022 and December 31, 2021, respectively)
(Note 11)
 
     132,569       132,569  
    
 
 
   
 
 
 
Contingencies (Note 13)

              
Stockholders’ equity
                
Preferred stock, par value $0.01; 2,000 shares authorized:
            
Common stock, par value $0.01; 250,000 shares authorized; issued and outstanding: 146,560 and 145,107 at March 31, 2022 and December 31, 2021, respectively
     1,466       1,451  
Additional
paid-in
capital
     284,421       289,736  
Accumulated other comprehensive income
     196       682  
Accumulated deficit
     (32,706     (22,445
    
 
 
   
 
 
 
Total stockholders’ equity
     253,377       269,424  
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 1,001,037     $ 1,037,860  
    
 
 
   
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
4

Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
 
    
Three Months Ended

March 31,
 
    
2022
   
2021
 
Operating Revenues:
                
Advisory fees
   $ 76,517     $ 70,042  
Other income
     1,851       1,214  
    
 
 
   
 
 
 
Total revenues
     78,368       71,256  
    
 
 
   
 
 
 
Operating Expenses:
                
Compensation and benefits
     24,787       22,627  
Fund management and administration
     15,494       13,947  
Marketing and advertising
     4,023       3,006  
Sales and business development
     2,609       2,145  
Contractual gold payments (Note 9)

     4,450       4,270  
Professional fees
     4,459       2,013  
Occupancy, communications and equipment
     753       1,475  
Depreciation and amortization
     47       252  
Third-party distribution fees
     2,212       1,343  
Other
     1,845       1,571  
    
 
 
   
 
 
 
Total operating expenses
     60,679       52,649  
    
 
 
   
 
 
 
Operating income
     17,689       18,607  
Other Income/(Expenses):
                
Interest expense
     (3,732     (2,296
(Loss)/gain on revaluation of deferred consideration – gold payments (Note 9)

     (17,018     2,832  
Interest income
     794       231  
Impairment (Note 12)

           (303
Other losses, net
     (24,707     (5,893
    
 
 
   
 
 
 
(Loss)/income before income taxes
     (26,974     13,178  
Income tax benefit

     (16,713     (1,969
    
 
 
   
 
 
 
Net (loss)/income
   $ (10,261   $ 15,147  
    
 
 
   
 
 
 
(Loss)/earnings per share—basic
   $ (0.08   $ 0.09  
    
 
 
   
 
 
 
(Loss)/earnings per share—diluted
   $ (0.08   $ 0.09  
    
 
 
   
 
 
 
Weighted-average common shares—basic
     142,782       145,649  
    
 
 
   
 
 
 
Weighted-average common shares—diluted
     142,782       161,831  
    
 
 
   
 
 
 
Cash dividends declared per common share
   $ 0.03     $ 0.03  
    
 
 
   
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
(See Note 2 for revisions made to certain amounts previously reported)
 
5

Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Comprehensive (Loss)/Income
(In Thousands)
(Unaudited)
 
    
Three Months Ended

March 31,
 
    
2022
   
2021
 
Net (loss)/income
   $ (10,261 )
 
  $ 15,147
 
Other comprehensive loss
                
Foreign currency translation adjustment, net of income taxes
     (486     (117
    
 
 
   
 
 
 
Other comprehensive loss
     (486     (117
    
 
 
   
 
 
 
Comprehensive (loss)/income
   $ (10,747 )
 
  $ 15,030
 
    
 
 
   
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
6

Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(In Thousands)
(Unaudited
)
 
 
  
For the Three Months Ended March 31, 2022
 
 
  
Common Stock
 
 
Additional
Paid-In

Capital
 
 
Accumulated
Other

Comprehensive
Income
 
 
Accumulated
Deficit
 
 
Total
 
 
  
Shares
Issued
 
 
Par
Value
 
Balance—January 1, 2022
  
 
145,107
 
 
$
1,451
 
 
$
289,736
 
 
$
682
 
 
$
(22,445
)
 
$
269,424
 
Restricted stock issued and vesting of restricted stock units, net
  
 
2,042
 
 
 
21
 
 
 
(21
 
 
 
 
 
 
 
 
 
Shares repurchased
  
 
(589
 
 
(6
 
 
(3,388
 
 
 
 
 
 
 
 
(3,394
Stock-based compensation
  
 
 
 
 
 
 
 
2,936
 
 
 
 
 
 
 
 
 
2,936
 
Other comprehensive loss
  
 
 
 
 
 
 
 
 
 
 
(486
 
 
 
 
 
(486
Dividends
  
 
 
 
 
 
 
 
(4,842
 
 
 
 
 
 
 
 
(4,842
Net loss
  
 
 
 
 
 
 
 
 
 
 
 
 
 
(10,261
)
 
 
(10,261
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance—March 31, 2022
  
 
146,560
 
 
$
1,466
 
 
$
284,421
 
 
$
196
 
 
$
(32,706
)
 
$
253,377
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
For the Three Months Ended March 31, 2021
 
 
  
Common Stock
 
 
Additional
Paid-In

Capital
 
 
Accumulated
Other

Comprehensive
Income
 
 
Accumulated
Deficit
 
 
Total
 
 
  
