ENDI Corp 8-K/A, filed Oct 24, 2022
ENDI Corp. (ENDI)
About this 8-K/A
ENDI Corp filed this 8-K/A on October 24, 2022, reporting on events of August 9, 2022.
Items reported
- Item 9.01: Financial statements and exhibits
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(State or other jurisdiction of
incorporation)
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(Commission File Number)
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(IRS Employer
Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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(a)
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Financial Statements of Business Acquired
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The CrossingBridge Advisors, LLC carve-out of Cohanzick Management, LLC unaudited interim financial statements as of March 31, 2022 and the related notes, are attached as Exhibit 99.1 hereto and are incorporated herein by reference.
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The CrossingBridge Advisors, LLC carve-out of Cohanzick Management, LLC audited financial statements as of December 31, 2021 and the related notes, are attached as Exhibit 99.2 hereto and are incorporated herein by reference.
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The CrossingBridge Advisors, LLC audited financial statements as of December 31, 2020 and the related notes, are attached as Exhibit 99.3 hereto and are incorporated herein by reference.
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(b)
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Pro-forma Financial Information
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Unaudited Pro Forma Condensed Combined Financial Information of Enterprise Diversified, Inc. and CrossingBridge Advisors LLC as of March 31, 2022 and for the three months ended March 31, 2022 and the year ended December 31, 2021 is filed as Exhibit 99.4 and is incorporated herein by reference.
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(c)
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Exhibits Index:
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Exhibit No.
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Description
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99.1
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99.2
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99.3
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99.4
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104
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Cover Page Interactive Data File (embedded within the Inline XBRL document)
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ENDI CORP.
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Date: October 24, 2022
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/s/ David Sherman
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David Sherman
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Chief Executive Officer
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Exhibit 99.1
CROSSINGBRIDGE ADVISORS, LLC
CARVE-OUT OF COHANZICK MANAGEMENT, LLC
“CROSSINGBRIDGE CARVE-OUT”
Interim Financial Statements
As of March 31, 2022
CROSSINGBRIDGE CARVE-OUT
Balance Sheet
As of March 31, 2022
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ASSETS |
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Current Assets: |
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Investments in securities, at fair value (cost $2,275,282) |
$ | 2,262,239 | ||
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Cash and cash equivalents |
642,672 | |||
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Accounts receivable |
649,854 | |||
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Total Current Assets |
3,554,765 | |||
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TOTAL ASSETS |
$ | 3,554,765 | ||
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LIABILITIES AND MEMBER'S EQUITY |
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Current Liabilities: |
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Accrued expenses |
$ | 406,344 | ||
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Long Term Liabilities: |
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Due to member |
1,794,895 | |||
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Total Liabilities |
2,201,239 | |||
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Member's Equity |
1,353,526 | |||
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TOTAL LIABILITIES AND MEMBER'S EQUITY |
$ | 3,554,765 |
The accompanying notes are an integral part of these financial statements.
CROSSINGBRIDGE CARVE-OUT
Statement of Operations
For the Period From January 1, 2022 through March 31, 2022
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Revenues: |
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Fee Income |
$ | 1,707,124 | ||
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Operating expenses: |
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Compensation and benefits |
756,643 | |||
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Other operating expenses |
57,665 | |||
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Computer expenses |
28,878 | |||
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Professional fees |
1,200 | |||
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Research |
3,871 | |||
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Mutual fund expenses |
47,972 | |||
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Travel and entertainment |
12,078 | |||
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Insurance |
34,358 | |||
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Total operating expenses |
942,665 | |||
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Income from operations |
764,459 | |||
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Other income (expenses): |
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Dividend income |
9,792 | |||
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Interest income |
7 | |||
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Unrealized loss on investments |
(12,641 |
) |
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Total other income (expenses) |
(2,842 |
) |
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Net income |
$ | 761,617 |
The accompanying notes are an integral part of these financial statements.
CROSSINGBRIDGE CARVE-OUT
Statement of Changes in Member's Equity
For the Period From January 1, 2022 through March 31, 2022
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Member's Equity - January 1, 2022 |
$ | 591,909 | ||
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Capital Contributions |
— | |||
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Capital Distributions |
— | |||
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Net Income |
761,617 | |||
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Member's Equity - March 31, 2022 |
$ | 1,353,526 |
The accompanying notes are an integral part of these financial statements.
CROSSINGBRIDGE CARVE-OUT
Statement of Cash Flows
For the Period From January 1, 2022 through March 31, 2022
Increase (Decrease) in Cash
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Cash flows from operating activities: |
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Net income |
$ | 761,617 | ||
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Adjustments needed to reconcile net income with net cash provided by operating activities: |
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Increase in accounts receivable |
(138,606 |
) |
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Decrease in other current assets |
4,567 | |||
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Increase in accrued expenses |
321,717 |
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Net cash provided by operating activities |
949,295 | |||
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Cash flows from investing activities: |
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Decrease in investments in securities |
2,849 | |||
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Net cash provided by investing activities |
2,849 | |||
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Cash flows from financing activities: |
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Decrease in due to member |
(1,582,396 |
) |
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Net cash used in financing activities |
(1,582,396 |
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Net decrease in cash |
(630,252 |
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Cash - January 1, 2022 |
1,272,924 | |||
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Cash - March 31, 2022 |
$ | 642,672 | ||
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Supplementary Disclosures |
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Interest paid |
— |
The accompanying notes are an integral part of these financial statements.
CROSSINGBRIDGE CARVE-OUT
Notes to Financial Statements
March 31, 2022
(1) Organization and Summary of Significant Accounting Policies
Organization:
The Company was formed as a limited liability company on December 23, 2016 under the laws of the State of Delaware. The Company is engaged in providing investment management and advisory services. Effective February 17, 2017, the Company became registered as an investment adviser with the Securities and Exchange Commission under the Investment Advisers Act of 1940.
Basis of Accounting:
The accompanying financial statements have been prepared using the accrual basis of accounting. CrossingBridge Advisors, LLC is a 100% wholly owned subsidiary of Cohanzick Management, LLC. The CrossingBridge Advisors, LLC carve-out is part of the Cohanzick Management, LLC financial statements. The financial statements of the Company reflect the assets, liabilities, revenue, and expenses directly attributable to the Company, as well as allocations deemed reasonable by management, to present the financial position, statement of operations, statement of changes in member’s equity, and statement of cash flows of the Company on a stand-alone basis and do not necessarily reflect the financial position, statement of operations, statement of changes in member’s equity, and statement of cash flows of the Company in the future or what they would have been had the Company been a separate, stand-alone entity during the period presented.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the year. Actual results could differ from these estimates.
Income Taxes:
In as much as the Company has a single member, it is treated as a disregarded entity for income tax purposes. Consequently, Federal and state income taxes have not been provided for as its single member is taxed directly on the Company’s earnings. During the period ending March 31, 2022 the Company’s single member made a PTET (pass-through entity tax) election with New York State. The PTET is an optional tax that partnerships or New York S corporations may annually elect to pay on certain income for tax years beginning on or after January 1, 2021. If an eligible partnership or New York S corporation elects to pay the PTET, its partners, members, or shareholders subject to personal income tax may be eligible for a PTET credit on their New York State income tax returns. The Company’s carve-out piece of the 2022 PTET election made by the Company’s single member was $27,108 and is included in the Due to member balance on the balance sheet.
Financial Accounting Standards Board Accounting Standards Codification 740 (“ASC 740”) requires the Managing Member to determine whether any tax positions taken by the Company in any open tax year (including the Company’s entity status), are more likely than not to be sustained upon examination by the applicable taxing authority, including the resolution of any related appeals or litigation processes, based on the technical merits of the position. Any positions that do not meet this threshold must be disclosed in the financial statements. The adoption of ASC 740 did not have a material effect on these financial statements. The Company’s tax returns remain open for examination by tax authorities for a period of three years from when they are filed; the 2019, 2020, and 2021 Federal and New York State income tax returns are currently open for examination.
CROSSINGBRIDGE CARVE-OUT
Notes to Financial Statements
March 31, 2022
Revenue Recognition:
The Company records management fees as they are earned based on services provided. In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606, to supersede nearly all existing revenue recognition guidance under GAAP. ASU 2014-2014-19 also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. The Company adopted the provisions of this guidance on January 1, 2019 using the modified retrospective approach. The Company has performed an assessment of its revenue contracts and has not identified any material changes to the timing or amount of its revenue recognition under ASU 2014-09. The Company’s accounting policies did not change materially as a result of applying the principles of revenue recognition from ASU 2014-09 and are largely consistent with existing guidance and content practices applied by the Company.
Accrued Expenses:
Accrued expenses as of March 31, 2022 are primarily attributed to management’s allocation of estimated pro rata bonus amounts to be paid to employees for services performed during the current period. Accrued bonuses for the year ended December 31, 2021 were allocated by management based on a methodology largely driven by the Assets Under Management (AUM) of the underlying investment products. Bonuses are subjective and are based on numerous factors including, but not limited to, individual performance, the underlying funds’ performance, and profitability of the firm as well as the consideration of future outlook. Accrued bonus amounts can fluctuate due to a future perceived change in any one or more of these factors. Additionally, differences between historical, current and future personnel allocations could significantly impact the comparability of bonus expenses period over period.
(2) Related Party Transactions
The Company and its sole member share certain staff, office facilities and administrative services. The parties involved have agreed to allocate these expenses based on assets under management of each party. The allocation of these expenses to the Company totaled $501,964 for the period ending March 31, 2022. The total is reflected in the Statement of Operations in the categories for which the utilization of services relates. Included in this total are compensation and benefits of $374,768 which includes employee compensation and benefits of employees of the sole member in the amount of $151,522 as well as compensation and benefits of the sole member’s owners in the amount of $223,246. The allocation of $501,964 was partially offset by payments made to counterparties of the Member in the amount of $328,026. The Company also owed $27,108 to its sole member for payments made on its behalf. During the period the Company made a payment of $1,756,334 to its sole member. The net of the above intercompany transactions, reduced the existing intercompany balance between the Company and its sole member resulting in a due to member balance at March 31, 2022 of $1,794,895.
