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INVESTMENTS - RELATED PARTIES | 3 Months Ended
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Mar. 31, 2021
Investments, Debt and Equity Securities [Abstract] |
INVESTMENTS - RELATED PARTIES | 12. INVESTMENTS – RELATED PARTIES Investments in AVLP, Alzamend Neuro, Inc. (“Alzamend”) and Ault and Company, Inc. (“Ault & Company”) at March 31, 2021 and December 31, 2020, are comprised of the following:
|  | March 31, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
Investment in convertible promissory note of AVLP |  | $ | 13,924,136 |  |  | $ | 11,269,136 |
Short term advance in Alzamend |  |  | - |  |  |  | 750,000 |
Investment in convertible promissory note of Alzamend |  |  | - |  |  |  | 50,000 |
Investment in promissory note of Ault & Company |  |  | 2,500,000 |  |  |  | - |
Accrued interest in promissory notes, related parties |  |  | 2,027,557 |  |  |  | 2,026,812 |
Total investment in promissory notes, related parties – gross |  |  | 18,451,693 |  |  |  | 14,095,948 |
Less: original issue discount |  |  | (1,560,302 | ) |  |  | (3,870 | )
Less: provision for loan losses |  |  | (3,423,608 | ) |  |  | (3,423,608 | )
Total investment in promissory notes, related parties |  |  | 13,467,783 |  |  |  | 10,668,470 |
Investment in derivative instruments of AVLP |  |  | 9,516,024 |  |  |  | 4,986,552 |
Investment in common stock of AVLP |  |  | 819,324 |  |  |  | 499,588 |
Investment in common stock and warrants of Alzamend |  |  | 4,487,091 |  |  |  | 653,251 |
Investments in derivatives and common stock, related parties |  |  | 14,822,439 |  |  |  | 6,139,391 |
Total investments, related parties – net |  | $ | 28,290,222 |  |  | $ | 16,807,861 |
Investments in derivatives and common stock, related parties |  | $ | 14,822,439 |  |  | $ | 6,139,391 |
Investment in promissory notes, related parties |  |  | 13,467,783 |  |  |  | 10,668,470 |
Total investment, related parties – net |  | $ | 28,290,222 |  |  | $ | 16,807,861 |
The following table summarizes the changes in our investments in AVLP, Alzamend and Ault & Company during the three months ended March 31, 2021:
|  |  |  |  | Investment in |  |  |  |
|  | Investment in |  |  | promissory notes |  |  | Total |
|  | warrants and |  |  | and advances |  |  | investment |
|  | common stock |  |  | of AVLP, |  |  | in AVLP, |
|  | of AVLP and |  |  | Alzamend and |  |  | Alzamend and |
|  | Alzamend |  |  | Ault & Company |  |  | Ault & Company, net |
Balance at January 1, 2021 |  | $ | 6,139,391 |  |  | $ | 10,668,470 |  |  | $ | 16,807,861 |
Investment in convertible promissory notes of AVLP |  |  | — |  |  |  | 1,094,698 |  |  |  | 1,094,698 |
Investment in convertible promissory note of Alzamend |  |  | — |  |  |  | (50,000 | ) |  |  | (50,000 | )
Investment in promissory note of Ault & Company |  |  | — |  |  |  | 2,500,000 |  |  |  | 2,500,000 |
Investment in common stock of AVLP and Alzamend |  |  | 3,046,016 |  |  |  | — |  |  |  | 3,046,016 |
Investment in warrants of Alzamend |  |  | 953,984 |  |  |  | — |  |  |  | 953,984 |
Short term advance in Alzamend |  |  | — |  |  |  | (750,000 | ) |  |  | (750,000 | )
Fair value of derivative instruments issued by AVLP |  |  | 1,560,302 |  |  |  | — |  |  |  | 1,560,302 |
Unrealized gain in derivative instruments of AVLP |  |  | 2,969,170 |  |  |  | — |  |  |  | 2,969,170 |
Unrealized loss in warrants of Alzamend |  |  | (13,086 | ) |  |  | — |  |  |  | (13,086 | )
Unrealized gain in common stock of AVLP and Alzamend |  |  | 166,662 |  |  |  | — |  |  |  | 166,662 |
Accretion of discount |  |  | — |  |  |  | 3,870 |  |  |  | 3,870 |
Accrued Interest |  |  | — |  |  |  | 745 |  |  |  | 745 |
Balance at March 31, 2021 |  | $ | 14,822,439 |  |  | $ | 13,467,783 |  |  | $ | 28,290,222 |
Investments in AVLP The Company’s investments in AVLP, a related party controlled by Philou Ventures, LLC (“Philou”), an affiliate of the Company, consist of convertible promissory notes, derivative instruments and shares of AVLP common stock. As of March 31, 2021, loans to AVLP totaled $13.9 million and, in addition to the 12% convertible promissory notes, AVLP has issued to the Company warrants to purchase 27.8 million shares of AVLP common stock at an exercise price of $0.50 per share for a period of five years. The warrants are considered derivative financial instruments. At March 31, 2021, the Company recorded a cumulative unrealized gain on its investment in warrants of AVLP of $1.9 million compared to a cumulative unrealized loss of $1.1 million at December 31, 2020 representing the difference between the cost basis and the estimated fair value of the warrants in the Company’s accumulated other comprehensive income in the stockholder's equity section of the Company’s consolidated balance sheet. During the three months ended March 31, 2021, the Company recognized, in other comprehensive income (loss), net unrealized gain on derivative securities of related party of $3.0 million compared to a net unrealized loss on derivative securities of related party of $1.2 million during the three months ended March 31, 2020. The Company’s investment in AVLP will be revalued on each balance sheet date. The fair value of the Company’s holdings in the AVLP warrants was estimated using the Black-Scholes option-pricing method and the following assumptions:
