Note 5: Investment in Equity Interest

On December 1, 2021, the Company completed a $6.8 million investment in YFE. In exchange for $3.4 million in cash and 2,281,269 shares of the Company’s common stock (valued at approximately $3.4 million), the Company received 3,000,000 shares of YFE’s common stock.

Following the initial equity investment in YFE during the fourth quarter of 2021, the Company participated in a mandatory tender offer for the remaining publicly traded shares held by YFE shareholders. Upon the expiration of the offer on February 14, 2022, the Company purchased an additional 2,637,717 shares of YFE at 2.00 EUROS per share or $5.7 million in the aggregate. On March 9, 2022, bonds held by YFE shareholders, were converted into 2,574,000 shares of YFE common stock, 304,631 of which were purchased by the Company at 2.00 EUROS per share, or $0.6 million. On April 5, 2022, the Company exercised its subscription rights to purchase an additional 914,284 shares of YFE’s common stock at 3.00 EUROS per share, or $2.7 million, increasing the number of YFE’s outstanding shares to 6,857,132 and the Company’s ownership in YFE to 49.2% as of June 30, 2022.

The Company has elected to apply the fair value option for its investment in YFE (Level 1) as YFE is a publicly traded company on the Frankfurt Exchange, therefore its trading price is readily available and relied upon by investors. The Company recognizes changes in the fair value of its investment in YFE as unrealized gains (losses), net in the accompanying consolidated statements of operations with other income (loss), net.

The Company revalues the investment in YFE securities as of the end of each reporting period. During the three months and six months ended June 30, 2022, the Company recorded a loss of $2.5 million and a gain of $2.9 million, respectively, within other income (loss) on the Company’s condensed consolidated statement of operations, net of a $1.1 million loss and a $1.3 million loss, respectively, due to the change in the foreign currency translation rate during the three and six months ended June 30, 2022, respectively.

Wow has a 63% membership interest in Ratchet Productions, LLC ("RPLLC"), a privately-owned company registered in Colorado. Wow accounts for its interest using the equity method of accounting. Prior to the Wow Acquisition, in 2016, Wow determined that its investment in RPLLC was impaired and reduced its investment to $0. As the investment has been $0, and remains as such, there has been no impact on the Company’s financial statements for the membership interest in RPLLC.