Legal fees in the amount of $303,086 have been accrued by the sole member for the potential merger noted in the subsequent events section to these financial statements. These legal fees are being paid by the sole member and not the responsibility of the Company.
The sole member of the Company actively manages mutual funds, private funds and separate accounts pursuant to various investment management and other agreements. The Company has not executed such agreements and is not a party to these agreements. For the abundance of caution, counterparties may in the future claim the Company should also be deemed a party and if successful, the Company could have contingent liabilities resulting from the actions or omissions of the sole member. The Company and the sole member believe the Company should not be deemed responsible for liabilities of the sole member under such agreements. There are no pending actions with respect to such agreements.
(3) Due to Affiliate
The Company owes $1,794,895 to its sole member for net expenses allocated to it. All intercompany expenses incurred during the year are due thirteen months after the calendar year-end upon 60 days written notice. If no notice is given the date payment is due will extend for another 12 months with 0% interest.
CROSSINGBRIDGE CARVE-OUT
Notes to Financial Statements
March 31, 2022
(4) Lease Commitments
In February 2016, the FASB issued (ASU) 2016-02, “Leases (Topic 842)”. This update includes a lease accounting model that recognizes two types of leases – finance leases and operating leases. The standard requires that a lessee recognize on the statement of financial condition, assets and liabilities relating to leases with terms of more than twelve months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease.
The above had no significant effect on these financial statements for the period ended March 31, 2022 as there were no leases with terms in excess of 12 months.
(5) Cash and Cash Equivalents
The Company maintains its cash in bank deposit accounts and money market accounts which at times may exceed federally insured limits. The Company has not experienced any losses in these accounts.
(6) Concentration of Revenue
The Company is the adviser to four regulated Investment Companies under the CrossingBridge Family of Funds. The advised funds are the CrossingBridge Low Duration High Yield Fund, CrossingBridge Ultra-Short Duration Fund, CrossingBridge Responsible Credit Fund, and the CrossingBridge Pre-Merger SPAC ETF. The combined AUM for these advised funds was $724.43 million as of March 31, 2022. The Company is also the sub-adviser to two 1940 Act regulated Mutual Funds with AUM totaling $822.01 million as of March 31, 2022. The gross revenue from the sub-advised funds totaled $707,866 for the period ending March 31, 2022 and is included in the statement of operations. The gross revenue from Company’s advised funds totaled $999,258 for the period ending March 31, 2022 and is included in the statement of operations. If the Company were to lose a significant amount of assets under management, the Company’s revenue would also decrease.
(7) Fair Value Measurements
The Company utilizes various methods to measure fair value of all of its investments on a recurring basis. Generally accepted accounting principles establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
Level I – Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level II – Observable inputs other than unadjusted quoted prices in active markets for identical assets or liabilities. All significant inputs are observable, either directly or indirectly. These inputs may include quoted prices for identical instruments in an inactive market, prices for similar instruments, yield curves, default rates, or other similar data.
Level III – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available. Unobservable inputs reflect the assumptions a market participant would use in valuing the asset or liability and would be based on the best information available.
CROSSINGBRIDGE CARVE-OUT
Notes to Financial Statements
March 31, 2022
The availability of observable inputs can vary and is affected by a variety of factors. 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 in determining fair value is the greatest for assets or liabilities categorized in Level III.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.
The following table presents information about the Company’s assets measured at fair value as of March 31, 2022:
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Level 1 Quoted Prices In Active Markets for Identical Assets |
Level 2 Significant Other Observable Inputs |
Level 3 Significant Unobservable Inputs |
Balance as of March 31, 2022 |
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Investments in securities, at fair value |
$ | 2,262,239 | $ | - | $ | - | $ | 2,262,239 | ||||||||
Level 1 investments include shares of CrossingBridge Ultra-Short Duration Fund and CrossingBridge Responsible Credit Fund, mutual funds for which the Company is the advisor. There is no liquidity restriction in connection with these investments.
The following table presents information about CBA’s investments during the period ended March 31, 2022:
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Cost Basis |
Unrealized Gains (Losses) |
Fair Market Value |
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| $ | 2,275,282 | $ | (13,043 | ) | $ | 2,262,239 | ||||
CROSSINGBRIDGE CARVE-OUT
Notes to Financial Statements
March 31, 2022
(8) Subsequent Events
The Company has evaluated subsequent events through October 24, 2022, the date which the financial statements were available to be issued. On December 29, 2021 the Company, along with Enterprise Diversified, Inc., entered into an Agreement and Plan of Merger (the “Merger Agreement”), which was consummated on August 11, 2022 (the “Closing Date”). On the Closing Date, as contemplated by the Merger Agreement, the Company became a wholly-owned subsidiary of ENDI Corp., a new parent entity that is a Delaware corporation (the “New Parent”), through a series of mergers (the “Mergers” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”). On the Closing Date, all of the outstanding shares of Enterprise Diversified Inc.’s capital stock was exchanged for and converted into the right to receive shares of New Parent, which became Enterprise Diversified Inc.’s sole stockholder. In order to effect the Mergers and Business Combination, New Parent formed two merger subsidiaries. The first merger subsidiary merged with and into Enterprise Diversified Inc. (the “First Merger”), with Enterprise Diversified Inc. as the surviving entity. Upon consummation of the First Merger, Enterprise Diversified Inc. became a direct, wholly-owned subsidiary of New Parent. Coincidentally, concurrently with the First Merger, and as part of the same overall transaction, the second merger subsidiary merged with and into the Company (the “Second Merger”), with the Company as the surviving entity. Upon consummation of the Second Merger, the Company also became a direct, wholly-owned subsidiary of New Parent.
Concurrently, on the Closing Date, the Company entered into a service agreement with its sole member, Cohanzick Management, LLC. Certain designated employees of CrossingBridge Advisors, LLC will be made available to provide investment advisory, portfolio management, and other services to Cohanzick Management, LLC. In return, Cohanzick Management, LLC will pay a quarterly fee equal to 0.05% per annum of Cohanzick Management’s weighted average AUM during such quarter. Other shared costs will be allocated either pro-rata based on the weighted average AUM of the Company and its sole member during each quarter or by personnel assignments in accordance with the new agreement.
The Company does not note any other subsequent events requiring disclosure or adjustment to the financial statements.
Exhibit 99.2
CROSSINGBRIDGE ADVISORS, LLC
CARVE-OUT OF COHANZICK MANAGEMENT, LLC
“CROSSINGBRIDGE CARVE-OUT”
Financial Statements
As of December 31, 2021
Together With Auditor's Report
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Member of
CrossingBridge Advisors, LLC
Pleasantville, New York
Opinion on the Financial Statements
We have audited the accompanying balance sheet of CrossingBridge Advisors, LLC (the “Company”) as of December 31, 2021, and the related statement of operations, statement of changes in member’s equity, and statement of cash flows for the year then ended, and the related notes to the financial statements (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the member and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Revenue Recognition – Subadvised Accounts
Description of the Matter
As described in Note 1 to the financial statements, the Company recognizes subadvisory revenue from customers. The principal considerations for our determination that performing procedures relating to such revenue recognition is a critical audit matter are the significant audit effort in performing procedures and evaluating evidence related to the Company’s subadvisory revenues.
How We Addressed the Matter in Our Audit
We obtained an understanding and evaluated the design of the Company’s subadvisory revenue recognition processes. We reviewed the Company’s subadvisory revenue recognition policies to test that they were in accordance with accounting principles generally accepted in the United States of America. For a sample of transactions, we performed detail transaction testing by agreeing the amounts recognized to contractual agreements, collections, and testing the mathematical accuracy of the recorded fee revenue, as well as the related receivable. We confirmed substantially all collections from the Company’s subadvised accounts.
Emphasis of Matter
As discussed in Note 1, CrossingBridge Advisors, LLC is a carve-out of its sole member, Cohanzick Management, LLC. The financial statements of the Company reflect the assets, liabilities, revenue, and expenses directly attributable to the Company, as well as allocations deemed reasonable by management, to present the financial position, statement of operations, statement of changes in member’s equity, and statement of cash flows of the Company on a stand-alone basis and do not necessarily reflect the financial position, statement of operations, statement of changes in member’s equity, and statement of cash flows of the Company in the future or what they would have been had the Company been a separate, stand-alone entity during the periods presented
CERTIFIED PUBLIC ACCOUNTANTS
We have served as the Company’s auditor since 2021.
Lynchburg, Virginia
April 7, 2022
Brown Edwards Certified Public Accountants
CROSSINGBRIDGE CARVE-OUT
Balance Sheet
As of December 31, 2021
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ASSETS |
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Current Assets: |
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Investments in securities, at fair value (cost $2,265,489) |
$ | 2,265,088 | ||
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Cash and cash equivalents |
1,272,924 | |||
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Accounts receivable |
511,248 | |||
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Other current assets |
4,567 | |||
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Total Current Assets |
4,053,827 | |||
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TOTAL ASSETS |
$ | 4,053,827 | ||
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LIABILITIES AND MEMBER'S EQUITY |
||||
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Current Liabilities: |
||||
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Accrued expenses |
$ | 84,627 | ||
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Long Term Liabilities: |
||||
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Due to member |
3,377,291 | |||
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Total Liabilities |
3,461,918 | |||
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Member's Equity |
591,909 | |||
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TOTAL LIABILITIES AND MEMBER'S EQUITY |
$ | 4,053,827 |
The accompanying notes are an integral part of these financial statements.