Shares
Issued
 
 
Par
Value
 
Balance—January 1, 2021
     148,716     $ 1,487     $ 317,075     $  1,102     $ (53,399   $ 266,265  
Reclassification of equity component related to convertible
notes, net of deferred taxes of
 
$1,022,
upon the
implementation of ASU
2020-06
(Note 10)
    
— 
            (3,682           616       (3,066
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance—January 1, 2021 (as adjusted)
     148,716     $ 1,487     $ 313,393     $ 1,102     $ (52,783   $ 263,199  
Restricted stock issued and vesting of restricted stock units,
net
     1,510       15       (15                  
Shares repurchased
     (490     (5     (2,625                 (2,630
Exercise of stock options, net
     75       1       378                   379  
Stock-based compensation
    
            3,143                   3,143  
Other comprehensive loss
    
                  (117           (117
Dividends
    
                        (4,937     (4,937
Net income
    
                        15,147       15,147  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance—March 31, 2021
     149,811     $  1,498     $  314,274     $ 985     $  (42,573 )   $  274,184  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
7

Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
 
 
  
Three Months Ended

March 31,
 
 
  
2022
 
 
2021
 
Cash flows from operating activities:
  
 
Net (loss)/income
   $ (10,261   $ 15,147  
Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:
                
Loss/(gain) on revaluation of deferred consideration—gold payments
     17,018       (2,832
Advisory and license fees paid in gold, other precious metals and cryptocurrency
     (16,052     (19,757
Deferred income taxes
     5,273       2,904  
Losses on securities owned, at fair value

     5,142       549  
Contractual gold payments
     4,450       4,270  
Stock-based compensation
     2,936       3,143  
Amortization of issuance costs—convertible notes
     645       429  
Amortization of right of use asset
     89       697  
Depreciation and amortization
     47       252  
Impairments
           303  
Other
     163       (235
Changes in operating assets and liabilities:
                
Accounts receivable
     (3,710     290  
Prepaid expenses
     (2,264     (362
Gold and other precious metals
     11,959       14,166  
Other assets
     (52     5  
Fund management and administration payable
     3,199       (1,470
Compensation and benefits payable
     (23,690     (14,245
Income taxes receivable/payable

     (4,228     (1,028
Operating lease liabilities
     (97     (918
Accounts payable and other liabilities
     6,741       982  
    
 
 
   
 
 
 
Net cash (used in)/provided by operating activities
     (2,692     2,290  
    
 
 
   
 
 
 
Cash flows from investing activities:
                
Purchase of securities owned, at fair value
     (25,461     (1,657
Purchase of investments
     (6,863     (5,500
Purchase of fixed assets
     (54     (103
Proceeds from the sale of securities owned, at fair value
     13,639       1,232  
Proceeds from
held-to-maturity
securities maturing or called prior to maturity
     18       38  
    
 
 
   
 
 
 
Net cash used in investing activities
     (18,721     (5,990
    
 
 
   
 
 
 
Cash flows from financing activities:
                
Dividends paid
     (4,842     (4,937
Shares repurchased
     (3,394     (2,630
Proceeds from exercise of stock options
           379  
    
 
 
   
 
 
 
Net cash used in financing activities
     (8,236     (7,188
    
 
 
   
 
 
 
Decrease in cash flow due to changes in foreign exchange rate
     (665     (235
    
 
 
   
 
 
 
Net decrease in cash and cash equivalents
     (30,314     (11,123
Cash and cash equivalents—beginning of year
     140,709       73,425  
    
 
 
   
 
 
 
Cash and cash equivalents—end of period
   $ 110,395     $ 62,302  
    
 
 
   
 
 
 
Supplemental disclosure of cash flow information:
                
Cash paid for taxes
   $ 2,123     $ 1,278  
    
 
 
   
 
 
 
Cash paid for interest
   $
  
    $  
    
 
 
   
 
 
 
NON-CASH
ACTIVITIES
On January 1, 2021, the Company reclassified the equity component related to the convertible notes, net of deferred taxes, reducing accumulated deficit by $616, increasing the carrying value of the convertible notes by $4,088, reducing additional paid in capital by $3,682 and reducing deferred tax liabilities by $1,022, upon the implementation of Accounting Standards Update (“ASU”)
2020-06,
Debt – Debt with Conversion and Other Options
(Note 10).

The accompanying notes are an integral part of these consolidated financial statements
(See Note 2 for reclassifications made to certain amounts previously reported)
 

8

Table of Contents
WisdomTree Investments, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
1. Organization and Description of Business
WisdomTree
Investments, Inc., through its global subsidiaries (collectively, “WisdomTree” or the “Company”), is an exchange-traded product (“ETP”) sponsor and asset manager headquartered in New York. WisdomTree offers ETPs covering equity, commodity, fixed income, leveraged and inverse, currency, cryptocurrency and alternative strategies. The Company has the following wholly-owned operating subsidiaries:
 
   
WisdomTree Asset Management, Inc.
is a New York based investment adviser registered with the SEC, providing investment advisory and other management services to the WisdomTree Trust (“WTT”) and WisdomTree exchange-traded funds (“ETFs”). The WisdomTree ETFs are issued in the U.S. by WTT. WTT is a
non-consolidated
Delaware statutory trust registered with the SEC as an
open-end
management investment company. The Company has licensed to WTT the use of certain of its own indexes on an exclusive basis for the WisdomTree ETFs in the U.S.
 
