UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 31, 2011
INSTITUTIONAL FINANCIAL MARKETS, INC.
(Exact name of registrant as specified in its charter)
Maryland | 1-32026 | 16-1685692 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification Number) |
Cira Centre 2929 Arch Street, 17th Floor Philadelphia, Pennsylvania |
19104 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (215) 701-9555
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
EXPLANATORY NOTE:
This Amendment No. 1 amends Item 9.01 of the Registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2011 by providing the financial statement information of PrinceRidge Partners LLC and the pro forma financial information required by Item 9.01 of Form 8-K with respect to the acquisition of a majority interest in PrinceRidge Partners LLC and its subsidiary PrinceRidge Holdings LP by IFMI, LLC, a majority owned subsidiary of the Registrant (the Acquisition).
Item 9.01 | Financial Statements and Exhibits. |
(a) | Financial statements of businesses acquired. |
The audited consolidated statements of financial condition of PrinceRidge Partners LLC and Subsidiaries as of December 31, 2010 and the related consolidated statements of operations, changes in total capital and cash flows, and the notes related thereto, are attached hereto as Exhibit 99.1.
The audited consolidated statements of financial condition of PrinceRidge Partners LLC and Subsidiaries as of December 31, 2009 and the related consolidated statements of operations, changes in total capital and cash flows, and the notes related thereto, are attached hereto as Exhibit 99.2.
The unaudited consolidated statements of financial condition of PrinceRidge Partners LLC and Subsidiaries as of March 31, 2011 and the related consolidated statements of operations, changes in total capital and cash flows, and the notes related thereto, are attached hereto as Exhibit 99.3.
(b) | Pro forma financial information. |
The unaudited pro forma condensed combined balance sheet of the Registrant as of March 31, 2011 and the unaudited pro forma condensed combined statement of operations of the Registrant for the three months ended March 31, 2011 and for the year ended December 31, 2010, and the notes related thereto, giving effect to the Acquisition are attached hereto as Exhibit 99.4.
(d) | Exhibits. |
Exhibit No. |
Exhibit Description | |
23.1* |
Consent of KPMG LLP, Independent Auditing Firm, regarding the financial statements of PrinceRidge Partners LLC. | |
99.1* |
Audited consolidated statements of financial condition of PrinceRidge Partners LLC and Subsidiaries as of December 31, 2010, and the related consolidated statements of operations, changes in total capital and cash flows, and the notes related thereto. | |
99.2* |
Audited consolidated statements of financial condition of PrinceRidge Partners LLC and Subsidiaries as of December 31, 2009, and the related consolidated statements of operations, changes in total capital and cash flows, and the notes related thereto. | |
99.3* |
Unaudited consolidated statements of financial condition of PrinceRidge Partners LLC and Subsidiaries as of March 31, 2011 and the related consolidated statements of operations, changes in total capital and cash flows, and the notes related thereto. | |
99.4* |
Unaudited pro forma condensed combined balance sheet of the Registrant as of March 31, 2011 and the unaudited pro forma condensed combined statement of operations of the Registrant for the three months ended March 31, 2011 and for the year ended December 31, 2010, and the notes related thereto. |
* | Filed electronically herewith. |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
INSTITUTIONAL FINANCIAL MARKETS, INC. | ||||||
Date: August 2, 2011 | By: | /s/ JOSEPH W. POOLER, JR. | ||||
Joseph W. Pooler, Jr. Chief Financial Officer |
3
EXHIBIT INDEX
Exhibit No. |
Exhibit Description | |
23.1* |
Consent of KPMG LLP, Independent Auditing Firm, regarding the financial statements of PrinceRidge Partners LLC. | |
99.1* |
Audited consolidated statements of financial condition of PrinceRidge Partners LLC and Subsidiaries as of December 31, 2010, and the related consolidated statements of operations, changes in total capital and cash flows, and the notes related thereto. | |
99.2* |
Audited consolidated statements of financial condition of PrinceRidge Partners LLC and Subsidiaries as of December 31, 2009 and the related consolidated statements of operations, changes in total capital and cash flows, and the notes related thereto. | |
99.3* |
Unaudited consolidated statements of financial condition of PrinceRidge Partners LLC and Subsidiaries as of March 31, 2011 and the related consolidated statements of operations, changes in total capital and cash flows, and the notes related thereto. | |
99.4* |
Unaudited pro forma condensed combined balance sheet of the Registrant as of March 31, 2011 and the unaudited pro forma condensed combined statement of operations of the Registrant for the three months ended March 31, 2011 and for the year ended December 31, 2010, and the notes related thereto. |
* | Filed electronically herewith. |
4
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Institutional Financial Markets, Inc.
We consent to the incorporation by reference in the registration statements on Forms S-3 (File No.333-145417, effective October 2, 2007; File No. 333-166385, effective May 24, 2010; and File No. 333-172194, effective April 28, 2011) and on Forms S-8 (File No. 333-140318, effective January 30, 2007; File No.333-143503, effective June 5, 2007; File No. 333-153211, effective August 27, 2008; File No. 333-166387, effective April 29, 2010; File No. 333-166386, effective on April 29, 2010; and File No. 333-174281, effective on May 17, 2011) of Institutional Financial Markets, Inc. of our reports dated June 30, 2011, with respect to the consolidated statements of financial condition of PrinceRidge Partners LLC as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in total capital and cash flows for each of the years then ended, which reports appear in the Form 8-K/A of Institutional Financial Markets, Inc. dated August 2, 2011.
/s/ KPMG LLP
August 1, 2011
EXHIBIT 99.1
PRINCERIDGE PARTNERS LLC
Consolidated Financial Statements
December 31, 2010
(With Independent Auditors Report Thereon)
Independent Auditors Report
Management Board
PrinceRidge Partners LLC:
We have audited the accompanying consolidated statement of financial condition of PrinceRidge Partners LLC and subsidiaries (the Company) as of December 31, 2010, and the related consolidated statements of operations, changes in total capital, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated 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 includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PrinceRidge Partners LLC and subsidiaries as of December 31, 2010 and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
June 30, 2011
PRINCERIDGE PARTNERS LLC
Consolidated Statement of Financial Condition
December 31, 2010
Assets | ||||
Cash and cash equivalents |
$ | 4,510,115 | ||
Financial instruments owned, at fair value |
20,001,092 | |||
Receivable from clearing broker |
7,916,723 | |||
Furniture, equipment and leasehold improvements at cost, less accumulated depreciation and amortization of $1,126,376 |
979,043 | |||
Receivables from others (net of allowances $27,117) |
660,015 | |||
Prepaid expenses |
630,957 | |||
Advances to employees |
521,270 | |||
Due from Members |
1,000 | |||
Other assets |
455,922 | |||
|
|
|||
Total assets |
$ | 35,676,137 | ||
|
|
|||
Liabilities and Capital | ||||
Financial instruments sold, not yet purchased, at fair value |
$ | 13,729,152 | ||
Accrued incentive compensation |
2,853,762 | |||
Accrued other expenses and other liabilities |
1,434,967 | |||
|
|
|||
Total liabilities |
18,017,881 | |||
Members capital |
(228,162 | ) | ||
Noncontrolling interest |
17,886,418 | |||
|
|
|||
Total capital |
17,658,256 | |||
|
|
|||
Total liabilities and capital |
$ | 35,676,137 | ||
|
|
See accompanying notes to consolidated financial statements.