CROSSINGBRIDGE CARVE-OUT
Statement of Operations
For the Year Ended December 31, 2021
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Revenues: |
||||
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Fee Income |
$ | 4,287,085 | ||
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Operating expenses: |
||||
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Compensation and benefits |
2,066,537 | |||
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Other operating expenses |
214,736 | |||
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Computer expenses |
133,079 | |||
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Professional fees |
124,536 | |||
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Research |
64,223 | |||
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Mutual fund expenses |
107,300 | |||
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Travel and entertainment |
38,781 | |||
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Insurance |
43,030 | |||
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Total operating expenses |
2,792,222 | |||
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Income from operations |
1,494,863 | |||
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Other income (expenses): |
||||
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Dividend income |
15,506 | |||
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Interest income |
119 | |||
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Unrealized loss on investments |
(402 |
) |
||
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Total other income (expenses) |
15,223 | |||
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Net income |
$ | 1,510,086 |
The accompanying notes are an integral part of these financial statements.
CROSSINGBRIDGE CARVE-OUT
Statement of Changes in Member's Equity
For the Year Ended December 31, 2021
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Member's Equity - January 1, 2021 |
$ | 593,923 | ||
|
Capital Contributions |
— | |||
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Capital Distributions |
(1,512,100 |
) |
||
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Net Income |
1,510,086 | |||
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Member's Equity - December 31, 2021 |
$ | 591,909 |
The accompanying notes are an integral part of these financial statements.
CROSSINGBRIDGE CARVE-OUT
Statement of Cash Flows
For the Year Ended December 31, 2021
Increase (Decrease) in Cash
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Cash flows from operating activities: |
||||
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Net income |
$ | 1,510,086 | ||
|
Adjustments needed to reconcile net income with net cash provided by operating activities: |
||||
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Increase in accounts receivable |
(321,051 |
) |
||
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Increase in other current assets |
(135 |
) |
||
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Increase in accrued expenses |
12,515 | |||
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Net cash provided by operating activities |
1,201,415 | |||
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Cash flows from investing activities: |
||||
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Increase in investments in securities |
(2,265,088 |
) |
||
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Decrease in dividend receivable |
2 | |||
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Net cash used in investing activities |
(2,265,086 |
) |
||
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Cash flows from financing activities: |
||||
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Distributions paid |
(1,512,100 |
) |
||
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Increase in due to member |
1,440,025 | |||
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Decrease in due from affiliate |
150,000 | |||
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Net cash provided by financing activities |
77,925 | |||
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Net decrease in cash |
(985,746 |
) |
||
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Cash - January 1, 2021 |
2,258,670 | |||
|
Cash - December 31, 2021 |
$ | 1,272,924 | ||
|
Supplementary Disclosures |
||||
|
Interest paid |
— |
The accompanying notes are an integral part of these financial statements.
CROSSINGBRIDGE CARVE-OUT
Notes to Financial Statements
December 31, 2021
|
(1) |
Organization and Summary of Significant Accounting Policies |
Organization:
The Company was formed as a limited liability company on December 23, 2016 under the laws of the State of Delaware. The Company is engaged in providing investment management and advisory services. Effective February 17, 2017, the Company became registered as an investment adviser with the Securities and Exchange Commission under the Investment Advisers Act of 1940.
Basis of Accounting:
The accompanying financial statements have been prepared using the accrual basis of accounting. The CrossingBridge Advisors, LLC carve-out is part of the Cohanzick Management, LLC financial statements. CrossingBridge Advisors, LLC is a 100% wholly owned subsidiary of Cohanzick Management, LLC. These carve-out financial statements may not be indicative of the what the carve- out business would have been as a stand-alone entity.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the year. Actual results could differ from these estimates.
Income Taxes:
In as much as the Company has a single member, it is treated as a disregarded entity for income tax purposes. Consequently, Federal and state income taxes have not been provided for as its single member is taxed directly on the Company’s earnings. During 2021 the Company’s single member made a PTET (pass-through entity tax) election with New York State. The PTET is an optional tax that partnerships or New York S corporations may annually elect to pay on certain income for tax years beginning on or after January 1, 2021. If an eligible partnership or New York S corporation elects to pay the PTET, its partners, members, or shareholders subject to personal income tax may be eligible for a PTET credit on their New York State income tax returns. The Company’s carve-out piece of the 2021 PTET election made by the Company’s single member was $112,100 and is included in the Due to member balance on the balance sheet.
Financial Accounting Standards Board Accounting Standards Codification 740 (“ASC 740”) requires the Managing Member to determine whether any tax positions taken by the Company in any open tax year (including the Company’s entity status), are more likely than not to be sustained upon examination by the applicable taxing authority, including the resolution of any related appeals or litigation processes, based on the technical merits of the position. Any positions that do not meet this threshold must be disclosed in the financial statements. The adoption of ASC 740 did not have a material effect on these financial statements. The Company’s tax returns remain open for examination by tax authorities for a period of three years from when they are filed; the 2018, 2019, and 2020 Federal and New York State income tax returns are currently open for examination.
CROSSINGBRIDGE CARVE-OUT
Notes to Financial Statements
December 31, 2021
Revenue Recognition:
The Company records management fees as they are earned based on services provided. In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606, to supersede nearly all existing revenue recognition guidance under GAAP. ASU 2014-2014-19 also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. The Company adopted the provisions of this guidance on January 1, 2019 using the modified retrospective approach. The Company has performed an assessment of its revenue contracts and has not identified any material changes to the timing or amount of its revenue recognition under ASU 2014-09. The Company’s accounting policies did not change materially as a result of applying the principles of revenue recognition from ASU 2014-09 and are largely consistent with existing guidance and content practices applied by the Company.
|
(2) |
Related Party Transactions |
The Company and its sole member share certain staff, office facilities and administrative services. The parties involved have agreed to allocate these expenses based on assets under management of each party. The allocation of these expenses to the Company totaled $2,478,971 for the 2021 year. The total is reflected in the Statement of Operations in the categories for which the utilization of services relates. Included in this total are compensation and benefits of $2,066,537 which includes employee compensation and benefits of employees of the sole member in the amount of $909,916 as well as compensation and benefits of the sole member’s owners in the amount of $1,156,621. The allocation of $2,478,971 was partially offset by payments made to counterparties of the Member in the amount of $1,093,573, and legal fees in the amount of $57,473, paid by the Company on behalf of its sole member. The Company also owed $112,100 to its sole member for payments made on its behalf. The net of the above intercompany transactions, added to the existing intercompany balance between the Company and its sole member results in a due to member balance at December 31, 2021 of $3,377,291.
Legal fees in the amount of $182,966 have been accrued by the sole member for the potential merger noted in the subsequent events section to these financial statements. These legal fees are being paid by the sole member and not the responsibility of the Company.
The sole member of the Company actively manages mutual funds, private funds and separate accounts pursuant to various investment management and other agreements. The Company has not executed such agreements and is not a party to these agreements. For the abundance of caution, counterparties may in the future claim the Company should also be deemed a party and if successful, the Company could have contingent liabilities resulting from the actions or omissions of the sole member. The Company and the sole member believe the Company should not be deemed responsible for liabilities of the sole member under such agreements. There are no pending actions with respect to such agreements.
|
(3) |
Due to Affiliate |
The Company owes $3,377,291 to its sole member for net expenses allocated to it. All intercompany expenses incurred during the year are due thirteen months after the calendar year-end upon 60 days written notice. If no notice is given the date payment is due will extend for another 12 months with 0% interest.
CROSSINGBRIDGE CARVE-OUT
Notes to Financial Statements
December 31, 2021
|
(4) |
Lease Commitments |
In February 2016, the FASB issued (ASU) 2016-02, “Leases (Topic 842)”. This update includes a lease accounting model that recognizes two types of leases – finance leases and operating leases. The standard requires that a lessee recognize on the statement of financial condition, assets and liabilities relating to leases with terms of more than twelve months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease.
The above had no significant effect on these financial statements for the year ending December 31, 2021 as there were no leases with terms in excess of 12 months.
|
( |
5) |
Cash and Cash Equivalents |
The Company maintains its cash in bank deposit accounts and money market accounts which at times may exceed federally insured limits. The Company has not experienced any losses in these accounts.
|
(6) |
Concentration of Revenue |
The Company is the adviser to four regulated Investment Companies under the CrossingBridge Family of Funds. The advised funds are the CrossingBridge Low Duration High Yield Fund, CrossingBridge Ultra-Short Duration Fund, CrossingBridge Responsible Credit Fund, and the CrossingBridge Pre- Merger SPAC ETF. The combined Assets under Management (AUM) for these advised funds was $514.12 million as of December 31, 2021. The Company is also the sub-adviser to two Investment Company Act regulated Mutual Funds with AUM totaling $854.56 million as of December 31, 2021. The gross revenue from the sub-advised funds totaled $2,729,353 for the year ended December 31, 2021 and is included in the statement of operations. The gross revenue from Company’s advised funds totaled $1,557,732 for the year ended December 31, 2021 and is included in the statement of operations. If the Company were to lose a significant amount of assets under management, the Company’s revenue would also decrease.
|
(7) |
Fair Value Measurements |
The Company utilizes various methods to measure fair value of all of its investments on a recurring basis. Generally accepted accounting principles establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
Level I – Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level II – Observable inputs other than unadjusted quoted prices in active markets for identical assets or liabilities. All significant inputs are observable, either directly or indirectly. These inputs may include quoted prices for identical instruments in an inactive market, prices for similar instruments, yield curves, default rates, or other similar data.
Level III – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available. Unobservable inputs reflect the assumptions a market participant would use in valuing the asset or liability and would be based on the best information available.
CROSSINGBRIDGE CARVE-OUT
Notes to Financial Statements
December 31, 2021
|
(7) |
Fair Value Measurements (continued) |
The availability of observable inputs can vary and is affected by a variety of factors. 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 in determining fair value is the greatest for assets or liabilities categorized in Level III.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.
