LOM 2023 Annual Report - Report - Page 40
LOM
2021 ANNUAL REPORT
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONTINUED
Investments Recorded Under the Equity Method
For investments in entities that do not constitute a Variable
Interest Entity (“VIE”), or for investments in securities owned
and held as trading investments which are held at fair value,
the Company considers other U.S. GAAP guidance, as required,
in determining (i) consolidation of the entity if the Company’s
ownership interests comprise a majority of its outstanding
voting shares or otherwise control the entity, or (ii) application
of the equity method of accounting if the Company does not
have direct or indirect control of the entity, with the initial
investment carried at cost and subsequently adjusted for the
Company’s share of net income or loss and cash contributions
and distributions to and from these entities.
If events or circumstances indicate that the fair value of an
investment accounted for using the equity method has declined
below its carrying value and the Company considers the decline
to be “other than temporary,” the investment is written down to
fair value and an impairment loss is recognized. The evaluation
of impairment for an investment would be based on a number
of factors, including financial condition and operating results for
the investment, inability to remain in compliance with provisions
of any related debt agreements, and recognition of impairments
by other investors. Impairment recognition would negatively
impact the recorded value of the Company’s investment and
reduce net income.
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of
cash and cash equivalents, accounts receivable, securities
owned, securities sold short, accounts payable and accrued
liabilities. The book value of cash and cash equivalents,
accounts receivable, and accounts payable is considered to be
representative of their fair value because of their short-term
maturities.
Fair Value Measurements
ASC 820 “Fair Value Measurements” defines fair value,
establishes a framework for measuring fair value in accordance
with generally accepted accounting principles, and expands
disclosures about fair value measurements. Fair value is the
price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants
at the measurement date. ASC 820 applies to all assets and
liabilities that are measured and reported on a fair value basis
(see Note 3, Fair Value Measurements).
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
a concentration of credit risk principally consist of cash and
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cash equivalents and securities owned. The Company has its
cash and cash equivalents and securities placed with major
international and local financial institutions. As part of its
cash management process, the Company performs continuous
evaluation of the relative credit standing of these institutions.
Use of Estimates
The preparation of 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 and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Management bases its estimates on historical
experience and on various assumptions that are believed to
be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from
the other sources. The most significant estimates include
estimates recorded for the fair market value of privately held
securities. On a continual basis, management reviews its
estimates utilizing currently available information, changes in
facts and circumstances, historical experience and reasonable
assumptions. After such reviews, and if deemed appropriate,
those estimates are adjusted accordingly. Actual results could
differ from those estimates.
Net Income Per Common Share
The Company calculates basic net income per common
share and diluted net income per common share assuming
dilution. Basic net income per common share is calculated by
dividing net income attributable to common shareholders by
the weighted average number of common shares outstanding
during the period. Diluted net income per common share is
calculated by dividing the net income attributable to common
shareholders by the weighted average number of common
shares outstanding during the period, plus potential dilutive
common shares.
Securities Sold Short
The Company may sell a security it does not own in anticipation
of a decline in fair value of the security, or as a hedge against
similar securities owned. When the Company sells a security
short, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale.
Obligations related to securities sold short are recorded as a
liability at fair value. Realized and unrealized gains and losses
are recorded in net trading losses/gains in the consolidated
statement of operations. A gain, limited to the price at which
the Company sold the security short, or a loss, unlimited in size,
is recognized on a monthly basis.