Exercise price |  | $0.50
Remaining contractual term (in years) |  | 1.68 — 5.0
Volatility |  | 68.7% — $104.6%
Weighted average risk free interest rate |  | 0.13% — 2.98%
Expected dividend yield |  | 0%
The volatility factor was determined based on historical stock prices for similar technology companies with market capitalizations under $100 million. The warrant valuation is a Level 3 measurement. During the three months ended March 31, 2021 and 2020, no interest income was recognized from the Company’s investment in AVLP. The Company evaluated the collectability of both interest and principal for the convertible promissory notes in AVLP to determine whether there was an impairment. Based on current information and events, primarily the value of the underlying conversion feature and current economic events, the Company concluded that an impairment existed. At March 31, 2021, the Company determined that the fair value of the convertible promissory notes in AVLP was $12.5 million. The Company’s determination of fair value was based upon the estimated present value of a future liquidity event combined with the closing price of AVLP’s common stock at March 31, 2021. Impairment assessments require significant judgments and are based on significant assumptions related to the borrower’s credit risk, financial performance, expected sales, and estimated fair value of the collateral. In aggregate, the Company has 999,175 shares of AVLP common stock which represents 18.0% of AVLP’s outstanding shares of common stock. At March 31, 2021, the closing market price of AVLP’s common stock was $0.82, an increase from $0.50 at December 31, 2020. Based upon the closing market price of AVLP common stock at March 31, 2021, the Company’s investment in AVLP common stock had an unrealized gain of $71,000. The Company has determined that AVLP is a variable interest entity (“VIE”) as it does not have sufficient equity at risk. The Company does not consolidate AVLP because the Company is not the primary beneficiary and does not have a controlling financial interest. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, among other factors. Although the Company has made a significant investment in AVLP, the Company has determined that Philou, which controls AVLP through the voting power conferred by its equity investment and which is deemed to be more closely associated with AVLP, is the primary beneficiary. As a result, AVLP’s financial position and results of operations are not consolidated in our financial position and results of operations. Investments in Alzamend At December 31, 2020, the Company had provided Alzamend a short-term advance of $750,000 and invested $50,000 in an 8% convertible promissory note. In conjunction with the issuance of the 8% convertible promissory note, Alzamend issued to the Company warrants to purchase 16,667 shares of Alzamend common stock at an exercise price of $3.00 per share for a period of five years. On March 9, 2021, DP Lending, entered into a securities purchase agreement with Alzamend to invest $10.0 million in Alzamend common stock and warrants, subject to the achievement of certain milestones. DP Lending funded $4.0 million upon execution of the securities purchase agreement, which included the conversion of the short term advance and convertible promissory note in the aggregate amount of $800,000. The remaining $6.0 million will be funded upon Alzamend achieving certain milestones related to the U.S. Food and Drug Administration approval of Alzamend’s Investigational New Drug application and Phase 1a human clinical trials for Alzamend’s lithium based ionic cocrystal therapy, known as AL001. Under the securities purchase agreement, in aggregate, Alzamend has agreed to sell up to 6,666,667 shares of its common stock to DP Lending for $10.0 million, or $1.50 per share, and issue to DP Lending warrants to acquire up to 3,333,334 shares of Alzamend common stock with an exercise price of $3.00 per share. The transaction was approved by the Company’s independent directors after receiving a third-party valuation report of Alzamend. In addition to the Alzamend common shares purchase on March 9, 2021, the Company also held 427,888 shares of Alzamend common stock that it had acquired in during the years ended December 31, 2020 and 2019 for $252,000. At March 31, 2021, the estimated fair value of Alzamend’s common stock was $1.14. Based upon the estimated fair value of Alzamend common stock at March 31, 2021, the Company’s investment in Alzamend common stock had an unrealized gain of $236,000. Investment in Ault & Company, Inc. On February 25, 2021, Ault & Company, a related party, sold and issued an 8% Secured Promissory Note in the principal amount of $2.5 million to the Company. The principal amount of the Secured Promissory Note, plus any accrued and unpaid interest at a rate of 8% per annum, is due and payable on February 25, 2022.

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