The following table presents information about the Company’s assets measured at fair value as of December 31, 2021:
|
Level 1 Quoted Prices In Active Markets for Identical Assets |
Level 2 Significant Other Observable Inputs |
Level 3 Significant Unobservable Inputs |
Balance as of December 31, 2021 |
|||||||||||||
|
Investments in securities, at fair value |
$ | 2,265,088 | $ | - | $ | - | $ | 2,265,088 | ||||||||
Level 1 investments include shares of CrossingBridge Ultra-Short Duration Fund and CrossingBridge Responsible Credit Fund, mutual funds for which the Company is the advisor. There is no liquidity restriction in connection with these investments.
The following table presents information about CBA’s investments during the year ended December 31, 2021:
|
Cost Basis |
Unrealized Gains (Losses) |
Fair Market Value |
||||||||
| $ | 2,265,489 | $ | (401 | ) | $ | 2,265,088 | ||||
CROSSINGBRIDGE CARVE-OUT
Notes to Financial Statements
December 31, 2021
|
(8) |
Subsequent Events |
The Company has evaluated subsequent events through April 7, 2022, the date which the financial statements were available to be issued. On March 29, 2022 the Company made a payment of $1,756,334 to its Member to pay down the Due to member balance on the balance sheet. The Company does not note any additional subsequent events requiring disclosure or adjustment to the financial statements. On December 29, 2021 the Company, along with Enterprise Diversified, Inc., entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which the Company has agreed to become, subject to stockholder approval and the parties’ satisfaction of various closing conditions, a wholly-owned subsidiary of ENDI Corp., a new parent entity that is a Delaware corporation (the “New Parent”), through a series of mergers (the “Mergers” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”). Upon closing of the Business Combination, all of the outstanding shares of Enterprise Diversified Inc.’s capital stock will be exchanged for and converted into the right to receive shares of New Parent, which will become Enterprise Diversified Inc.’s sole stockholder. In order to effect the Mergers and Business Combination, New Parent will form two merger subsidiaries. Upon the closing of the Merger Agreement, the first merger subsidiary will merge with and into Enterprise Diversified Inc. (the “First Merger”), with Enterprise Diversified Inc. as the surviving entity. Upon consummation of the First Merger, Enterprise Diversified Inc. will become a direct, wholly-owned subsidiary of New Parent. Coincidentally, concurrently with the First Merger, and as part of the same overall transaction, the second merger subsidiary will merge with and into the Company (the “Second Merger”), with the Company as the surviving entity. Upon consummation of the Second Merger, the Company will also become a direct, wholly-owned subsidiary of New Parent.
Once the Business Combination has been consummated the Company will enter into a service agreement with its sole member, Cohanzick Management, LLC. Certain designated employees of CrossingBridge Advisors, LLC will be made available to provide investment advisory, portfolio management, and other services to Cohanzick Management, LLC. In return, Cohanzick Management, LLC will pay a quarterly fee equal to 0.05% per annum of Cohanzick Management’s weighted average AUM during such quarter. Other shared costs will be allocated either pro-rata based on the weighted average AUM of the Company and its sole member during each quarter or by personnel assignments in accordance with the new agreement.
Exhibit 99.3
CROSSINGBRIDGE ADVISORS, LLC
Financial Statements
As of December 31, 2020
Together With Auditor's Report
INDEPENDENT AUDITOR'S REPORT
To the Member of CrossingBridge Advisors, LLC:
Report on the Financial Statements
We have audited the accompanying financial statements of CrossingBridge Advisors, LLC, which comprise the balance sheet as of December 31, 2020, the related statement of operations, and changes in member's equity and cash flows for the year then ended, and the related notes to the financial statements.
Management Responsibility for the Financial Statements
Management is responsible for the fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to error or fraud.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluation of the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CrossingBridge Advisors, LLC as of December 31, 2020, and the results of its operations, changes in members' equity and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Raines & Fischer LLP
New York, New York
November 18, 2021
Raines and Fischer LLP Certified Public Accountants 555 Fifth Avenue 9th Floor New York, NY 10017 TEL: 212 953 9200 FAX: 212 953 9366
CROSSINGBRIDGE ADVISORS, LLC
Balance Sheet
As of December 31, 2020
|
ASSETS |
||||
|
Current Assets: |
||||
|
Cash and cash equivalents |
$ | 2,258,670 | ||
|
Accounts receivable |
190,197 | |||
|
Due from Affiliate |
150,000 | |||
|
Other current assets |
4,432 | |||
|
Dividend receivable |
2 | |||
|
TOTAL ASSETS |
$ | 2,603,301 | ||
|
LIABILITIES AND MEMBER'S EQUITY |
||||
|
Current Liabilities: |
||||
|
Accrued expenses |
$ | 72,112 | ||
|
Long Term Liabilities: |
||||
|
Due to member |
1,937,266 | |||
|
Total Liabilities |
2,009,378 | |||
|
Member's Equity |
593,923 | |||
|
TOTAL LIABILITIES AND MEMBER'S EQUITY |
$ | 2,603,301 |
The accompanying notes are an integral part of these financial statements.
CROSSINGBRIDGE ADVISORS, LLC
Statement of Operations
For the Year Ended December 31, 2020
|
Revenues: |
||||
|
Fee Income |
$ | 3,061,088 | ||
|
Operating expenses: |
||||
|
Compensation and benefits |
1,511,691 | |||
|
Other operating expenses |
140,449 | |||
|
Computer expenses |
113,499 | |||
|
Professional fees |
93,838 | |||
|
Research |
80,155 | |||
|
Mutual fund expenses |
17,006 | |||
|
Travel and entertainment |
3,152 | |||
|
Insurance |
14,600 | |||
|
Total operating expenses |
1,974,390 | |||
|
Income from operations |
1,086,698 | |||
|
Other income (expenses): |
||||
|
Interest income |
321 | |||
|
Dividend income |
2,668 | |||
|
Realized loss on investments |
(1,545 |
) |
||
|
Total other income (expenses) |
1,444 | |||
|
Net income |
$ | 1,088,142 |
The accompanying notes are an integral part of these financial statements.
CROSSINGBRIDGE ADVISORS, LLC
Consolidated Statement of Changes in Member's Equity
For the Year Ended December 31, 2020
|
Member's Equity - January 1, 2020 |
$ | 505,781 | ||
|
Capital Contributions |
— | |||
|
Capital Distributions |
(1,000,000 |
) |
||
|
Net Income |
1,088,142 | |||
|
Member's Equity - December 31, 2020 |
$ | 593,923 |
The accompanying notes are an integral part of these financial statements.
CROSSINGBRIDGE ADVISORS, LLC
Statement of Cash Flows
For the Year Ended December 31, 2020
Increase (Decrease) in Cash
|
Cash flows from operating activities: |
||||
|
Net income |
$ | 1,088,142 | ||
|
Adjustments needed to reconcile net income with net cash provided by operating activities: |
||||
|
Increase in accounts receivable |
(3,800 |
) |
||
|
Decrease in other current assets |
271 | |||
|
Increase in accrued expenses |
70,279 | |||
|
Net cash provided by operating activities |
1,154,892 | |||
|
Cash flows from investing activities: |
||||
|
Decrease in dividend receivable |
273 | |||
|
Net cash provided by investing activities |
273 | |||
|
Cash flows from financing activities: |
||||
|
Distributions paid |
(1,000,000 |
) |
||
|
Increase in due to affiliate |
883,737 | |||
|
Decrease in due from affiliate |
(150,000 |
) |
||
|
Net cash used in financing activities |
(266,263 |
) |
||
|
Net increase in cash |
888,902 | |||
|
Cash - January 1, 2020 |
1,369,768 | |||
|
Cash - December 31, 2020 |
$ | 2,258,670 | ||
|
Supplementary Disclosures |
||||
|
Interest paid |
— | |||
|
Income taxes paid |
— |
The accompanying notes are an integral part of these financial statements.
CROSSINGBRIDGE ADVISORS, LLC
Notes to Financial Statements
December 31, 2020
(1) Organization and Summary of Significant Accounting Policies
Organization:
The Company was formed as a limited liability company on December 23, 2016 under the laws of the State of Delaware. The Company is engaged in providing investment management and advisory services. Effective February 17, 2017, the Company became registered as an investment adviser with the Securities and Exchange Commission under the Investment Advisers Act of 1940.
Basis of Accounting:
The accompanying financial statements have been prepared using the accrual basis of accounting.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the year. Actual results could differ from these estimates.
Income Taxes:
In as much as the Company has a single member, it is treated as a disregarded entity for income tax purposes. Consequently, Federal and state income taxes have not been provided for as its single member is taxed directly on the Company’s earnings.
Financial Accounting Standards Board Accounting Standards Codification 740 (“ASC 740”) requires the Managing Member to determine whether any tax positions taken by the Company in any open tax year (including the Company’s entity status), are more likely than not to be sustained upon examination by the applicable taxing authority, including the resolution of any related appeals or litigation processes, based on the technical merits of the position. Any positions that do not meet this threshold must be disclosed in the financial statements. The adoption of ASC 740 did not have a material effect on these financial statements. The Company’s tax returns remain open for examination by tax authorities for a period of three years from when they are filed; the 2017, 2018, and 2019 Federal and New York State income tax returns are currently open for examination.
Revenue Recognition:
The Company records management fees as they are earned based on services provided. In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topics 606, to supersede nearly all existing revenue recognition guidance under GAAP. ASU 2014-2014-19 also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. The Company adopted the provisions of this guidance on January 1,
2019 using the modified retrospective approach. The Company has performed an assessment of its revenue contracts and has not identified any material changes to the timing or amount of its revenue recognition under ASU 2014-09. The Company’s accounting policies did not change materially as a result of applying the principles of revenue recognition from ASU 2014-09 and are largely consistent with existing guidance and content practices applied by the Company.