2
PRINCERIDGE PARTNERS LLC
Consolidated Statement of Operations
Year ended December 31, 2010
Revenues: |
||||
Principal transactions, net |
$ | 20,123,602 | ||
Investment banking fees |
4,357,352 | |||
Net interest income |
261,414 | |||
Total revenues |
24,742,368 | |||
Expenses: |
||||
Compensation and benefits |
19,368,624 | |||
Communications and technology |
3,111,558 | |||
Professional fees |
2,408,869 | |||
Occupancy and equipment |
1,842,737 | |||
Business development |
655,706 | |||
Brokerage, clearing and exchange fees |
536,788 | |||
Regulatory fees |
454,173 | |||
Other |
918,416 | |||
Total expenses |
29,296,871 | |||
Net loss |
(4,554,503 | ) | ||
Less: Net loss attributable to noncontrolling interest |
4,478,503 | |||
Net loss attributable to controlling interest |
$ | (76,000 | ) | |
See accompanying notes to consolidated financial statements.
3
PRINCERIDGE PARTNERS LLC
Consolidated Statement of Changes in Total Capital
Year ended December 31, 2010
Members capital |
Noncontrolling interest |
Total capital |
||||||||||
Balance at December 31, 2009 |
$ | (160,662 | ) | 21,622,321 | $ | 21,461,659 | ||||||
Capital contributions |
8,500 | 742,600 | 751,100 | |||||||||
Net loss |
(76,000 | ) | (4,478,503 | ) | (4,554,503 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2010 |
$ | (228,162 | ) | 17,886,418 | $ | 17,658,256 | ||||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
PRINCERIDGE PARTNERS LLC
Consolidated Statement of Cash Flows
Year ended December 31, 2010
Cash flows from operating activities: |
||||
Net loss |
$ | (4,554,503 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: |
||||
Depreciation |
818,096 | |||
(Increase) decrease in operating assets: |
||||
Financial instruments owned, at fair value |
(14,653,645 | ) | ||
Receivable from clearing broker |
(3,827,807 | ) | ||
Receivables from others |
268,745 | |||
Prepaid expenses |
(130,956 | ) | ||
Advances to employees |
108,187 | |||
Due from Members |
(735 | ) | ||
Other assets |
(7,312 | ) | ||
Increase (decrease) in operating liabilities: |
||||
Financial instruments sold, not yet purchased, at fair value |
12,418,527 | |||
Accrued incentive compensation |
810,695 | |||
Accrued expenses and other liabilities |
76,380 | |||
|
|
|||
Net cash used in operating activities |
(8,674,328 | ) | ||
|
|
|||
Cash flows from investing activities: |
||||
Purchase of office equipment and leasehold improvements |
(531,773 | ) | ||
|
|
|||
Net cash used in investing activities |
(531,773 | ) | ||
|
|
|||
Cash flows from financing activities: |
||||
Capital contributions from Members |
8,500 | |||
Noncontrolling interest |
742,600 | |||
|
|
|||
Net cash provided by financing activities |
751,100 | |||
|
|
|||
Net decrease in cash and cash equivalents |
(8,455,001 | ) | ||
Cash and cash equivalents, December 31, 2009 |
12,965,116 | |||
|
|
|||
Cash and cash equivalents, December 31, 2010 |
$ | 4,510,115 | ||
|
|
|||
Supplemental disclosure of cash flow information: |
||||
Cash paid for interest |
$ | 979,053 | ||
Cash paid for taxes |
|
See accompanying notes to consolidated financial statements.
5
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2010
(1) | Organization |
PrinceRidge Partners LLC (the Company) was organized as a limited liability company under the laws of the state of Delaware on January 28, 2008 and is the General Partner of PrinceRidge Holdings LP, a financial services company. Pursuant to the Companys LLC agreement, certain Members have been appointed as Managing Members of the Company for which the authority for day-to-day management decision making resides. The Company also has limited partner interests (non-managing members) which have certain limited rights as specified in the Companys LLC agreement. PrinceRidge Holdings LP is comprised of two wholly owned operating subsidiaries; The PrinceRidge Group LLC, a U.S. registered broker dealer, and PrinceRidge Capital LLC, a dealer in non-securities related products. The Company was formed on January 28, 2008 under the Delaware Limited Liability Company Act and the Company and its operating subsidiaries subsequently changed their names on June 29, 2009 from VinsonForbes Holdings LLC, VinsonForbes Group LP, VinsonForbes & Co. LLC and VinsonForbes Capital LLC to PrinceRidge Partners LLC, PrinceRidge Holdings LP, The PrinceRidge Group LLC, and PrinceRidge Capital LLC, respectively. On June 18, 2009, The PrinceRidge Group LLC became a member of the Financial Industry Regulation Authority (FINRA) and other various exchanges and received approval to operate as a broker-dealer registered with Securities and Exchange Commission (SEC). Additionally, the PrinceRidge Group LLC is a member of the Securities Investor Protection Corporation (SIPC).
The Company, through its operating subsidiaries, commenced operations on April 1, 2009 and operates an institutional brokerage and investment banking business. The Companys customers are predominately institutional investors including brokers and dealers, commercial banks, asset managers and other financial institutions. The PrinceRidge Group LLC has a clearing agreement with Pershing LLC whereby all securities transactions are cleared on a fully disclosed basis. The PrinceRidge Group LLC is exempt from Rule 15c3-3 of the Securities and Exchange Commission under paragraph k(2)(ii) of that rule.
(2) | Summary of Significant Accounting Policies |
(a) | Basis of Presentation |
The Companys consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these, and other, estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.
(b) | Cash and Cash Equivalents |
The Company defines cash equivalents as short-term interest-earning deposits with original maturities of three months or less that are not held for sale in the ordinary course of business.
6 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2010
The Company maintains deposits in federally insured financial institutions in excess of federally insured (FDIC) limits and in institutions in which deposits are not insured. However, management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institution in which those deposits are held.
(c) | Revenue Recognition |
Principal Transactions
The Company earns revenue from (i) transactions executed as agent or riskless principal and (ii) related net trading gains and losses from market making and dealing activities to facilitate customer orders. These activities and associated revenue are recorded on a trade date basis. Financial instruments owned and financial instruments sold, not yet purchased, are recorded on a trade-date basis at fair value with realized and unrealized gains and losses reflected in principal transactions, net in the accompanying statement of operations.
Investment Banking Fees
The Company earns fees for providing strategic advisory services in mergers and acquisitions and other transactions which are predominately comprised of fees based on the successful completion of a transaction, and from capital markets transactions which are comprised of underwriting securities offerings and arranging private placements, including both debt and equity offerings.