   
WisdomTree Management Jersey Limited
(“ManJer”) is a Jersey based management company providing management services to seven issuers (the “ManJer Issuers”) in respect of the ETPs issued and listed by the ManJer Issuers covering commodity, currency, cryptocurrency and
leveraged-and-inverse
strategies.
 
   
WisdomTree Multi Asset Management Limited
(“WTMAML”) is a Jersey based management company providing management services to WisdomTree Multi Asset Issuer PLC (“WMAI”) in respect of the ETPs issued by WMAI. WMAI is a
non-consolidated
public limited company domiciled in Ireland.
 
   
WisdomTree Management Limited
(“WML”) is an Ireland based management company providing management services to WisdomTree Issuer ICAV (“WTI”) in respect of the WisdomTree UCITS ETFs issued by WTI. WTI is a
non-consolidated
public limited company domiciled in Ireland.
 
   
WisdomTree UK Limited
(“WTUK”) is a U.K. based company registered with the Financial Conduct Authority currently providing distribution and support services to ManJer, WTMAML and WML.
 
   
WisdomTree Europe Limited
is a U.K. based company which is the legacy distributor of the WMAI ETPs and WisdomTree UCITS ETFs. These services are now provided directly by WTUK. WisdomTree Europe Limited is no longer regulated and does not provide any regulated services.
 
   
WisdomTree Ireland Limited
is an Ireland based company authorized by the Central Bank of Ireland providing distribution services to ManJer, WTMAML and WML.
 
   
WisdomTree Digital Commodity Services, LLC
is a New York based company that has been formed to serve as the sponsor of the WisdomTree Bitcoin Trust and WisdomTree Ethereum Trust, each an ETF currently under review with the SEC.
 
   
WisdomTree Digital Management, Inc.
is a New York based company that has been formed to serve as a
SEC-registered
investment adviser (not yet registered) and will provide investment advisory and other management services to mutual funds including the WisdomTree Digital Trust and the WisdomTree Digital Short-Term Treasury Fund whose shares are secondarily recorded on a blockchain (currently under review with the SEC), and other products.
 
   
WisdomTree Securities, Inc.
is a New York based company that has been formed to operate as a limited purpose broker-dealer (i.e., mutual fund retailer) upon registration with the SEC, FINRA and state regulatory authorities.
2. Significant Accounting Policies
Basis of Presentation
These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and in the opinion of management reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of financial condition, results of operations, and cash flows for the periods presented. The consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
 
9

Table of Contents
Immaterial Correction of an Error – Consolidated Statements of Operations
The presentation of the amount collected on behalf of third parties of $1,574 for the three months ended March 31, 2021 has been revised due to an immaterial error correction. This amount was originally recorded as advisory fee revenue and fund management and administration expense while no such amount should have been recorded in the Consolidated Statements of Operations. The following table summarizes these revisions, which had no effect on previously reported net income:
 
 
  
Three Months
Ended

March 31, 2021
 
Operating Revenues:
  
Advisory fees (previously reported)
   $ 71,616  
Amounts collected on behalf of third parties
     (1,574
    
 
 
 
Advisory fees (as corrected)
   $ 70,042  
 
  
 
 
 
Total revenues (previously reported)
   $ 72,830  
Amounts collected on behalf of third parties
     (1,574
    
 
 
 
Total revenues (as corrected)
   $ 71,256  
 
  
 
 
 
Operating Expenses:
  
     
Fund management and administration (previously reported)
   $ 15,521  
Amounts collected on behalf of third parties
     (1,574
    
 
 
 
Fund management and administration (as corrected)
   $ 13,947  
 
  
 
 
 
Total operating expenses (previously reported)
   $ 54,223  
Amounts collected on behalf of third parties
     (1,574
    
 
 
 
Total operating expenses (as corrected)
   $         52,649  
    
 
 
 
 
  
 
 
 
Reclassifications - Consolidated Statements of Cash Flows
Cash flows from purchasing securities owned, at fair value of $1,657 and selling securities owned, at fair value of $1,232 during the three months ended March 31, 2021 that were not acquired specifically for resale or associated with the Company’s business activities have been reclassified from operating activities to investing activities to conform to the current year’s presentation in the Consolidated Statements of Cash Flows.
The following table summarizes these reclassifications for the three months ended March 31, 2021:
 
 
  
Three Months

Ended

March 31, 2021
 
Consolidated Statements of Cash Flows:
  
Cash Flows from Operating Activities
  
Net cash provided by operating activities (previously reported)
   $ 1,865  
Reclassification of net cash flows from securities purchases and sales
     425  
    
 
 
 
Net cash provided by operating activities (currently reported)
   $         2,290  
Cash Flows from Investing Activities
        
Net cash used in investing activities (previously reported)
   $ (5,565
Reclassification of purchases of securities owned, at fair value

 
 
(1,657
)

Reclassification of proceeds from the sale of securities owned, at fair
value
 
 
1,232
 
Net cash used in investing activities (currently reported)
   $ (5,990
 
  
 
 
 