CROSSINGBRIDGE ADVISORS, LLC
Notes to Financial Statements
December 31, 2020
(2) Related Party Transactions
The Company and its sole member share certain staff, office facilities and administrative services. The parties involved have agreed to allocate these expenses based on assets under management of each party. The allocation of these expenses to the Company totaled $1,858,202 for the 2020 year. The total is reflected in the Statement of Operations in the categories for which the utilization of services relates. Included in this total are compensation and benefits totaling $1,511,691 which includes employee compensation and benefits of employees of the Member in the amount of $517,420 as well as compensation and benefits of the Member’s owners in the amount of $994,271. The allocation of $1,858,202 was partially offset by advisory fees in the amount of $974,465, paid by the Company on behalf of its sole member. The net of the above two intercompany transactions, added to the existing intercompany balance between the Company and its sole member results in a due to member balance at December 31, 2020 of $1,937,266.
In December 2020, the Company advanced $150,000 to a party related by common ownership. These funds were repaid in January 2021.
(3) Due to Affiliate
The Company owes $1,937,266 to its sole member for net expenses allocated to it. All intercompany expenses incurred during the year are due thirteen months after the calendar year-end upon 60 days written notice. If no notice is given the date payment is due will extend for another 12 months.
CROSSINGBRIDGE ADVISORS, LLC
Notes to Financial Statements
December 31, 2020
(4) Lease Commitments
In February 2016, the FASB issued (ASU) 2016-02, “Leases (Topic 842)”. This update includes a lease accounting model that recognizes two types of leases – finance leases and operating leases. The standard requires that a lessee recognize on the statement of financial condition relating to leases with terms of more than twelve months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease.
Right of use assets (“ROU”) represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide implicit rate, we use our incremental borrowing rate based on the information available a commencement date in determining the present value of the lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The above had no significant effect on these financial statements for the year ending December 31, 2020 as there were no leases with terms in excess of 12 months.
(5) Cash and Cash Equivalents
The Company maintains its cash in bank deposit accounts and money market accounts which at times may exceed federally insured limits. The Company has not experienced any losses in these accounts.
(6) Subsequent Events
The Company has evaluated subsequent events through November 18, 2021, the date which the financial statements were available to be issued. The Company does not note any subsequent events requiring disclosure or adjustment to the financial statements. The Company’s sole member has executed a non-binding letter of intent (“LOI”) to sell the Company. The terms of this potential sale are still being negotiated.
Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On December 29, 2021, Enterprise Diversified Inc., a Nevada corporation (the “Company” or “ENDI”), CrossingBridge Advisors LLC, a Delaware limited liability company (“CBA”), and Cohanzick Management, LLC, a Delaware limited liability company (the “CBA Member”) (each, a “Party” and collectively, the “Parties”), entered into an Agreement and Plan of Merger (as amended on June 3, 2022 and July 13, 2022, the “Merger Agreement”), pursuant to which ENDI became a wholly-owned subsidiary of ENDI Corp., a new parent entity that is a Delaware corporation (the “New Parent”), through a series of mergers (the “Mergers” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”). Upon closing of the Business Combination on August 11, 2022 (the “Closing”), all of the outstanding shares of ENDI capital stock were exchanged for and converted into the right to receive shares of New Parent, and New Parent became ENDI’s sole stockholder. In order to effect the Mergers and the Business Combination, New Parent formed two merger subsidiaries. Upon the Closing, the first merger subsidiary (“Merger Sub 1”) merged with and into ENDI (the “First Merger”), with ENDI as the surviving entity and Merger Sub 1 ceased to exist. Upon consummation of the First Merger, ENDI became a direct, wholly-owned subsidiary of New Parent. Concurrently with the First Merger, and as part of the same overall transaction, the second merger subsidiary (“Merger Sub 2”) merged with and into CBA (the “Second Merger”), with CBA as the surviving entity. Upon consummation of the Second Merger, Merger Sub 2 ceased to exist, and CBA became the surviving company and a direct, wholly-owned subsidiary of New Parent.
In connection with the Business Combination, each share of common stock of ENDI held by ENDI’s stockholders was converted into the right to receive one share of Class A common stock, par value $0.0001 per share, of New Parent (the “Class A Common Stock”). The CBA Member, as the sole member of CBA, received (i) 2,400,000 shares of New Parent Class A Common Stock, (ii) 1,800,000 shares of New Parent Class B common stock, par value $0.0001 per share (the “Class B Common Stock”), (iii) a Class W-1 Warrant to purchase 1,800,000 shares of New Parent Class A Common Stock exercisable for five years after the Closing date (the “Class W-1 Warrant”), (iv) the right to purchase up to 250,000 shares of New Parent Class A Common Stock within five trading days of Closing, and (v) a Class W-2 Warrant to purchase 250,000 shares of New Parent Class A Common Stock exercisable for five years after the Closing date (the “Class W-2 Warrant” and together with the “Class W-1 Warrant”, the “Warrants”). In addition, in connection with the Business Combination, the CBA Member through certain of its designees which included certain officers, directors and employees of the Company acquired an aggregate of 405,000 shares of New Parent Class A Common Stock, which is inclusive of the CBA Member’s obligation, pursuant to the Merger Agreement, to acquire 100,000 shares of New Parent Class A Common Stock.
The New Parent Class A Common Stock and New Parent Class B Common Stock are identical other than the shares of New Parent Class B Common Stock (i) have the right to designate directors (as described below), (ii) shall not be entitled to participate in earnings, dividends or other distributions, (iii) shall not receive any assets of New Parent in the event of a liquidation and (iv) shall be subject to redemption in certain circumstances.
The Class W-1 Warrant and Class W-2 Warrant may be exercised in whole or in part at any time prior to the date that is five years after the date of the Closing at an exercise price of $8.00 per share. Each of the Warrants may also be exercised on a “cashless” basis at any time at the election of the holder and, if not fully exercised prior to the expiration date of the Warrant, shall be automatically exercised on a “cashless” basis.
In addition, in connection with the Business Combination, the CBA Member through certain of its designees which included certain officers, directors and employees of the Company purchased an aggregate of 405,000 shares of New Parent Class A Common Stock (collectively the “Additional Shares”) on August 18, 2022 at a price equal to $5.369 per share.
The following unaudited pro forma condensed combined balance sheet as of March 31, 2022, and the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2022 and for the year ended December 31, 2021, are based on the historical audited and unaudited financial statements of the Company and CBA.
The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2022 and for the year ended December 31, 2021 give effect to the Business Combination as if it had occurred on January 1, 2021. The unaudited pro forma condensed combined balance sheet as of March 31, 2022 assumes that the Business Combination took place on that date.
These unaudited pro forma condensed combined financial information (the “Pro Forma Financial Statements”) are provided for informational purposes only and are subject to a number of uncertainties and assumptions and do not purport to represent what the companies’ actual performance or financial position would have been had the Business Combination occurred on the dates indicated and does not purport to indicate the financial position or results of operations as of any future date or for any future period. With respect to the Pro Forma Financial Statements:
|
● |
the unaudited pro forma condensed combined balance sheet and statement of operations as of and for the three months ended March 31, 2022 were derived from (i) the Company’s consolidated financial statements as of and for the three months ended March 31, 2022, as included in its Quarterly Report on Form 10-Q as filed with the Securities and Exchange Commission on May 13, 2022, and (ii) CBA’s unaudited financial statements as of and for the three months ended March 31, 2022 included elsewhere herein; and |
|
● |
the unaudited pro forma condensed combined balance sheet and statement of operations as of and for the year ended December 31, 2021 were derived from (i) the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, as included in its Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 28, 2022, and (ii) CBA’s audited financial statements as of and for the year ended December 31, 2021 included elsewhere herein. |
The unaudited Pro Forma Financial Statements herein have been adjusted to depict the accounting of a business combination for the Business Combination (“Transaction Accounting Adjustments”), which reflect the application of the purchase accounting required by generally accepted accounting principles in the United States (“GAAP”), linking the effects of the Business Combination to the historical consolidated financial statements. The unaudited Pro Forma Financial Statements do not present any synergies and other transaction effects that have occurred or are expected to occur (“Management’s Adjustments”) and only presents Transaction Accounting Adjustments. The unaudited Pro Forma Financial Statements reflect management’s preliminary and best estimate of the fair value of the tangible and intangible assets acquired and liabilities assumed in the Business Combination based on information currently available. Certain valuations and studies necessary to finalize the determination of estimated fair values and estimated useful lives, are incomplete as of the date of this filing. As final valuations are performed, increases or decreases in the unaudited Pro Forma Financial Statements fair value of assets acquired and liabilities assumed may result in adjustments, which may be material, to the balance sheet and/or statements of operations.
The unaudited preliminary pro forma adjustments for the Business Combination were made primarily to reflect the following Transaction Accounting Adjustments:
|
● |
the Business Combination; |
|
● |
changes in the carrying values of certain assets and liabilities based on a preliminary valuation analysis to reflect their estimated fair values at the date of Closing of the Business Combination, including values assigned to previously unrecognized intangible assets and related changes in amortization expenses; |
|
● |
transaction costs and fees in connection with the Business Combination; and |
|
● |
the effect of the above adjustments on income taxes. |
The Pro Forma Financial Statements have been prepared by us in accordance with Regulation S-X Article 11, Pro Forma Financial Information, as amended by the final rule, Release No. 33-10786, which is referred to herein as Article 11. The Pro Forma Financial Statements are based on various adjustments and assumptions and is not necessarily indicative of what our consolidated statements of operations or consolidated balance sheet actually would have been had the Business Combination been completed as of the dates indicated or will be for any future periods. The Pro Forma Financial Statements do not purport to project our future financial position or operating results following the completion of the Business Combination. The Pro Forma Financial Statements do not include adjustments to reflect any potential revenue, synergies or dis-synergies, or cost savings that may be achievable in connection with the Business Combination, or the associated costs that may be necessary to achieve such revenues, synergies, or cost savings.