Advisory fees, net of deal related expenses, are recorded when earned, the fees are determinable and collection is reasonably assured. Nonrefundable upfront fees are deferred and recognized as revenue ratably over the expected period in which the related services are rendered. Upon successful completion of a transaction or termination of an engagement, the recognition of revenue would be accelerated.
Capital markets revenue arise from securities offerings and private placements in which the Company acted as a placement agent or underwriter. Private placement revenue is recorded when the underlying transaction is completed under the terms of the relevant agreement, typically on the closing date of the transaction. Underwriting revenue, which includes management fees, selling concessions and underwriting fees, net of related syndicate expenses, is recorded on a trade-date basis.
(d) | Fair Value of Financial Instruments |
The Company accounts for financial instruments that are being measured and reported on a fair value basis in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between current market participants at the measurement date.
7 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2010
FASB ASC 820 outlines a fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (which are considered level 1 measurements) and the lowest priority to unobservable inputs (which are considered level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are as follows:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 Quoted prices for similar instruments in active markets, quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, whether directly or indirectly;
Level 3 Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions would reflect the Companys own estimates of assumptions that market participants would use in pricing the asset or liability. Such valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.
Fair value is generally based on quoted market prices. If quoted market prices are not available, fair value is determined based on other relevant factors, including dealer price quotations, price activity for equivalent instruments and valuation pricing methods. Among the factors considered by the Company in determining the fair value of financial instruments for which there is no current quoted market prices are credit spreads, the terms and liquidity of the instrument, the financial condition, operating results and credit ratings of the issuer or underlying company, the quoted market price of publicly traded securities with similar duration and yield, assessing the underlying investments, market-based information, such as comparable company transactions, performance multiples and changes in market outlook as well as other measurements. Financial instruments owned and financial instruments sold, not yet purchased are stated at fair value, with related changes in unrealized appreciation or depreciation reflected in principal transactions, net in the accompanying statement of operations. See note 3 of the notes to the consolidated financial statements for additional discussion of ASC 820.
(e) | Receivables and Payables from Clearing Broker |
Receivables from clearing broker include deposits and free credit balances with the Companys clearing broker, proceeds from securities sold, including financial instruments sold not yet purchased, and payables to clearing broker include margin loans. Proceeds related to financial instruments sold, not yet purchased may be restricted until the securities are purchased.
(f) | Receivables from Others |
Receivables from others include receivables related to advisory and capital markets fees earned in the Companys broker-dealer business and receivables related to revenue earned in the Companys loan trading business.
8 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2010
(g) | Furniture, Equipment and Leasehold Improvements |
Furniture and equipment is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset, generally two to five years. Leasehold improvements are stated at cost less accumulated amortization and are amortized on a straight-line basis over the lesser of the economic useful life of the improvement or the initial term of the respective lease.
(h) | Foreign Currency Translation |
Assets and liabilities denominated in non-U.S. currencies are translated into U.S. dollar equivalents using year-end spot foreign exchange rates. Gains and losses resulting from translation to U.S. dollar equivalents are included in the statement of operations as part of principal transactions, net.
(i) | Member Accounts |
Net income or loss from operations is allocated to the capital accounts of the Members on a pro-rata basis in proportion to such Members profit units as of the last day of the applicable accounting period for which such net income or loss was determined. In connection with the withdrawal of a Member from the Company, the Company may repurchase such Members units in accordance with the terms of the Companys LLC agreement.
(j) | Interest Income and Interest Expense |
The Company recognizes contractual interest on financial instruments owned at fair value and financial instruments sold, not yet purchased on an accrual basis as a component of interest income or interest expense.
(k) | Advances to Employees |
Advances to employees include upfront compensation payments made to employees which are deferred and amortized on a straight-line basis over the relevant service period for which they are earned.
(l) | Income Taxes |
The Company and PrinceRidge Holdings LP are treated as partnerships for federal income tax purposes. The Companys operating subsidiaries, The PrinceRidge Group LLC and PrinceRidge Capital LLC, are single member limited liability companies and are treated as disregarded entities pursuant to Treasury Regulation Section 301.7701-3 for federal income tax purposes. Generally, disregarded entities are not subject to entity-level federal or state income taxation and, as such, the Company is not required to provide for income taxes under FASB ASC 740, Income Taxes. The operating subsidiaries taxable income becomes taxable to the respective members of the Company as a result of the Companys treatment as a nontaxable flow-through entity for federal income tax purposes. However, certain aspects of the Companys businesses are subject to local taxes such as the New York City unincorporated business tax (UBT).
9 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2010
(m) | Recent Accounting Developments |
In January 2010, the FASB issued ASU No. 2010-06, which updates the guidance in ASC 820, Fair Value Measurements and Disclosures. The ASU requires new disclosures including significant transfers in and out of Level 1 and Level 2 fair value measurements and a reconciliation of Level 3 fair value measurements including purchases, sales, issuances and settlements on a gross basis. The ASU also amends ASC Subtopic 820-10 to clarify certain existing disclosures regarding the level of disaggregation at which fair value measurements are provided for each class of assets and liabilities (instead of major category) and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring fair value measurements that fall in either Level 2 or Level 3. The majority of the provisions of this update, including those applicable to the Company, were effective for annual periods beginning after December 15, 2009, with the remainder being effective for annual reporting periods beginning after December 15, 2010. The adoption of the guidance effective in 2010 did not have a material impact on the Companys disclosures nor does the Company expect the adoption of the remaining guidance in 2011 to impact its disclosures.
(3) | Financial Instruments |
The following table sets forth by level within the fair value hierarchy the Companys financial instruments owned, at fair value, and financial instruments sold, but not yet purchased, at fair value as of December 31, 2010. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | | | | | |||||||||||
Financial instruments owned, at fair value: |
||||||||||||||||
Corporate debt |
| 16,064,066 | | 16,064,066 | ||||||||||||
Equities |
2,106 | 43,335 | | 45,441 | ||||||||||||
Government securities |
1,976,064 | | | 1,976,064 | ||||||||||||
Municipal securities |
| 918,532 | | 918,532 | ||||||||||||
Mortgage-backed securities |
| 996,989 | | 996,989 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial instruments owned |
1,978,170 | 18,022,922 | | 20,001,092 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 1,978,170 | 18,022,922 | | 20,001,092 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Financial instruments sold, but not yet purchased at fair value: |
||||||||||||||||
Corporate debt |
$ | | 12,042,782 | | 12,042,782 | |||||||||||
Government securities |
1,686,370 | | | 1,686,370 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | 1,686,370 | 12,042,782 | | 13,729,152 | |||||||||||
|
|
|
|
|
|
|
|
There have not been any significant transfers between level 1 and level 2 of the fair value hierarchy during the year ended December 31, 2010.