 
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Consolidation
The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). The usual condition for a controlling financial interest in a VOE is ownership of a majority voting interest. If the Company has a majority voting interest in a VOE, the entity is consolidated. The Company has a controlling financial interest in a VIE when the Company has a variable interest that provides it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company reassesses its evaluation of whether an entity is a VOE or VIE when certain reconsideration events occur.
Segment and Geographic Information
The Company, through its subsidiaries in the U.S. and Europe, conducts business as a single operating segment as an ETP sponsor and asset manager which is based upon the Company’s current organizational and management structure, as well as information used by the chief operating decision maker to allocate resources and other factors.
Foreign Currency Translation
Assets and liabilities of subsidiaries whose functional currency is not the U.S. dollar are translated based on the end of period exchange rates from local currency to U.S. dollars. Results of operations are translated at the average exchange rates in effect during the period. The impact of the foreign currency translation adjustment is included in the Consolidated Statements of Comprehensive Income/(Loss) as a component of other comprehensive (loss)/income.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. Actual results could differ materially from those estimates.
Revenue Recognition
The Company earns substantially all of its revenue in the form of advisory fees from its ETPs and recognizes this revenue over time, as the performance obligation is satisfied. Advisory fees are based on a percentage of the ETPs’ average daily net assets. Progress is measured using the practical expedient under the output method resulting in the recognition of revenue in the amount for which the Company has a right to invoice.
Contractual Gold Payments
Contractual gold payments are measured and paid monthly based upon the average daily spot price of gold (Note 9).
Marketing and Advertising
Mark
e
ting and advertising costs, including media advertising and production costs, are expensed when incurred.
Depreciation and Amortization
Depreciation is provided for using the straight-line method over the estimated useful lives of the related assets as follows:
 
 
Equipment
   3 to 5 years
Leasehold improvements are amortized over the term of their respective leases or service lives of the improvements, whichever is shorter. Fixed assets are recorded at cost less accumulated depreciation and amortization.
Stock-Based Awards
Accounting for stock-based compensation requires the measurement and recognition of compensation expense for all equity awards based on estimated fair values. Stock-based compensation is measured based on the grant-date fair value of the award and is amortized over the relevant service period. Forfeitures are recognized when they occur.
Third-Party Distribution Fees
The Company pays a percentage of its advisory fee revenues based on incremental growth in assets under management (“AUM”), subject to caps or minimums, to marketing agents to sell WisdomTree ETFs and for including WisdomTree ETFs on third-party customer platforms and recognizes these expenses as incurred.
 
11

Table of Contents
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be classified as cash equivalents. The Company maintains deposits with financial institutions in an amount that is in excess of federally insured limits.
Accounts Receivable
Accounts receivable are customer and other obligations due under normal trade terms. The Company measures credit losses, if any, by applying historical loss rates, adjusted for current conditions and reasonable and supportable forecasts to amounts outstanding using the aging method.
Impairment of Long-Lived Assets
The Company performs a review for the impairment of long-lived assets when events or changes in circumstances indicate that the estimated undiscounted future cash flows expected to be generated by the assets are less than their carrying amounts or when other events occur which may indicate that the carrying amount of an asset may not be recoverable.
Securities Owned and Securities Sold, but not yet Purchased (at fair value)
Securities owned and securities sold, but not yet purchased are securities classified as either trading or
available-for-sale
(“AFS”). These securities are recorded on their trade date and are measured at fair value. All equity securities are classified by the Company as trading. Debt securities are classified based primarily on the Company’s intent to hold or sell the security. Changes in the fair value of debt securities classified as trading and AFS are reported in other income and other comprehensive income, respectively, in the period the change occurs. Debt securities classified as AFS are assessed for impairment on a quarterly basis and an estimate for credit loss is provided when the fair value of the AFS debt security is below its amortized cost basis. Credit-related impairments are recognized in earnings with a corresponding adjustment to the security’s amortized cost basis if the Company intends to sell the impaired AFS debt security or it is more likely than not the Company will be required to sell the security before recovering its amortized cost basis. Other credit-related impairments are recognized as an allowance with a corresponding adjustment to earnings. Impairments resulting from noncredit-related factors are recognized in other comprehensive income. Amounts recorded in other comprehensive income are reclassified into earnings upon sale of the AFS debt security using the specific identification method.
Securities
Held-to-Maturity
The Company accounts for certain of its securities as
held-to-maturity
on a trade date basis, which are recorded at amortized cost. For
held-to-maturity
securities, the Company has the intent and ability to hold these securities to maturity and it is not
more-likely-than-not
that the Company will be required to sell these securities before recovery of their amortized cost bases, which may be maturity.
Held-to-maturity
securities are placed on
non-accrual
status when the Company is in receipt of information indicating collection of interest is doubtful. Cash received on
held-to-maturity
securities placed on
non-accrual
status is recognized on a cash basis as interest income if and when received.
The Company reviews its portfolio of
held-to-maturity
securities for impairment on a quarterly basis, recognizing an allowance, if any, by applying an estimated loss rate after consideration for the nature of collateral securing the financial asset as well as potential future changes in collateral values and historical loss information for financial assets secured with similar collateral.
Investments in pass-through government-sponsored enterprises (“GSEs”) are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee.
Investments
The Company accounts for equity investments that do not have a readily determinable fair value under the measurement alternative prescribed in Accounting Standards Codification (“ASC”) Topic 321,
Investments – Equity Securities
(“ASC 321”), to the extent such investments are not subject to consolidation or the equity method. Under the measurement alternative, these financial instruments are carried at cost, less any impairment (assessed quarterly), plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. In addition, income is recognized when dividends are received only to the extent they are distributed from net accumulated earnings of the investee. Otherwise, such distributions are considered returns of investment and are recorded as a reduction of the cost of the investment.
Investments in debt instruments are accounted for at fair value, with changes in fair value reported in other income.
Goodwill
Goodwill is the excess of the purchase price over the fair values of the identifiable net assets at the acquisition date. The Company tests goodwill for impairment at least annually and at the time of a triggering event requiring
re-evaluation,
if one were to occur. Goodwill is considered impaired when the estimated fair value of the reporting unit that was allocated the goodwill is less than
 