The Business Combination will be accounted for as a reverse merger business combination using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The acquisition method of accounting requires use of the fair value concepts defined in ASC 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as “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.” The Pro Forma Financial Statements presented, including the allocation of the purchase price, is based on preliminary estimates of the fair values of the assets acquired and liabilities assumed, and the Company’s assumptions, and will be revised as additional information becomes available. The final purchase price allocation is dependent on, among other things, the finalization of the preliminary asset and liability valuations. The actual adjustments to our consolidated financial statements upon the Closing of the Business Combination will depend on a number of factors, including additional information available and the actual balance of our net assets on the Closing date. Therefore, the actual adjustments will differ from the pro forma adjustments, and the differences may be material. Any final adjustments will change the allocation of the purchase price, which could affect the fair value assigned to the assets and liabilities and could result in a change to the unaudited Pro Forma Financial Statements, including a change to goodwill.
|
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET |
|||||||||||||||||
|
As of March 31, 2022 |
|||||||||||||||||
|
CrossingBridge Advisors, LLC (Historical) |
Enterprise Diversified, Inc. (Historical) |
Transaction Accounting Adjustments |
Combined Pro Forma |
||||||||||||||
|
Assets |
|||||||||||||||||
|
Current assets |
|||||||||||||||||
|
Cash and cash equivalents |
$ | 642,672 | $ | 15,020,160 | $ | 536,900 |
(a) |
$ | 16,199,732 | ||||||||
|
Investments |
2,262,239 | - | - | 2,262,239 | |||||||||||||
|
Accounts receivable, net |
649,854 | 39,454 | - | 689,308 | |||||||||||||
|
Investment redemption receivable |
- | 2,053,587 | - | 2,053,587 | |||||||||||||
|
Other current assets |
- | 15,387 | - | 15,387 | |||||||||||||
|
Total current assets |
3,554,765 | 17,128,588 | 536,900 | 21,220,253 | |||||||||||||
|
Long-term assets |
|||||||||||||||||
|
Property and equipment, net |
- | 8,650 | - | 8,650 | |||||||||||||
|
Intangible assets |
- | - | 1,396,000 |
(d) |
1,396,000 | ||||||||||||
|
Goodwill, net |
- | 212,445 | (212,445 |
) |
(d) |
- | |||||||||||
|
Note receivable |
- | 50,000 | - | 50,000 | |||||||||||||
|
Long-term investments |
- | - | - | - | |||||||||||||
|
Other assets |
- | 60,049 | - | 60,049 | |||||||||||||
|
Total long-term assets |
- | 331,144 | 1,183,555 | 1,514,699 | |||||||||||||
|
Total assets |
$ | 3,554,765 | $ | 17,459,732 | $ | 1,720,455 | $ | 22,734,952 | |||||||||
|
Liabilities and Stockholders’ Equity |
|||||||||||||||||
|
Current liabilities |
|||||||||||||||||
|
Accounts payable |
$ | - | $ | 16,366 | $ | - | $ | 16,366 | |||||||||
|
Accrued compensation |
- | 37,759 | - | 37,759 | |||||||||||||
|
Accrued expenses |
406,344 | 834,636 | 500,000 |
(c) |
1,740,980 | ||||||||||||
|
Deferred revenue |
- | 191,501 | - | 191,501 | |||||||||||||
|
Income taxes payable |
- | 6,532 | - | 6,532 | |||||||||||||
|
Total current liabilities |
406,344 | 1,086,794 | 500,000 | 1,993,138 | |||||||||||||
|
Long-term liabilities |
|||||||||||||||||
|
Redeemable Class B Common Stock and Warrants |
- | - | 610,000 |
(a) |
610,000 | ||||||||||||
|
Due to affiliate |
1,794,895 | - | 603,526 |
(g) |
2,398,421 | ||||||||||||
|
Total long-term liabilities |
1,794,895 | - | 1,213,526 | 3,008,421 | |||||||||||||
|
Total liabilities |
2,201,239 | 1,086,794 | 1,713,526 | 5,001,559 | |||||||||||||
|
Stockholders’ equity |
|||||||||||||||||
|
Members’ equity |
1,353,526 | - | (1,353,526 |
) |
(b) |
- | |||||||||||
|
Common stock |
- | 330,922 | (330,407 |
) |
(a) |
515 | |||||||||||
|
Additional paid-in capital |
- | 27,673,692 | (13,855,019 |
) |
(a), (d), (e), (g), (h) |
13,818,673 | |||||||||||
|
Retained earnings (accumulated deficit) |
- | (11,631,676 |
) |
15,545,881 |
(b), (c), (d), (e), (h) |
3,914,205 | |||||||||||
|
Total stockholders’ equity |
1,353,526 | 16,372,938 | 6,929 |
|
17,733,393 | ||||||||||||
|
Total liabilities and stockholders’ equity (deficit) |
$ | 3,554,765 | $ | 17,459,732 | $ | 1,720,455 | $ | 22,734,952 | |||||||||
|
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS |
|||||||||||||
|
For the Three Months Ended March 31, 2022 |
|||||||||||||
|
CrossingBridge Advisors, LLC (Historical) |
Enterprise Diversified, Inc. (Historical) |
Transaction Accounting Adjustments |
Combined Pro Forma |
||||||||||
|
Revenues - asset management |
$ | 1,707,124 | $ | 38,495 | $ | - | $ | 1,745,619 | |||||
|
Revenues - real estate |
- | 1,800 | - | 1,800 | |||||||||
|
Revenues - internet operations |
- | 216,680 | - | 216,680 | |||||||||
|
Total revenues |
1,707,124 | 256,975 | - | 1,964,099 | |||||||||
|
Cost of revenues - real estate |
- | 445 | - | 445 | |||||||||
|
Cost of revenues - internet operations |
- | 71,194 | - | 71,194 | |||||||||
|
Total cost of revenues |
- | 71,639 | - | 71,639 | |||||||||
|
Gross profit - asset management |
1,707,124 | 38,495 | - | 1,745,619 | |||||||||
|
Gross profit - real estate |
- | 1,355 | - | 1,355 | |||||||||
|
Gross profit - internet operations |
- | 145,486 | - | 145,486 | |||||||||
|
Total gross profit |
1,707,124 | 185,336 | - | 1,892,460 | |||||||||
|
Salaries and wages |
756,643 | 156,847 | - | 913,490 | |||||||||
|
Other operating expenses |
57,665 | 50,713 | 87,250 |
(f) |
195,628 | ||||||||
|
Computer expenses |
28,878 | - | - | 28,878 | |||||||||
|
Professional fees |
1,200 | 744,853 | - | 746,053 | |||||||||
|
Research |
3,871 | - | - | 3,871 | |||||||||
|
Mutual fund expense |
47,972 | - | - | 47,972 | |||||||||
|
Travel and entertainment |
12,078 | 12,046 | - | 24,124 | |||||||||
|
Insurance |
34,358 | 19,787 | - | 54,145 | |||||||||
|
Total expenses |
942,665 | 984,246 | 87,250 | 2,014,161 | |||||||||
|
Income (loss) from operations |
764,459 | (798,910 |
) |
(87,250 |
) |
(121,701 | ) | ||||||
|
Gain on sale of real estate |
- | 43,140 | - | 43,140 | |||||||||
|
Interest income (expense) |
7 | - | - | 7 | |||||||||
|
Dividend income |
9,792 | - | - | 9,792 | |||||||||
|
Unrealized loss on investment |
(12,641 |
) |
- | - | (12,641 |
) |
|||||||
|
Other income, net |
- | 22,948 | - | 22,948 | |||||||||
|
Total other income (loss) |
(2,842 |
) |
66,088 | - | 63,246 | ||||||||
|
Income (loss) from continuing before income taxes |
761,617 | (732,822 |
) |
(87,250 |
) |
(58,455 | ) | ||||||
|
Income tax benefit (expense) |
- | - | - |
(i) |
- | ||||||||
|
Income (loss) from operations |
$ | 761,617 | $ | (732,822 |
) |
$ | (87,250 |
) |
$ | (58,455 | ) | ||
|
Net income (loss) per share from operations, basic |
$ | (0.28 |
) |
$ | (0.03 |
) |
$ | (0.01 | ) | ||||
|
Net income (loss) per share from operations, diluted |
$ | (0.28 |
) |
$ | (0.03 |
) |
$ | (0.01 | ) | ||||
|
Weighted average number of shares, basic |
2,647,383 | 2,500,000 | 5,147,383 | ||||||||||
|
Weighted average number of shares, diluted |
2,647,383 | 2,500,000 | 5,147,383 | ||||||||||
|
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS |
|||||||||||||||||
|
For the Year Ended December 31, 2021 |
|||||||||||||||||
|
CrossingBridge Advisors, LLC (Historical) |
Enterprise Diversified, Inc. (Historical) |
Transaction Accounting Adjustments |
Combined Pro Forma |
||||||||||||||
|
Revenues - asset management |
$ | 4,287,085 | $ | 4,650,298 | $ | - | $ | 8,937,383 | |||||||||
|
Revenues - real estate |
- | 356,560 | - | 356,560 | |||||||||||||
|
Revenues - internet operations |
- | 895,385 | - | 895,385 | |||||||||||||
|
Total revenues |
4,287,085 | 5,902,243 | - | 10,189,328 | |||||||||||||
|
Cost of revenues - real estate |
- | 248,424 | - | 248,424 | |||||||||||||
|
Cost of revenues - internet operations |
- | 270,627 | - | 270,627 | |||||||||||||
|
Total cost of revenues |
- | 519,051 | - | 519,051 | |||||||||||||
|
Gross profit - asset management |
4,287,085 | 4,650,298 | - | 8,937,383 | |||||||||||||
|
Gross profit - real estate |
- | 108,136 | - | 108,136 | |||||||||||||
|
Gross profit - internet operations |
- | 624,758 | - | 624,758 | |||||||||||||
|
Total gross profit |
4,287,085 | 5,383,192 | - | 9,670,277 | |||||||||||||
|
Salaries and wages |
2,066,537 | 760,775 | 94,050 |
(g) |
2,921,362 | ||||||||||||
|
Other operating expenses |
214,736 | 184,988 | 349,000 |
(f) |
748,724 | ||||||||||||
|
Computer expenses |
133,079 | - | - | 133,079 | |||||||||||||
|
Professional fees |
124,536 | 1,813,262 | - | 1,937,798 | |||||||||||||
|
Research |
64,223 | - | - | 64,223 | |||||||||||||
|
Mutual fund expense |
107,300 | - | - | 107,300 | |||||||||||||
|
Travel and entertainment |
38,781 | 6,505 | - | 45,286 | |||||||||||||
|
Insurance |
43,030 | 59,109 | - | 102,139 | |||||||||||||
|
Total expenses |
2,792,222 | 2,824,639 | 443,050 | 6,059,911 | |||||||||||||
|
Income from operations |
