INSTITUTIONAL FINANCIAL MARKETS, INC.

Restricted Equity Securities:  Restricted equity securities are investments in publicly traded companies.  However, they are restricted for re-sale until either (a) the share price trades above a certain threshold for a certain period of time; or (b) a certain period of time elapses or both. The Company determines the fair value by utilizing a model that starts with the publicly traded share price but then applies a discount based on a monte carlo simulation.  The inputs to this model are observable so the Company classifies this within level 2 of the valuation hierarchy.  However, the Company is not allowed to sell these shares during the restriction period and there is no certainty as to when these hurdles will be met or if they will be met at all.    

The Insurance SPACs represent the Company's consolidated subsidiaries equity method investments in various insurance SPACs.  The SPAC Sponsor Entities represent equity method investments in sponsor entities for SPACs that are not sponsored by the Company.  Amersfoot Office Investment I Cooperatief U. A. (“AOI”) is a company based in the Netherlands that invests in real estate.  CK Capital Partners B.V. (“CK Capital”) is a company based in the Netherlands that manages investments in real estate.  See note 24.   Each of the SPAC Series Funds (as defined in Item 2, in the “Business Environment” section under the title “The SPAC Market”) invests in the membership interests of an individual sponsor entity.  The Company manages these funds and serves as the general partner.  The Company invests in the SPAC Series Funds itself and also receives an allocation of the founder shares from each series fund that the Company invests in connection with its role as the general partner and manager.  Amounts paid by the Company in connection with receiving its allocation of founder shares are included in the table above along with the SPAC Series Funds. 

On April 12, 2021, the staff of the SEC issued a public statement entitled “Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies (“SPACs”)” (the “Statement”). In the Statement, the SEC staff expressed its view that certain terms and conditions common to SPAC warrants may require the warrants to be classified as liabilities on the SPAC’s balance sheet as opposed to equity. Since issuance, the warrants of Insurance SPAC III were accounted for as equity on its balance sheets. As a result of the Statement, Insurance SPAC III is evaluating its accounting for warrants.  If Insurance SPAC III concludes that its warrants should be presented as liabilities with subsequent fair value remeasurement, it will then likely restate its previously issued financial statements.

A restatement of Insurance SPAC III’s financial statements may cause a delay for Insurance SPAC III in consummating a business combination and will force its management to focus time and effort on obtaining valuations for the warrants and restating its financials.  Any time management spends on a restatement cannot be spent on finding a suitable business combination target.  Because Insurance SPAC III must find a business combination target within a fixed period of time, this may increase the chance that Insurance SPAC III is unable to find a suitable target company causing it to liquidate and rendering our investment worthless.

Further, revised accounting may impact the target company in a business combination.  Treating the warrants as liabilities would be less desirable for most companies.  Therefore, target companies may demand changes to the warrant structure that could negatively impact our economic returns or could further reduce the likelihood that a successful business combination is completed within the limited timeframe allowed.   

A restatement of Insurance SPAC III’s financial statements may subject it to additional risks and uncertainties, including, among others, increased professional fees and expenses and time commitment that may be required to address matters related to a restatement, and scrutiny of the SEC and other regulatory bodies which could cause investors to lose confidence in Insurance SPAC III’s reported financial information and could subject Insurance SPAC III to civil or criminal penalties or shareholder litigation. Insurance SPAC III could face monetary judgments, penalties or other sanctions that could have a material adverse effect on its business, financial condition and results of operations and could cause its stock price to decline.