10 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2010
(4) | Receivable from Clearing Broker |
Securities transactions are recorded on a trade date basis. The receivable and payable amounts related to unsettled securities transactions are recorded on a net basis in the receivable from clearing broker in the accompanying statement of financial condition. Receivable from clearing broker consists of the following:
Clearing deposit |
$ | 250,000 | ||
Free credit balances, net |
7,516,723 | |||
Trade date receivable |
150,000 | |||
|
|
|||
Total receivables from clearing broker |
$ | 7,916,723 | ||
|
|
(5) | Receivables from Others |
Receivables from others are comprised of:
Investment banking fee receivable (net of allowances $27,117) |
$ | 150,501 | ||
Other receivables |
259,131 | |||
Purchased interest and interest income receivable |
250,383 | |||
|
|
|||
Total receivables from others |
$ | 660,015 | ||
|
|
(6) | Office Equipment and Leasehold Improvements |
Furniture, equipment and leasehold improvements consist of the following as of December 31:
Furniture and fixtures |
$ | 204,776 | ||
Equipment |
985,859 | |||
Leasehold improvements |
759,327 | |||
Software |
155,457 | |||
|
|
|||
Total |
2,105,419 | |||
Less: accumulated depreciation and amortization |
1,126,376 | |||
|
|
|||
Total office equipment and leasehold improvements, net |
$ | 979,043 | ||
|
|
11 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2010
(7) | Commitments and Contingencies |
(a) | Leases |
The Company leases office space in New York City, Los Angeles and Chicago under operating lease agreements that expire at various times through 2012. The following table presents the Parents required future minimum rental payments for the office space under noncancelable operating leases as of December 31, 2010:
Year ending: |
||||
2011 |
$ | 206,258 | ||
2012 |
23,470 | |||
Total minimum payments required |
229,728 | |||
Less sublease rentals under noncancelable subleases |
| |||
Net minimum payment required |
$ | 229,728 | ||
(b) | Commitments |
In connection with underwriting activities, the Companys broker-dealer subsidiary may enter into firm commitments for the purchase of securities in return for a fee. These commitments may require the broker-dealer to purchase securities at a specified price. Securities underwriting exposes the Company to market and credit risk primarily in the event that, for any reason, securities purchased by the Company cannot be distributed at anticipated price levels. At December 31, 2010, the Company had no open underwriting commitments.
(c) | Contingencies |
The Company, together with various other brokers and dealers, corporations, and individuals, has been named as a defendant in various legal actions and other litigation arising in connection with the conduct of its business activities that allege violations of federal and state securities laws and claim substantial damages.
In accordance with ASC 450-20 (Loss Contingencies), the Company will accrue a liability when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not possible to determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no accrual is made until that time. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases in which claimants seek substantial or indeterminate damages, the Company cannot predict what the eventual loss or range of loss related to such matters will be. Subject to the foregoing, the Company continues to assess these cases and believes, based on information available to it, that the resolution of these matters will not have a material adverse effect on the financial condition of the Company.
12 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2010
(8) | Financial Instruments with Off-Balance Sheet Risk, Credit Risk or Market Risk |
The Companys broker-dealer clears securities transactions on behalf of customers through its clearing broker. Substantially all of the Companys transactions are executed with and on behalf of institutional investors, including other brokers and dealers, commercial banks, asset managers, and other financial institutions. In connection with these activities, unsettled customer trades may expose the Company to off-balance sheet credit risk in the event its customers are unable to fulfill their contractual obligations.
The majority of the Companys transactions, and consequently the concentration of its credit exposure, is with its clearing broker. The clearing broker is also a significant source of short-term financing for the Company, which is collateralized by cash and securities owned by the Company and held by the clearing broker.
In connection with its proprietary activities, the Company has sold securities that it does not own and will, therefore, be obligated to purchase such securities at a future date. The Company has recorded this obligation in the financial statements at fair value for the related securities and will record a trading loss if the market value of the securities increases subsequent to the date of the financial statements.
(9) | Income Taxes |
The Company is subject to UBT and has provided for income taxes based on a statutory rate of 4.00%. For the period ended December 31, 2010, the Company recorded a deferred tax asset of $323,766 related to its net operating loss, which can be carried forward for UBT tax purposes. At December 31, 2010, management has provided for a full valuation allowance for the deferred tax asset.
(10) | Regulatory Requirements |
The Companys subsidiary, The PrinceRidge Group LLC, is a registered broker-dealer and, accordingly, is subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (Net Capital Rule) which requires the maintenance of minimum net capital as defined. The PrinceRidge Group LLC has elected to use the alternative method, permitted by the Net Capital Rule, which requires that it maintain minimum net capital, as defined, equal to the greater of $250,000 or 2% of aggregate debit items arising from customer transactions. At December 31, 2010, the Company had net capital of $8,419,776 which was $8,169,776 in excess of its required net capital of $250,000.
(11) | Subsequent Events |
The Company has evaluated subsequent events for the period from December 31, 2010 through June 30, 2011, the date which the accompanying financial statements were issued.
In January of 2011, the Company began effecting reverse repurchase and repurchase agreements as principal. The Company clears and settles these transactions with NewEdge USA, LLC.
On January 28, 2011 the Parent entered into a sublease agreement for approximately 21,435 square feet of office space in New York City. The lease commenced on February 18, 2011 and expires on July 31, 2015. Total required future minimum rental payments associated with this new lease agreement is $3,310,517.
13 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2010
On June 1, 2011 the Company completed a transaction with Institutional Financial Markets, Inc. (IFMI) pursuant to which IFMI contributed net assets for a majority interest in the Company. The fair value of the contributed assets was approximately $45 million and was comprised of cash, trading securities, employees and other assets and liabilities.
On June 3, 2011 a Series A member provided written notice to the Company of their intent to withdrawal from the partnership. At the time of the notice the members capital consisted of less than 6% of the Companys total capital.
14 |
EXHIBIT 99.2
PRINCERIDGE PARTNERS LLC
Consolidated Financial Statements
December 31, 2009
(With Independent Auditors Report Thereon)
Independent Auditors Report
Management Board
PrinceRidge Partners LLC:
We have audited the accompanying consolidated statement of financial condition of PrinceRidge Partners LLC and subsidiaries (the Company) as of December 31, 2009, and the related consolidated statements of operations, changes in total capital, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated 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 includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PrinceRidge Partners LLC and subsidiaries as of December 31, 2009 and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
June 30, 2011
PRINCERIDGE PARTNERS LLC
Consolidated Statement of Financial Condition
December 31, 2009
Assets | ||||
Cash and cash equivalents |
$ | 12,965,116 | ||
Financial instruments owned, at fair value |
5,347,446 | |||
Receivable from clearing broker |
4,088,916 | |||
Furniture, equipment and leasehold improvements at cost, less accumulated depreciation and amortization of $375,424 |
1,265,365 | |||
Receivables from others |
934,366 | |||
Due from Members |
265 | |||
Prepaid expenses |
500,000 | |||
Advances to employees |
629,457 | |||
Other assets |
443,007 | |||
|
|
|||
Total assets |
$ | 26,173,938 | ||
|
|
|||
Liabilities and Capital | ||||
Financial instruments sold, not yet purchased, at fair value |
$ | 1,310,625 | ||
Accrued incentive compensation |
2,043,066 | |||
Accrued other expenses and other liabilities |
1,358,588 | |||
|
|
|||
Total liabilities |
4,712,279 | |||
Members capital |
(160,662 | ) | ||
Noncontrolling interest |
21,622,321 | |||
|
|
|||
Total capital |
21,461,659 | |||
|
|
|||
Total liabilities and capital |
$ | 26,173,938 | ||
|
|
See accompanying notes to consolidated financial statements.