1,494,863 | 2,558,553 | (443,050 |
) |
3,610,366 | ||||||||||||
|
Gain on sale of noncontrolling interest in subsidiary |
- | 778,872 | - | 778,872 | |||||||||||||
|
Impairment expense |
- | (189,515 |
) |
- | (189,515 |
) |
|||||||||||
|
Interest income (expense) |
119 | (7,327 |
) |
- | (7,208 |
) |
|||||||||||
|
Dividend income |
15,506 | - | - | 15,506 | |||||||||||||
|
Unrealized loss on investment |
(402 |
) |
- | - | (402 |
) |
|||||||||||
|
Gain on bargain purchase |
- | - | 3,154,729 |
(d) |
3,154,729 | ||||||||||||
|
Other income, net |
- | 48,298 | - | 48,298 | |||||||||||||
|
Total other income |
15,223 | 630,328 | 3,154,729 | 3,800,280 | |||||||||||||
|
Income from continuing before income taxes |
1,510,086 | 3,188,881 | 2,711,679 | 7,410,646 | |||||||||||||
|
Income tax expense |
- | (366,532 |
) |
- |
(i) |
(366,532 |
) |
||||||||||
|
Income from operations |
$ | 1,510,086 | $ | 2,822,349 | $ | 2,711,679 | $ | 7,044,114 | |||||||||
|
Net income per share from operations, basic |
$ | 1.07 | $ | 1.08 | $ | 1.37 | |||||||||||
|
Net income per share from operations, diluted |
$ | 1.07 | $ | 1.08 | $ | 1.37 | |||||||||||
|
Weighted average number of shares, basic |
2,643,302 | 2,500,000 | 5,143,302 | ||||||||||||||
|
Weighted average number of shares, diluted |
2,643,633 | 2,500,000 | 5,143,633 | ||||||||||||||
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
|
1. |
Description of Transaction |
Pursuant to the terms of the Merger Agreement, and in connection with the closing of the Business Combination:
|
● |
100% of CBA’s membership interests outstanding immediately prior to Closing were exchanged for: |
|
o |
2,400,000 shares of New Parent Class A Common Stock; |
|
o |
405,000 additional shares of New Parent Class A Common Stock acquired by the CBA Member, inclusive of the required purchase of 100,000 shares of New Parent Class A Common Stock by the CBA Member, through certain of its designees which included certain officers, directors and employees of the Company on August 18, 2022 for a purchase price of $5.369 per share; |
|
o |
1,800,000 redeemable shares of New Parent Class B Common Stock along with the ClassW-1 Warrant pursuant to which the CBA Member may acquire 1,800,000 additional shares of New Parent Class A Common Stock at a price of $8.00 per share, which warrant will expire five years after the Closing date. The New Parent Class B Common Stock only provides voting rights and no economic interests, and the New Parent Class B Common Stock are redeemable upon the earlier of exercise or expiration of the Class W-1 Warrant; and |
|
o |
A Class W-2 Warrant to acquire 250,000 additional shares of New Parent Class A Common Stock at a price of $8.00 per share, which warrant will expire five years after the Closing date. |
|
● |
The former stockholders of the Company received rights to receive 2,647,383 shares of New Parent Class A Common Stock; |
|
● |
The CBA Member through certain of its designees which included certain officers, directors and employees of the Company acquired an aggregate of 405,000 additional shares, inclusive of the required purchase of 100,000 shares by the CBA Member, of New Parent Class A Common Stock on August 18, 2022 for a purchase price of $5.369 per share; |
|
● |
Based on the exchange of equity interests, as of the Closing date, former Company stockholders owned 36.0% of the outstanding shares of common stock and voting interests of New Parent, and former CBA members owned 64.0% of such interests, on a fully diluted basis; |
|
● |
A majority of the New Parent Board of Directors was designated by the CBA Member; and |
|
● |
New Parent’s officers and senior management will primarily consist of ENDI officers and senior management led by David Sherman as Chief Executive Officer. The CBA officers will remain in their capacity at CBA. |
|
2. |
Basis of Presentation |
The unaudited Pro Forma Financial Statements were prepared in accordance with the regulations of the U.S. Securities and Exchange Commission (the “SEC”) and are intended to show how the Mergers might have affected the historical financial statements of the Company and CBA if the Mergers had been completed on January 1, 2021 for the purpose of the statements of operations for the three months ended March 31, 2022 and the year ended December 31, 2021, and on March 31, 2022 for the purpose of the balance sheet.
Certain disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in these unaudited Pro Forma Financial Statements as permitted by SEC rules and regulations.
The Transaction Accounting Adjustments reflect the Mergers as a reverse acquisition business combination, using the acquisition method of accounting.
|
3. |
Accounting for the Merger |
The Company has concluded that CBA is the accounting acquirer in the Mergers and, accordingly, the Mergers will be accounted for as a reverse acquisition business combination. The unaudited Pro Forma Financial Statements reflect accounting for the Mergers in accordance with the acquisition method of accounting. Under the acquisition method, the purchase consideration is allocated to the assets acquired and the liabilities assumed based on their estimated fair values, with any excess of the estimated fair values of the identifiable net assets acquired over the purchase consideration being recorded as a gain on bargain purchase. The Company’s accounting policies and practices do not materially differ from CBA’s accounting policies and practices.
Purchase Consideration
The Mergers’ consideration is estimated to be $14.4 million:
|
Common stock outstanding as of March 31, 2022 |
2,647,383 | |||
|
Closing quoted stock price |
$ | 5.44 | ||
|
Estimated consideration |
$ | 14,401,764 |
The fair value of the Company’s common stock used in determining the amount of Mergers consideration was calculated using the Company’s closing quoted stock price on August 10, 2022.
Allocation of Purchase Consideration
The following table summarizes the allocation of the purchase consideration to the assets acquired and liabilities assumed on March 31, 2022, based on their preliminary estimated fair values:
|
Purchase Consideration |
$ |
14,401,764 |
||
|
Tangible Assets Acquired: |
||||
|
Cash |
$ |
15,020,160 |
||
|
Prepaid expenses and other assets |
2,227,127 |
|||
|
Identifiable Intangible Assets Acquired: |
||||
|
Customer relationships |
1,396,000 |
|||
|
Liabilities Assumed: |
||||
|
Accounts payable and accrued expenses |
(895,293 |
) | ||
|
Deferred revenue and other |
(191,501 |
) | ||
|
Net Assets Acquired |
$ |
17,556,493 |
||
|
Bargain Purchase |
$ |
3,154,729 |
||
The identifiable intangible asset associated with customer relationships will be amortized on a straight-line basis over its preliminary estimated useful life of four years. The fair value of the net assets acquired exceeds the purchase price resulting in the transaction being accounted for as a bargain purchase. This results in the Company recording a non-operating gain on the transaction.
The Transaction Accounting Adjustments reflect the Mergers as a reverse acquisition business combination using the acquisition method of accounting. The Pro Forma Financial Statements reflect management’s preliminary and best estimate of the fair value of the tangible and intangible assets acquired and liabilities assumed in the Mergers based on information currently available. Certain valuations and studies necessary to finalize the determination of estimated fair values and estimated useful lives are incomplete as of the date of this filing. As final valuations are performed, increases or decreases in the fair value of assets acquired and liabilities assumed may result in adjustments, which may be material, to the unaudited pro forma condensed combined balance sheet and/or statements of operations.
Equity-linked Instruments
As part of the Merger, the CBA Member received (i) 2,400,000 shares of New Parent Class A Common Stock, (ii) 1,800,000 redeemable shares of New Parent Class B Common Stock, (iii) a Class W-1 Warrant to purchase 1,800,000 shares of New Parent Class A Common Stock, (iv) 100,000 shares of New Parent Class A Common Stock for a purchase price of $5.369 per share and (v) a Class W-2 Warrant to purchase 250,000 shares of New Parent Class A Common Stock.
In addition, pursuant to the CBA Member’s right to purchase additional New Parent Class A Common Stock in connection with the Business Combination, on August 18, 2022 the CBA acquired an additional 250,000 shares of New Parent Class A Common Stock for a purchase price of $5.369 per share.
The Company’s stockholders will exchange their outstanding shares for 2,647,383 shares of New Parent Class A Common Stock. In addition, on August 18, 2022, the CBA Member through certain of its designees which included certain officers, directors and employees of the Company acquired an additional 405,000 shares, inclusive of the required purchase of 100,000 shares by the CBA Member, of New Parent Class A Common Stock at a purchase price of $5.369 per share.