12

Table of Contents
its carrying value. If the estimated fair value of such reporting unit is less than its carrying value, goodwill impairment is recognized based on that difference, not to exceed the carrying amount of goodwill. A reporting unit is an operating segment or a component of an operating segment provided that the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component.
Goodwill is allocated to the Company’s U.S. business and European business components. For impairment testing purposes, these components are aggregated as a single reporting unit as they fall under the same operating segment and have similar economic characteristics.
Goodwill is assessed for impairment annually on November 30
th
. When performing its goodwill impairment test, the Company considers a qualitative assessment, when appropriate, and a quantitative assessment using the market approach and its market capitalization when determining the fair value of the reporting unit.
Intangible Assets
Indefinite-lived intangible assets are tested for impairment at least annually and are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are impaired if their estimated fair values are less than their carrying values.
Finite-lived intangible assets, if any, are amortized over their estimated useful life, which is the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the Company. These intangible assets are tested for impairment at the time of a triggering event, if one were to occur. Finite-lived intangible assets may be impaired when the estimated undiscounted future cash flows generated from the assets are less than their carrying amounts.
The Company may rely on a qualitative assessment when performing its intangible asset impairment test. Otherwise, the impairment evaluation is performed at the lowest level of reasonably identifiable cash flows independent of other assets. The annual impairment testing date for all of the Company’s intangible assets is November 30
th
.
Leases
The Company accounts for its lease obligations in accordance with ASC Topic 842,
Leases
(
“ASC 842”
)
, which requires the recognition of both (i) a lease liability equal to the present value of the remaining lease payments and (ii) an offsetting
right-of-use
asset. The remaining lease payments are discounted using the rate implicit in the lease, if known, or otherwise the Company’s incremental borrowing rate. After lease commencement,
right-of-use
assets are assessed for impairment and otherwise are amortized over the remaining lease term on a straight-line basis. These recognition requirements are not applied to short-term leases which are those with a lease term
of
 12
months or less. Instead, lease payments associated with short-term leases are recognized as an expense on a straight-line basis over the lease term.
ASC 842 also provides a practical expedient which allows for consideration in a contract to be accounted for as a single lease component rather than allocated between lease and
non-lease
components. The Company has elected to apply this practical expedient to all lease contracts, where applicable.
Deferred Consideration – Gold Payments
Deferred consideration represents the present value of an obligation to pay gold to a third party into perpetuity and is measured using forward-looking gold prices observed on the CMX exchange, a selected discount rate and perpetual growth rate (Note 9). Changes in the fair value of this obligation are reported as (loss)/gain on revaluation of deferred consideration – gold payments in the Consolidated Statements of Operations.
Convertible Notes
Convertible notes are carried at amortized cost, net of issuance costs. In accordance with Accounting Standards Update (“ASU”)
2020-06
Debt – Debt with Conversion and Other Options
, the Company accounts for convertible instruments as a single liability (applicable to the convertible notes) or equity with no separate accounting for embedded conversion features unless the conversion feature meets the criteria for accounting under the substantial premium model or does not qualify for a derivative scope exception. Interest expense is recognized using the effective interest method and includes amortization of issuance costs over the life of the debt.
Contingencies
The Company may be subject to reviews, inspections and investigations by regulatory authorities as well as legal proceedings arising in the ordinary course of business. The Company evaluates the likelihood of an unfavorable outcome of all legal or regulatory proceedings to which it is a party and accrues a loss contingency when the loss is probable and reasonably estimable.
 