2
PRINCERIDGE PARTNERS LLC
Consolidated Statement of Operations
Year ended December 31, 2009
Revenues: |
||||
Principal transactions, net |
$ | 8,316,014 | ||
Investment banking fees |
441,801 | |||
Net interest income |
119,335 | |||
Total revenues |
8,877,150 | |||
Expenses: |
||||
Compensation and benefits |
6,944,572 | |||
Professional fees |
1,534,459 | |||
Communications and technology |
1,264,143 | |||
Occupancy and equipment |
1,131,483 | |||
Regulatory fees |
253,798 | |||
Business development |
178,615 | |||
Brokerage, clearing and exchange fees |
36,879 | |||
Other |
103,597 | |||
Total expenses |
11,447,546 | |||
Net loss |
(2,570,396 | ) | ||
Less: Net loss attributable to noncontrolling interest |
2,452,044 | |||
Net loss attributable to controlling interest |
$ | (118,352 | ) | |
See accompanying notes to consolidated financial statements.
3
PRINCERIDGE PARTNERS LLC
Consolidated Statement of Changes in Total Capital
Year ended December 31, 2009
Members capital |
Noncontrolling interest |
Total capital |
||||||||||
Balance at December 31, 2008 |
$ | (42,575 | ) | 4,714,365 | $ | 4,671,790 | ||||||
Capital contributions |
265 | 19,360,000 | 19,360,265 | |||||||||
Net loss |
(118,352 | ) | (2,452,044 | ) | (2,570,396 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2009 |
$ | (160,662 | ) | 21,622,321 | $ | 21,461,659 | ||||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
PRINCERIDGE PARTNERS LLC
Consolidated Statement of Cash Flows
Year ended December 31, 2009
Cash flows from operating activities: |
||||
Net loss |
$ | (2,570,396 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: |
||||
Depreciation |
355,377 | |||
(Increase) decrease in operating assets: |
||||
Financial instruments owned, at fair value |
(5,347,446 | ) | ||
Receivable from clearing broker |
(4,088,916 | ) | ||
Receivables from others |
(934,366 | ) | ||
Due from Members |
(265 | ) | ||
Prepaid expenses |
(467,399 | ) | ||
Advances to employees |
(629,457 | ) | ||
Other assets |
(176,806 | ) | ||
Increase (decrease) in operating liabilities: |
||||
Financial instruments sold, not yet purchased, at fair value |
1,310,625 | |||
Accrued incentive compensation |
2,043,066 | |||
Accrued expenses and other liabilities |
1,157,769 | |||
|
|
|||
Net cash used in operating activities |
(9,348,214 | ) | ||
|
|
|||
Cash flows from investing activities: |
||||
Purchase of office equipment and leasehold improvements |
(1,456,079 | ) | ||
|
|
|||
Net cash used in investing activities |
(1,456,079 | ) | ||
|
|
|||
Cash flows from financing activities: |
||||
Capital contributions from Members |
265 | |||
Noncontrolling interest |
19,360,000 | |||
|
|
|||
Net cash provided by financing activities |
19,360,265 | |||
|
|
|||
Net increase in cash and cash equivalents |
8,555,972 | |||
Cash and cash equivalents, December 31, 2008 |
4,409,144 | |||
|
|
|||
Cash and cash equivalents, December 31, 2009 |
$ | 12,965,116 | ||
|
|
|||
Supplemental disclosure of cash flow information: |
||||
Cash paid for interest |
$ | 25,842 | ||
Cash paid for taxes |
|
See accompanying notes to consolidated financial statements.
5
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2009
(1) | Organization |
PrinceRidge Partners LLC (the Company) was organized as a limited liability company under the laws of the state of Delaware on January 28, 2008 and is the General Partner of PrinceRidge Holdings LP, a financial services company. Pursuant to the Companys LLC agreement, certain Members have been appointed as Managing Members of the Company for which the authority for day-to-day management decision making resides. The Company also has limited partner interests (non-managing members) which have certain limited rights as specified in the Companys LLC agreement. PrinceRidge Holdings LP is comprised of two wholly owned operating subsidiaries; The PrinceRidge Group LLC, a U.S. registered broker dealer, and PrinceRidge Capital LLC, a dealer in non-securities related products. The Company was formed on January 28, 2008 under the Delaware Limited Liability Company Act and the Company and its operating subsidiaries subsequently changed their names on June 29, 2009 from VinsonForbes Holdings LLC, VinsonForbes Group LP, VinsonForbes & Co. LLC and VinsonForbes Capital LLC to PrinceRidge Partners LLC, PrinceRidge Holdings LP, The PrinceRidge Group LLC, and PrinceRidge Capital LLC, respectively. On June 18, 2009, The PrinceRidge Group LLC became a member of the Financial Industry Regulation Authority (FINRA) and other various exchanges and received approval to operate as a broker-dealer registered with Securities and Exchange Commission (SEC). Additionally, the The PrinceRidge Group LLC is a member of the Securities Investor Protection Corporation (SIPC).
The Company, through its operating subsidiaries, commenced operations on April 1, 2009 and operates an institutional brokerage and investment banking business. The Companys customers are predominately institutional investors including brokers and dealers, commercial banks, asset managers and other financial institutions. The PrinceRidge Group LLC has a clearing agreement with Pershing LLC whereby all securities transactions are cleared on a fully disclosed basis. The PrinceRidge Group LLC is exempt from Rule 15c3-3 of the Securities and Exchange Commission under paragraph k(2)(ii) of that rule.
(2) | Summary of Significant Accounting Policies |
(a) | Basis of Presentation |
The Companys consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these, and other, estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.
(b) | Cash and Cash Equivalents |
The Company defines cash equivalents as short-term interest-earning deposits with original maturities of three months or less that are not held for sale in the ordinary course of business.
6 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2009
The Company maintains deposits in federally insured financial institutions in excess of federally insured (FDIC) limits and in institutions in which deposits are not insured. However, management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institution in which those deposits are held.
(c) | Revenue Recognition |
Principal Transactions
The Company earns revenue from (i) transactions executed as agent or riskless principal and (ii) related net trading gains and losses from market making and dealing activities to facilitate customer orders. These activities and associated revenue are recorded on a trade date basis. Financial instruments owned and financial instruments sold, not yet purchased, are recorded on a trade-date basis at fair value with realized and unrealized gains and losses reflected in principal transactions, net in the accompanying statement of operations.
Investment Banking Fees
The Company earns fees for providing strategic advisory services in mergers and acquisitions and other transactions which are predominately comprised of fees based on the successful completion of a transaction, and from capital markets transactions which are comprised of underwriting securities offerings and arranging private placements, including both debt and equity offerings.