New Parent’s legal capital structure (i.e., its outstanding shares of capital stock and equity linked instruments) is reflected as the combined company’s capital structure outstanding. After consummation of the Mergers, the combined company’s statements of operations will include the Company’s and CBA’s activities; historical financial statements will solely reflect CBA’s activities, as the predecessor entity.
|
|
4. |
Transaction Accounting Adjustments |
The following assumptions and adjustments apply to the unaudited Pro Forma Financial Statements related to the Mergers:
|
(a) |
The pro forma condensed combined balance sheet as of March 31, 2022 represents the issuance of the following securities to the identified parties: |
|
o |
Issuance to CBA’s former member: |
|
■ |
2,400,000 shares of New Parent Class A Common Stock; |
|
■ |
100,000 additional shares of New Parent Class A Common Stock acquired by the CBA Member for $536,900; |
|
■ |
Option to acquire up to 250,000 additional shares of New Parent Class A Common Stock at a price of the lesser of $8 per share or the 60-day trailing volume weighted average price of the Company’s common stock, which option will expire 5 trading days after closing. None of these are assumed to be exercised and they are not reflected in the pro forma financial statements; and |
|
■ |
1,800,000 redeemable shares of New Parent Class B Common Stock along with a Class W-1 Warrant to acquire 1,800,000 additional shares of New Parent Class A Common Stock at a price of $8.00 per share, which warrant will expire five years after Closing. The New Parent Class B Common Stock only provides voting rights and no economic interests, and the New Parent Class B Common Stock are redeemable upon the earlier of exercise or expiration of the Class W-1 Warrant. The combined New Parent Class B Common Stock and Class W-1 Warrant are liability classified financial instruments; and |
|
■ |
A Class W-2 Warrant to acquire 250,000 additional shares of New Parent Class A Common Stock at a price of $8.00 per share, which warrant will expire five years after Closing. |
|
o |
Issuance to the Company’s former stockholders: |
|
■ |
2,647,383 shares of New Parent Class A Common Stock; and |
|
■ |
To certain employees, officers and directors, the option to acquire 55,000 additional shares of New Parent Class A Common Stock in the aggregate at a price of the lesser of $8 per share or the 60-day trailing volume weighted average price of the Company’s common stock, which option will expire 5 days after closing. None of these are assumed to be exercised and they are not reflected in the Pro Forma Financial Statements. |
|
(b) |
Represents the pro forma reclassification of CrossingBridge’s membership interests to retained earnings (accumulated deficit) of $1,353,526. |
|
(c) |
Represents the pro forma impact to the balance sheet of accruing approximately $500,000 of transaction expenses incurred subsequent to March 31, 2022, with an offsetting increase to accumulated deficit. |
|
(d) |
Represents the pro forma impact of the elimination of the Company’s historical goodwill and the allocation of purchase consideration to the identifiable intangible assets acquired (customer relationships) recognition of a gain from the bargain purchase reflecting the excess of the fair value of the net assets acquired over the purchase consideration. This is the result of the transaction being based on a fixed number of shares and the subsequent decrease in the Company’s stock price at August 10, 2022. |
|
(e) |
Represents the pro forma impact of eliminating ENDI’s historical accumulated deficit of $11,631,676. |
|
(f) |
Represents the pro forma straight-line annual amortization for the acquired intangible asset related to customer relationships, over its preliminary estimated useful life of four years. |
|
(g) |
Represents pro forma adjustment due to working capital target amount. |
|
(h) |
Represents pro forma adjustments to recognize the impact to pro forma equity and the impact to the pro forma statement of operations for the year ended December 31, 2021, for the post-combination compensation expense related to the Class W-2 Warrant and the additional share purchases totaling $94,050. |
|
(i) |
The pro forma income (loss) from operations does not reflect any additional provision (benefit) for income taxes resulting from the Mergers due to the presence of net operating loss carryforwards and a full valuation allowance for all net deferred tax assets. The Company has not yet completed a study of any potential limitation on the use of its net operating loss carryforward under section 382 of the Internal Revenue Code of 1986, as amended. ENDI’s income tax provision for the year ended December 31, 2021, was a current provision solely attributable to current period distributions related to the Company’s investment in Alluvial Fund and such amount will not be affected by CBA income. |
The summary of the effects of purchase accounting on equity and redeemable Class B Common Stock and Class W-1 warrant is as follows:
|
Member’s Equity |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Equity |
Class B Liability |
W-1 Warrant Liability |
Total Liability |
|||||||||||||||||||||||||
|
Historical CrossingBridge Advisors, LLC |
$ | 1,353,526 | $ | - | $ | - | $ | - | $ | 1,353,526 | $ | - | $ | - | $ | - | ||||||||||||||||
|
Historical Enterprise Diversified, Inc. |
- | 330,922 | 27,673,692 | (11,631,676 |
) |
16,372,938 | - | - | - | |||||||||||||||||||||||
|
Combined |
1,353,526 | 330,922 | 27,673,692 | (11,631,676 |
) |
17,726,464 | - | - | - | |||||||||||||||||||||||
|
Transaction Accounting Adjustments |
||||||||||||||||||||||||||||||||
|
GAAP purchase price |
- | 505 | 13,791,259 | - | 13,791,764 | - | 610,000 | 610,000 | ||||||||||||||||||||||||
|
Gain on bargain purchase |
- | - | - | 3,154,729 | 3,154,729 | - | - | - | ||||||||||||||||||||||||
|
Post-combination compensation expense |
- | - | 94,050 | (94,050 |
) |
- | - | - | - | |||||||||||||||||||||||
|
Accrued transaction expenses |
- | - | - | (500,000 |
) |
(500,000 |
) |
- | - | - | ||||||||||||||||||||||
|
Working capital adjustment to purchase price |
- | - | (603,526 |
) |
- | (603,526 |
) |
- | - | - | ||||||||||||||||||||||
|
Additional purchase of common shares |
- | 10 | 536,900 | - | 536,910 | - | - | - | ||||||||||||||||||||||||
|
Reclassify CBA historical member’s equity |
(1,353,526 |
) |
- | - | 1,353,526 | - | - | - | - | |||||||||||||||||||||||
|
Eliminate ENDI historical equity |
- | (330,922 |
) |
(27,673,692 |
) |
11,631,676 | (16,372,938 |
) |
- | - | - | |||||||||||||||||||||
|
Subtotal Transaction Accounting Adjustment |
(1,353,526 |
) |
(330,407 |
) |
(13,855,009 |
) |
15,545,881 | 6,939 |
|
- | 610,000 | 610,000 | ||||||||||||||||||||
|
Pro Forma Combined |
$ | - | $ | 515 | $ | 13,818,683 | $ | 3,914,205 | $ | 17,733,403 | $ | - | $ | 610,000 | $ | 610,000 | ||||||||||||||||
The estimated and preliminary fair value of the Class W-1 Warrant is based on the Black-Scholes option pricing model using an exercise price of $8.00, a stock price of $5.44 and an annual dividend yield of 0%. Other assumptions included in the model are volatility of 38.00%, a risk-free rate of 1.23% and an expected life of five years. Because the redeemable Class B Common Stock have no economic interests, the entire fair value was allocated to the Class W-1 Warrant.
|
5. |
Pro Forma Income per Share |
Pro forma income per share, basic and diluted, including pro forma impacts of the Mergers, is calculated as follows:
|
For the Three Months Ended March 31, 2022 |
For the Year Ended December 31, 2021 |
|||||||
|
Basic and Diluted |
||||||||
|
Net income (loss), as originally reported (Enterprise Diversified, Inc.) |
$ | (732,822 |
) |
$ | 2,822,349 | |||
|
Pro forma net income (loss) |
$ | (58,455 | ) | $ | 7,044,114 | |||
|
Basic |
||||||||
|
Weighted average outstanding shares for the year, as originally reported (Enterprise Diversified, Inc.) |
2,647,383 | 2,643,302 | ||||||
|
Pro forma adjustment - weighted average common shares issued as consideration |
2,500,000 | 2,500,000 | ||||||
|
Pro forma weighted average outstanding shares, basic |
5,147,383 | 5,143,302 | ||||||
|
Basic income (loss) per share, as originally reported (Enterprise Diversified, Inc.) |
$ | (0.28 |
) |
$ | 1.07 | |||
|
Pro forma basic income (loss) per share |
$ | (0.01 | ) | $ | 1.37 | |||
|
Diluted |
||||||||
|
Weighted average outstanding shares for the year, as originally reported (Enterprise Diversified, Inc.) |
2,647,383 | 2,643,633 | ||||||
|
Pro forma adjustment - weighted average common shares issued as consideration |
2,500,000 | 2,500,000 | ||||||
|
Pro forma weighted average outstanding shares, diluted |
5,147,383 | 5,143,633 | ||||||
|
Diluted income (loss) per share, as originally reported (Enterprise Diversified, Inc.) |
$ | (0.28 |
) |
$ | 1.07 | |||
|
Pro forma diluted income (loss) per share |
$ | (0.01 | ) | $ | 1.37 | |||
Basic and diluted weighted average shares outstanding as originally reported are adjusted to reflect the effects of (i) the exchange of all outstanding shares of ENDI common stock for an equal number of shares of New Parent Class A Common Stock, (ii) the issuance of 2,400,000 shares of New Parent Class A Common Stock in exchange for 100% of CrossingBridge’s membership interests and (iii) the purchase of an additional 100,000 shares of New Parent Class A Common Stock by the CBA Member.
Basic and diluted earnings per share calculations excludes the following securities as their inclusion would be anti-dilutive: (i) A Class W-1 Warrant to acquire 1,800,000 shares of New Parent Class A Common Stock and a Class W-2 Warrant to acquire 250,000 shares of New Parent Class A Common Stock, (ii) 250,000 stock purchase options and (iii) 55,000 stock purchase options. In addition, 1,800,000 shares of New Parent Class B Common Stock are excluded as they have no economic interest and are not considered participating securities; they are for voting purposes only.