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Table of Contents
Contingent Payments
The Company recognizes a gain on contingent payments when the contingency is resolved and the gain is realized.
Earnings per Share
Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Net income available to common stockholders represents net income of the Company reduced by an allocation of earnings to participating securities. The Series A
non-voting
convertible preferred stock (Note 12) and unvested share-based payment awards that contain
non-forfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of EPS pursuant to the
two-class
method. Share-based payment awards that do not contain such rights are not deemed participating securities and are included in diluted shares outstanding (if dilutive).
Diluted EPS is calculated under the treasury stock method and the
two-class
method. The calculation that results in the lowest diluted EPS amount for the common stock is reported in the Company’s consolidated financial statements. The treasury stock method includes the dilutive effect of potential common shares including unvested stock-based awards, the Series A
non-voting
convertible preferred stock and the convertible notes, if any. Potential common shares associated with the Series A
non-voting
convertible preferred stock and the convertible notes are computed under the
if-converted
method. Potential common shares associated with the conversion option embedded in the convertible notes are dilutive when the Company’s average stock price exceeds the conversion price.
Income Taxes
The Company accounts for income taxes using the liability method, which requires the determination of deferred tax assets and liabilities based on the differences between the financial and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is
more-likely-than-not
that some portion or all the deferred tax assets will not be realized.
Tax positions are evaluated utilizing a
two-step
process. The Company first determines whether any of its tax positions are
more-likely-than-not
to be sustained upon examination, based solely on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company records interest expense and penalties related to tax expenses as income tax expense.
The Global Intangible
Low-Taxed
Income (“GILTI”) provisions of the Tax Reform Act requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. An accounting policy election is available to either account for the tax effects of GILTI in the period that is subject to such taxes or to provide deferred taxes for book and tax basis differences that upon reversal may be subject to such taxes. The Company accounts for the tax effects of these provisions in the period that is subject to such tax.
Non-income
based taxes are recorded as part of other liabilities and other expenses.
3. Cash and Cash Equivalents
Of the total cash and cash equivalents of $110,395 and $140,709 at March 31, 2022 and December 31, 2021, respectively, $109,867 and $127,328 were held at two financial institutions. At March 31, 2022 and December 31, 2021, cash equivalents were approximately $449 and $11,488, respectively.
Certain of the Company’s international subsidiaries are required to maintain a minimum level of regulatory capital, which was
$12,602 
and $12,320 at March 31, 2022 and December 31, 2021, respectively. These requirements are generally satisfied by cash on hand.
4. Fair Value Measurements
The fair value of financial instruments is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. ASC 820,
Fair Value Measurement
, establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the transparency of inputs as follows:
 
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Table of Contents
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 – Instruments whose significant drivers are unobservable.
The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The tables below summarize the categorization of the Company’s assets and liabilities measured at fair value. During the three months ended March 31, 2022 and 2021 there were no transfers between Levels 2 and 3.
 
 
  
March 31, 2022
 
 
  
Total
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
Assets:
  
     
  
     
  
     
  
     
Recurring fair value measurements:
  
     
  
     
  
     
  
     
Cash equivalents
   $ 449      $ 449      $      $  
Securities owned, at fair value
                                   
ETFs
     16,035        16,035                
Pass-through GSEs
     115,858        24,503        91,355         
Corporate bonds
     1,953               1,953         
Investments
                                   
Fnality International Limited – convertible note (Note 7)
     6,700                      6,700  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 140,995      $ 40,987      $ 93,308      $ 6,700  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
                                   
Recurring fair value measurements:
                                   
Deferred consideration (Note 9)
   $ 245,177      $      $      $ 245,177  
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
                                 
    
December 31, 2021
 
    
Total
    
Level 1
    
Level 2
    
Level 3
 
Assets:
                                   
Recurring fair value measurements:
                                   
Cash equivalents
   $ 11,488      $ 11,488      $         $     
Securities owned, at fair value
                                   
ETFs
     18,812        18,812                      
Pass-through GSEs
     106,245        24,720        81,525            
Corporate bonds
     2,109                  2,109            
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 138,654      $ 55,020      $ 83,634      $     
    
 
 
    
 
 
    
 
 
    
 
 
 
Non-recurring
fair value measurements:
                                   
Securrency, Inc. – Series A convertible preferred stock
(1)
     8,488                            8,488  
    
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities:
                                   
Recurring fair value measurements:
                                   
Deferred consideration (Note 9)
   $ 228,062      $         $         $ 228,062  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
 
(1)
Fair value of $8,488 and $8,349 determined on June 9, 2021 and March 8, 2021, respectively (Note 7).
Recurring Fair Value Measurements - Methodology
Cash Equivalents (Note
3
)
– These financial assets represent cash invested in highly liquid investments with original maturities of less than 90 days. These investments are valued at par, which approximates fair value, and are classified as Level 1 in the fair value
hierarchy.
 
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Table of Contents
Securities Owned (Note
5
)
– Securities owned are investments in ETFs, pass-through GSEs and corporate bonds. ETFs are generally traded in active, quoted and highly liquid markets and are therefore classified as Level 1 in the fair value hierarchy. Pricing of pass-through GSEs and corporate bonds include consideration given to collateral characteristics and market assumptions related to yields, credit risk and timing of prepayments and are therefore generally classified as Level 2. Pass-through GSE positions invested in through a fund structure with a quoted market price on an exchange are generally classified as Level 1.
Fair Value Measurements classified as Level 3
– The following tables presents a reconciliation of beginning and ending balances of recurring fair value measurements classified as Level 3:
 
 
  
Three Months Ended
March 31,
 
 
  
2022
 
 
2021
 
Fnality International Limited – Convertible note (Note 7)
  
     
 
     
Beginning balance
 
$              
 
 
    $              
Purchases
 
  6,863           
Net unrealized gains/(losses)
(1)
 
  (163         
 
 
 
 
   
 
 
 
Ending balance
 
$ 6,700     $     
 
 
 
 
   
 
 
 
 
 
(1)
Recorded in other losses, net in the Consolidated Statements of Operations.
 