Advisory fees, net of deal related expenses, are recorded when earned, the fees are determinable and collection is reasonably assured. Nonrefundable upfront fees are deferred and recognized as revenue ratably over the expected period in which the related services are rendered. Upon successful completion of a transaction or termination of an engagement, the recognition of revenue would be accelerated.
Capital markets revenue arise from securities offerings and private placements in which the Company acted as a placement agent or underwriter. Private placement revenue is recorded when the underlying transaction is completed under the terms of the relevant agreement, typically on the closing date of the transaction. Underwriting revenue, which includes management fees, selling concessions and underwriting fees, net of related syndicate expenses, is recorded on a trade-date basis.
(d) | Fair Value of Financial Instruments |
The Company accounts for financial instruments that are being measured and reported on a fair value basis in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between current market participants at the measurement date.
7 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2009
FASB ASC 820 outlines a fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (which are considered level 1 measurements) and the lowest priority to unobservable inputs (which are considered level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are as follows:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 Quoted prices for similar instruments in active markets, quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, whether directly or indirectly;
Level 3 Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions would reflect the Companys own estimates of assumptions that market participants would use in pricing the asset or liability. Such valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.
Fair value is generally based on quoted market prices. If quoted market prices are not available, fair value is determined based on other relevant factors, including dealer price quotations, price activity for equivalent instruments and valuation pricing methods. Among the factors considered by the Company in determining the fair value of financial instruments for which there is no current quoted market prices are credit spreads, the terms and liquidity of the instrument, the financial condition, operating results and credit ratings of the issuer or underlying company, the quoted market price of publicly traded securities with similar duration and yield, assessing the underlying investments, market-based information, such as comparable company transactions, performance multiples and changes in market outlook as well as other measurements. Financial instruments owned and financial instruments sold, not yet purchased are stated at fair value, with related changes in unrealized appreciation or depreciation reflected in principal transactions, net in the accompanying statement of operations. See note 3 of the notes to the consolidated financial statements for additional discussion of ASC 820.
(e) | Receivables and Payables from Clearing Broker |
Receivables from clearing broker include deposits and free credit balances with the Companys clearing broker, proceeds from securities sold, including financial instruments sold not yet purchased, and payables to clearing broker include margin loans. Proceeds related to financial instruments sold, not yet purchased may be restricted until the securities are purchased.
(f) | Receivables from Others |
Receivables from others include receivables related to advisory and capital markets fees earned in the Companys broker-dealer business and receivables related to revenue earned in the Companys loan trading business.
8 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2009
(g) | Furniture, Equipment and Leasehold Improvements |
Furniture and equipment is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset, generally two to five years. Leasehold improvements are stated at cost less accumulated amortization and are amortized on a straight-line basis over the lesser of the economic useful life of the improvement or the initial term of the respective lease.
(h) | Foreign Currency Translation |
Assets and liabilities denominated in non-U.S. currencies are translated into U.S. dollar equivalents using year-end spot foreign exchange rates. Gains and losses resulting from translation to U.S. dollar equivalents are included in the statement of operations as part of principal transactions, net.
(i) | Member Accounts |
Net income or loss from operations is allocated to the capital accounts of the Members on a pro-rata basis in proportion to such Members profit units as of the last day of the applicable accounting period for which such net income or loss was determined. In connection with the withdrawal of a Member from the Company, the Company may repurchase such Members units in accordance with the terms of the Companys LLC agreement.
(j) | Interest Income and Interest Expense |
The Company recognizes contractual interest on financial instruments owned at fair value and financial instruments sold, not yet purchased on an accrual basis as a component of interest income or interest expense.
(k) | Advances to Employees |
Advances to employees include upfront compensation payments made to employees which are deferred and amortized on a straight-line basis over the relevant service period for which they are earned.
(l) | Income Taxes |
The Company and PrinceRidge Holdings LP are treated as partnerships for federal income tax purposes. The Companys operating subsidiaries, The PrinceRidge Group LLC and PrinceRidge Capital LLC, are single member limited liability companies and are treated as disregarded entities pursuant to Treasury Regulation Section 301.7701-3 for federal income tax purposes. Generally, disregarded entities are not subject to entity-level federal or state income taxation and, as such, the Company is not required to provide for income taxes under FASB ASC 740, Income Taxes. The operating subsidiaries taxable income becomes taxable to the respective members of the Company as a result of the Companys treatment as a nontaxable flow-through entity for federal income tax purposes. However, certain aspects of the Companys businesses are subject to local taxes such as the New York City unincorporated business tax (UBT).
9 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2009
(m) | Recent Accounting Developments |
In June 2009, the FASB issued Statement of Financial Accounting Standards 168, The FASB Accounting Standards Codification (Codification) and the Hierarchy of Generally Accepted Accounting Principles, a replacement of SFAS 162, now codified in the Generally Acceptable Accounting Principles Topic 105 of the FASB ASC. The Codification became the source of authoritative United States generally accepted accounting principles (GAAP) recognized by the FASB to be applied to nongovernment entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature included in the Codification became nonauthoritative. This statement became effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the Codification statement did not impact the Companys financial statements.
(3) | Financial Instruments |
The following table sets forth by level within the fair value hierarchy the Companys financial instruments owned, at fair value, and financial instruments sold, but not yet purchased, at fair value as of December 31, 2009. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 4,999,500 | | | 4,999,500 | |||||||||||
Financial instruments owned, at fair value: |
||||||||||||||||
Corporate and other debt |
| 2,822,470 | | 2,822,470 | ||||||||||||
Mortgage-backed securities |
| 2,524,976 | | 2,524,976 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial instruments owned |
| 5,347,446 | | 5,347,446 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 4,999,500 | 5,347,446 | | 10,346,946 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Financial instruments sold, but not yet purchased at fair value: |
||||||||||||||||
Corporate debt |
$ | | 1,310,625 | | 1,310,625 | |||||||||||
Government securities |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | | 1,310,625 | | 1,310,625 | |||||||||||
|
|
|
|
|
|
|
|
There have not been any significant transfers between level 1 and level 2 of the fair value hierarchy during the year ended December 31, 2009.
10 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2009
(4) | Receivable from Clearing Broker |
Securities transactions are recorded on a trade date basis. The receivable and payable amounts related to unsettled securities transactions are recorded on a net basis in the receivable from clearing broker in the accompanying statement of financial condition. Receivable from clearing broker consists of the following:
Clearing deposit |
$ | 250,000 | ||
Free credit balances, net |
3,836,740 | |||
Trade date receivable |
2,176 | |||
|
|
|||
Total receivables from clearing broker |
$ | 4,088,916 | ||
|
|
(5) | Receivables from Others |
Receivables from others are comprised of:
Investment banking fee receivable (net of allowances $27,117) |
$ | 457,359 | ||
Other receivables |
355,606 | |||
Purchased interest and interest receivable |
121,401 | |||
|
|
|||
Total receivables from others |
$ | 934,366 | ||
|
|
(6) | Office Equipment and Leasehold Improvements |
Furniture, equipment and leasehold improvements consist of the following as of December 31:
Furniture and fixtures |
$ | 168,903 | ||
Equipment |
674,526 | |||
Leasehold improvements |
726,447 | |||
Software |
70,913 | |||
|
|
|||
Total |
1,640,789 | |||
Less: accumulated depreciation and amortization |
375,424 | |||
|
|
|||
Total Furniture, equipment and leasehold improvements, net |
$ | 1,265,365 | ||
|
|
11 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2009
(7) | Commitments and Contingencies |
(a) | Leases |
The Company leases office space in Los Angeles and New York City under operating lease agreements that expire in 2010 and 2011 respectively. The following table presents the Parents required future minimum rental payments for the office space under non-cancelable operating leases as of December 31, 2009:
Year ending: |
||||
2010 |
$ | 875,188 | ||
|
|
|||
Total minimum payments required |
875,188 | |||
Less sublease rentals under noncancelable subleases |
(62,356 | ) | ||
|
|
|||
Net minimum payment required |
$ | 812,832 | ||
|
|
(b) | Commitments |
In connection with underwriting activities, the Companys broker-dealer subsidiary may enter into firm commitments for the purchase of securities in return for a fee. These commitments may require the broker-dealer to purchase securities at a specified price. Securities underwriting exposes the Company to market and credit risk primarily in the event that, for any reason, securities purchased by the Company cannot be distributed at anticipated price levels. At December 31, 2009, the Company had no open underwriting commitments.
(c) | Contingencies |
The Company, together with various other brokers and dealers, corporations, and individuals, has been named as a defendant in various legal actions and other litigation arising in connection with the conduct of its business activities that allege violations of federal and state securities laws and claim substantial damages.
In accordance with ASC 450-20 (Loss Contingencies), the Company will accrue a liability when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not possible to determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no accrual is made until that time. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases in which claimants seek substantial or indeterminate damages, the Company cannot predict what the eventual loss or range of loss related to such matters will be. Subject to the foregoing, the Company continues to assess these cases and believes, based on information available to it, that the resolution of these matters will not have a material adverse effect on the financial condition of the Company.
(8) | Financial Instruments with Off-Balance Sheet Risk, Credit Risk or Market Risk |
The Companys broker-dealer clears securities transactions on behalf of customers through its clearing broker. Substantially all of the Companys transactions are executed with and on behalf of institutional investors, including other brokers and dealers, commercial banks, asset managers, and other financial institutions. In connection with these activities, unsettled customer trades may expose the Company to off-balance sheet credit risk in the event its customers are unable to fulfill their contractual obligations.
12 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2009
The majority of the Companys transactions, and consequently the concentration of its credit exposure, is with its clearing broker. The clearing broker is also a significant source of short-term financing for the Company, which is collateralized by cash and securities owned by the Company and held by the clearing broker.
In connection with its proprietary activities, the Company has sold securities that it does not own and will, therefore, be obligated to purchase such securities at a future date. The Company has recorded this obligation in the financial statements at fair value for the related securities and will record a trading loss if the market value of the securities increases subsequent to the date of the financial statements.
(9) | Income Taxes |
The Company is subject to UBT and has provided for income taxes based on a statutory rate of 4.00%. For the period ended December 31, 2009, the Company recorded a deferred tax asset of $141,584 related to its net operating loss, which can be carried forward for UBT tax purposes. At December 31, 2009, management has provided for a full valuation allowance for the deferred tax asset.
(10) | Regulatory Requirements |
The Companys subsidiary, The PrinceRidge Group LLC, is a registered broker-dealer and, accordingly, is subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (Net Capital Rule) which requires the maintenance of minimum net capital as defined. The PrinceRidge Group LLC has elected to use the alternative method, permitted by the Net Capital Rule, which
13 | (Continued) |
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
December 31, 2009
requires that it maintain minimum net capital, as defined, equal to the greater of $250,000 or 2% of aggregate debit items arising from customer transactions. At December 31, 2009, the Company had net capital of $10,977,774 which was $10,727,774 in excess of its required net capital of $250,000.
(11) | Subsequent Events |
The Company has evaluated subsequent events for the period from December 31, 2009 through June 30, 2011, the date which the accompanying financial statements were issued.
On February 3, 2010 the Company entered into a sublease agreement for approximately 2,000 square feet of office space in Chicago, IL. The lease commenced on February 11, 2010 and expired on January 31, 2011. On March 24, 2010 the Company entered into a sublease agreement for approximately 2,900 square feet of office space in Los Angeles, CA. The lease commenced on March 31, 2010 and expires on February 13, 2012. On January 28, 2011 the Parent entered into a sublease agreement for approximately 21,435 square feet of office space in New York City. The lease commenced on February 18, 2011 and expires on July 31, 2015. Total required future minimum rental payments associated with these new lease agreements is $3,638,036.
In January of 2011, the Company began effecting reverse repurchase and repurchase agreements as principal. The Company clears and settles these transactions with NewEdge USA, LLC.
On June 1, 2011 the Company completed a transaction with Institutional Financial Markets, Inc. (IFMI) pursuant to which IFMI contributed net assets for a majority interest in the Company. The fair value of the contributed assets was approximately $45 million and was comprised of cash, trading securities, employees and other assets and liabilities.
On June 3, 2011 a Series A member provided written notice to the Company of their intent to withdrawal from the partnership. At the time of the notice the members capital consisted of less than 6% of the Companys total capital.
14 |
EXHIBIT 99.3
PRINCERIDGE PARTNERS LLC
Consolidated Financial Statements
March 31, 2011
(Unaudited Report)
PRINCERIDGE PARTNERS LLC
Consolidated Statement of Financial Condition
For three months ended March 31, 2011
(Unaudited)
Assets | ||||
Cash and cash equivalents |
$ | 3,240,811 | ||
Financial instruments owned, at fair value |
42,651,335 | |||
Receivable from clearing brokers |
397,146 | |||
Securities purchased under agreements to resell |
42,764,411 | |||
Furniture, equipment and leasehold improvements at cost, less accumulated depreciation and amortization of $607,651 |
2,694,923 | |||
Receivables from others (net of allowances $27,117) |
1,086,878 | |||
Due from landlord |
588,991 | |||
Prepaid expenses |
772,926 | |||
Advances to employees |
348,809 | |||
Due from Members |
4,249 | |||
Other assets |
955,331 | |||
|
|
|||
Total assets |
$ | 95,505,810 | ||
|
|
|||
Liabilities and Capital | ||||
Financial instruments sold, not yet purchased, at fair value |
$ | 22,283,701 | ||
Payable to clearing broker |
6,205,109 | |||
Securities sold under agreements to repurchase |
42,409,765 | |||
Landlord incentive |
363,976 | |||
Accrued incentive compensation |
2,725,424 | |||
Accrued other expenses and other liabilities |
3,457,813 | |||
|
|
|||
Total liabilities |
77,445,788 | |||
Members capital |
(230,468 | ) | ||
Noncontrolling interest |
18,290,490 | |||
|
|
|||
Total capital |
18,060,022 | |||
|
|
|||
Total liabilities and capital |
$ | 95,505,810 | ||
|
|
See accompanying notes to consolidated financial statements.