 
  
Three Months Ended
March 31,
 
 
  
2022
 
  
2021
 
Deferred consideration (Note 9)
  
     
  
     
Beginning balance
   $ 228,062      $ 230,137  
Net realized losses
(1)
     4,450        4,270  
Net unrealized losses/(gains)
(2)
     17,018        (2,832
Settlements
     (4,353      (4,429
    
 
 
    
 
 
 
Ending balance
   $ 245,177      $ 227,146  
    
 
 
    
 
 
 
 
 
(1)
Recorded as contractual gold payments expense in the Consolidated Statements of Operations.
 
(2)
Recorded as (loss)/gain on revaluation of deferred consideration – gold payments in the Consolidated Statements of Operations.
5. Securities Owned
These securities consist of the following:
 
Securities Owned
  
March 31,

2022
 
  
December 31,

2021
 
Trading securities
   $ 133,846      $ 127,166  
    
 
 
    
 
 
 
The Company recognized net trading losses on securities owned that were still held at the reporting dates of $
4,316
and $
561
during the three months ended March 31, 2022 and 2021, respectively, which were recorded in other losses, net, in the Consolidated Statements of Operations.
6. Securities
Held-to-Maturity
The following table is a summary of the Company’s securities
held-to-maturity:
 
    
March 31,
2022
    
December 31,
2021
 
Debt instruments: Pass-through GSEs (amortized cost)
   $ 290      $ 308  
    
 
 
    
 
 
 
During the three months ended March 31, 2022 and 2021, the Company received proceeds of $18 and $38, respectively, from
held-to-maturity
securities maturing or being called prior to maturity.
 
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Table of Contents
The following table summarizes unrealized gains, losses and fair value (classified as Level 2 within the fair value hierarchy) of securities
held-to-maturity:
 
    
March 31,
2022
    
December 31,
2021
 
Cost/amortized cost
   $ 290      $ 308  
Gross unrealized gains
     3        13  
Gross unrealized losses
     (5       
    
 
 
    
 
 
 
Fair value
   $ 288      $ 321  
    
 
 
    
 
 
 
An allowance for credit losses was not provided on the Company’s
held-to-maturity
securities as all securities are investments in pass-through GSEs which are determined to have an estimated loss rate of zero due to an implicit U.S. government guarantee.
The following table sets forth the maturity profile of the securities
held-to-maturity;
however, these securities may be called prior to maturity date:
 
    
March 31,
2022
    
December 31,
2021
 
Due within one year
   $      $  
Due one year through five years
             
Due five years through ten years
     32         
Due over ten years
     258        308  
    
 
 
    
 
 
 
Total
   $ 290      $ 308  
    
 
 
    
 
 
 
7. Investments
The following table sets forth the Company’s investments:
 
 
  
March 31, 2022
 
  
December 31, 2021
 
 
  
Carrying
Value
 
  
Cost
 
  
Carrying
Value
 
  
Cost
 
Securrency, Inc. – Series A convertible preferred stock
   $ 8,488      $ 8,112      $ 8,488      $ 8,112  
Securrency, Inc. – Series B convertible preferred stock
     5,500        5,500        5,500        5,500  
    
 
 
    
 
 
    
 
 
    
 
 
 
Subtotal – Securrency, Inc.
   $ 13,988      $ 13,612      $ 13,988      $ 13,612  
Fnality International Limited – convertible note
     6,700        6,863                
Onramp Invest, LLC – Simple Agreement for Future Equity
     250        250        250        250  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
  
$20,938
 
  
$20,725
 
  
$14,238
 
  
$13,862
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Securrency, Inc. – Preferred Stock
The
Company
owns approximately 22% (or 17% on a fully-diluted basis) of the capital stock of Securrency, Inc. (“Securrency”), a developer of institutional-grade blockchain-based financial and regulatory technology, issued as a result of strategic investments totaling $13,612. In consideration of such investments, the Company received 5,178,488 shares
of Series A convertible preferred stock (“Series A Shares”) in December of 2019 and
 2,004,665
shares of Series B convertible preferred stock (“Series B Shares”) in March of 2021. The Series B Shares contain a liquidation preference that is pari passu with shares of Series B-1 convertible preferred stock (which are substantially the same as the Series B Shares except that they have limited voting rights) and senior to that of the holders of the Series A Shares, which are senior to the holders of common stock. Otherwise, the Series A Shares and Series B Shares have substantially the same terms, are convertible into common stock at the option of the Company and contain various rights and protections including a non-cumulative
6.0% dividend, payable if and when declared by the board of directors of Securrency. In addition, the Series A Shares and Series B Shares (together with the Series
B-1
convertible preferred stock) are separately redeemable, with respect to all of the shares outstanding of the applicable series of preferred stock (subject to certain regulatory restrictions of certain investors), for the original issue price thereof, plus all declared and unpaid dividends, upon approval by holders of at least 60% of the Series A Shares (at any time on or after December 31, 2029) and 90% of the Series B Shares (at any time on or after March 31, 2031).
The investment is accounted for under the measurement alternative prescribed in ASC 321, as it does not have a readily
determinable fair value and is not considered to be
in-substance
common stock. The investment is assessed for impairment and similar observable transactions on a quarterly basis. There was no impairment recognized during the three months ended March 31, 2022 based upon a qualitative assessment. On March 8, 2021, the Company recognized a gain of $237 on its Series A Shares, which was
re-measured
to fair value upon the issuance of Securrency’s Series B Shares. Fair value was determined using the backsolve method, a valuation approach that determines the value of shares for companies with complex capital structures based upon the price paid for shares recently issued. Fair value is allocated across the capital structure using the Black-Scholes option pricing model.
 
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Table of Contents
The table below presents the inputs used in backsolve valuation approach (classified as Level 3 in the fair value hierarchy):
 
    
Inputs
 
    
March 8, 2021
 
Expected volatility
     55
Time to exit (in years)
     5.0  
Fnality International Limited – Convertible Note
In February 2022, the Company participated in a convertible note financing, making
a £5,000 ($6,863) investment in Fnality
 
International Limited (“Fnality”),
a company incorporated in England and Wales and focused on creating a
peer-to-peer
digital wholesale settlement ecosystem
 
comprised of a consortium of financial institutions
, offering real time cross-border payments from a single pool of liquidity. In consideration for its investment, the Company was issued a 5% Convertible Unsecured Loan Note maturing on December 31, 2023.
The note is convertible into equity shares in the event of a Qualified Financing Round (as defined in the note instrument) at a conversion price equal to the lower of (i) a discount
 of 20% to
lowest price paid per equity share issued pursuant to such Qualified Financing Round and (ii) an amount paid per share subject to a
pre-money
valuation cap.
The note is redeemable upon the occurrence of a Change of Control (as defined in the note instrument) provided that the amount repaid is the greater of (i) the principal amount and all accrued interest and (ii) the amount that would be received had the note been converted to equity shares immediately prior to the occurrence of the Change of Control. Redemption may also occur at maturity or prior to maturity upon approval by holders of at
least 50% and 75%, respectively, of the outstanding notes.
The note is accounted for at fair value. Fair value is determined by the Company using the probability-weighted expected return method (“PWERM”), a valuation approach that estimates the value of the note assuming various outcomes. The note is also remeasured for changes in the British pound and U.S. dollar exchange rate. During the three months ended March 31, 2022, the Company recognized a loss
of $163 when
re-measuring
the notes to fair value.
The table below presents the probability ascribed to potential outcomes used in the PWERM (classified as Level 3 in the fair value hierarchy):
 
 
  
March 31,

2022
 
Conversion of note upon a Qualified Financing Round
     85
Redemption of note upon a Change of Control
     10
Default
     5
Onramp Invest, LLC – Simple Agreement for Future Equity
In June
 2021, the Company invested $
250
in Onramp Invest, LLC (“Onramp”), a technology company that provides access to cryptoassets for registered investment advisers. In consideration for its investment, the Company holds a Simple Agreement for Future Equity (“SAFE”), which provides the Company with the right to be issued certain shares of Onramp’s preferred stock in connection with Onramp’s future equity financing for preferred stock, at a
20
% discount to the price per share issued in connection with such equity financing, subject to a
pre-determined
valuation cap. The preferred stock is issuable upon the occurrence of such preferred equity financing, which would occur after Onramp’s conversion to a corporation.
The investment is accounted for under the measurement alternative prescribed in ASU
2016-01,
as it does not have a readily determinable fair value and is not considered to be
in-substance
common stock. The investment is assessed for impairment and similar observable transactions on a quarterly basis. There was no impairment recognized during the three months ended March 31, 2022 based upon a qualitative assessment.
8. Fixed Assets, net
The following table summarizes fixed assets:
 
    
March 31,
2022
    
December 31,
2021
 
Equipment
   $ 823      $ 784  
Less: accumulated depreciation and amortization
     (264      (227
    
 
 
    
 
 
 
Total
   $ 559      $ 557  
    
 
 
    
 
 
 
 
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Table of Contents
9. Deferred Consideration
Deferred consideration represents an obligation the Company assumed in connection with its acquisition of the European exchange-traded commodity, currency and leveraged and inverse business of ETFS Capital Limited (“ETFS Capital”) which occurred on April 11, 2018 (“ETFS Acquisition”). The obligation is for fixed payments to ETFS Capital of physical gold bullion equating to 9,500 ounces of gold per year through March 31, 2058 and then subsequently reduced to 6,333 ounces of gold continuing into perpetuity (“Contractual Gold Payments”).
The Contractual Gold Payments are paid from advisory fee income generated by any Company-sponsored financial product backed by physical gold and are subject to adjustment and reduction for declines in advisory fee income generated by such products, with any reduction remaining due and payable until paid in full. ETFS Capital’s recourse is limited to such advisory fee income and it has no recourse back to the Company for any unpaid amounts that exceed advisory fees earned. ETFS Capital ultimately has the right to claw back Gold Bullion Securities Ltd. (a physically backed gold ETP issuer) if the Company fails to remit any amounts due.
The Company determined the present value of the deferred consideration of $245,177 and $228,062 at March 31, 2022 and December 31, 2021 using the following assumptions: 
 
 
  
March 31,
2022
 
 
December 31,
2021
 
Forward-looking gold price (low) – per ounce
   $ 1,958      $ 1,833