2
PRINCERIDGE PARTNERS LLC
Consolidated Statement of Operations
For three months ended March 31, 2011
(Unaudited)
Revenues: |
||||
Principal transactions, net |
$ | 7,057,149 | ||
Investment banking fees |
2,318,565 | |||
Net interest income |
(8,021 | ) | ||
|
|
|||
Total revenues |
9,367,693 | |||
|
|
|||
Expenses: |
||||
Compensation and benefits |
6,544,946 | |||
Communications and technology |
841,588 | |||
Professional fees |
654,430 | |||
Occupancy and equipment |
573,946 | |||
Business development |
133,775 | |||
Brokerage, clearing and exchange fees |
337,988 | |||
Regulatory fees |
96,372 | |||
Other |
113,883 | |||
|
|
|||
Total expenses |
9,296,928 | |||
|
|
|||
Net Income |
$ | 70,765 | ||
Less: Net income attributable to noncontrolling interest |
(76,320 | ) | ||
|
|
|||
Net Loss attributable to controlling interest |
(5,555 | ) | ||
|
|
See accompanying notes to consolidated financial statements.
3
PRINCERIDGE PARTNERS LLC
Consolidated Statement of Changes in Total Capital
For three months ended March 31, 2011
(Unaudited)
Members capital |
Noncontrolling interest |
Total capital |
||||||||||
Balance at December 31, 2010 |
$ | (228,162 | ) | 17,886,418 | $ | 17,658,256 | ||||||
Capital contributions |
3,249 | 327,752 | 331,001 | |||||||||
Net income (loss) |
(5,555 | ) | 76,320 | 70,765 | ||||||||
|
|
|
|
|
|
|||||||
Balance at March 31, 2011 |
$ | (230,468 | ) | 18,290,490 | $ | 18,060,022 | ||||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
PRINCERIDGE PARTNERS LLC
Consolidated Statement of Cash Flows
For three months ended March 31, 2011
(Unaudited)
Cash flows from operating activities: |
||||
Net loss |
$ | 70,765 | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||
Depreciation |
207,508 | |||
(Increase) decrease in operating assets: |
||||
Financial instruments owned, at fair value |
(22,650,244 | ) | ||
Receivable from clearing brokers |
7,519,577 | |||
Securities purchased under agreements to resell |
(42,764,411 | ) | ||
Prepaid expenses |
(141,969 | ) | ||
Receivables from others |
(426,864 | ) | ||
Due from landlord |
(588,991 | ) | ||
Advances to employees |
172,461 | |||
Due from Members |
(3,249 | ) | ||
Other assets |
(499,406 | ) | ||
Increase (decrease) in operating liabilities: |
||||
Financial instruments sold, not yet purchased, at fair value |
8,554,549 | |||
Securities sold under agreements to repurchase |
42,409,765 | |||
Payable to clearing broker |
6,205,109 | |||
Landlord incentive |
363,976 | |||
Accrued incentive compensation |
(128,338 | ) | ||
Accrued expenses and other liabilities |
2,022,846 | |||
|
|
|||
Net cash provided by operating activities |
323,084 | |||
|
|
|||
Cash flows from investing activities: |
||||
Purchase of office equipment and leasehold improvements |
(1,923,389 | ) | ||
|
|
|||
Net cash used in investing activities |
(1,923,389 | ) | ||
|
|
|||
Cash flows from financing activities: |
||||
Capital contributions from Members |
3,249 | |||
Noncontrolling interest |
327,752 | |||
|
|
|||
Net cash provided by financing activities |
331,001 | |||
|
|
|||
Net decrease in cash and cash equivalents |
(1,269,304 | ) | ||
Cash and cash equivalents, December 31, 2010 |
4,510,115 | |||
|
|
|||
Cash and cash equivalents, March 31, 2011 |
$ | 3,240,811 | ||
|
|
|||
Supplemental disclosure of cash flow information: |
||||
Cash paid for interest |
$ | 344,914 | ||
Cash paid for taxes |
|
See accompanying notes to consolidated financial statements.
5
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
March 31, 2011
(Unaudited)
(1) | Organization |
PrinceRidge Partners LLC (the Company) was organized as a limited liability company under the laws of the state of Delaware on January 28, 2008 and is the General Partner of PrinceRidge Holdings LP, a financial services company. Pursuant to the Companys LLC agreement, certain Members have been appointed as Managing Members of the Company for which the authority for day-to-day management decision making resides. The Company also has limited member interests (non-managing members) which have certain limited rights as specified in the Companys LLC agreement. PrinceRidge Holdings LP is comprised of two wholly owned operating subsidiaries; The PrinceRidge Group LLC, a U.S. registered broker dealer, and PrinceRidge Capital LLC, a dealer in non-securities related products. The Company was formed on January 28, 2008 under the Delaware Limited Liability Company Act and the Company and its operating subsidiaries subsequently changed their names on June 29, 2009 from VinsonForbes Holdings LLC, VinsonForbes Group LP, VinsonForbes & Co. LLC and VinsonForbes Capital LLC to PrinceRidge Partners LLC, PrinceRidge Holdings LP, The PrinceRidge Group LLC, and PrinceRidge Capital LLC, respectively. On June 18, 2009, The PrinceRidge Group LLC became a member of the Financial Industry Regulation Authority (FINRA) and other various exchanges and received approval to operate as a broker-dealer registered with Securities and Exchange Commission (SEC). Additionally, The PrinceRidge Group LLC is a member of the Securities Investor Protection Corporation (SIPC).
The Company, through its operating subsidiaries, commenced operations on April 1, 2009 and operates an institutional brokerage and investment banking business. The Companys customers are predominately institutional investors including brokers and dealers, commercial banks, asset managers and other financial institutions. The PrinceRidge Group LLC has clearing agreements with Pershing LLC and NewEdge USA, LLC. The PrinceRidge Group LLC clears all security transactions on a fully disclosed basis through Pershing LLC and clears all reverse repurchase agreements and repurchase agreements through NewEdge USA, LLC. The PrinceRidge Group LLC is exempt from Rule 15c3-3 of the Securities and Exchange Commission under paragraph k(2)(ii) of that rule.
(2) | Summary of Significant Accounting Policies |
(a) | Basis of Presentation |
The Companys consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these, and other, estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.
6
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
March 31, 2011
(Unaudited)
(b) | Cash and Cash Equivalents |
The Company defines cash equivalents as short-term interest-earning deposits with original maturities of three months or less that are not held for sale in the ordinary course of business.
The Company maintains deposits in federally insured financial institutions in excess of federally insured (FDIC) limits and in institutions in which deposits are not insured. However, management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institution in which those deposits are held.
(c) | Revenue Recognition |
Principal Transactions
The Company earns revenue from (i) transactions executed as agent or riskless principal and (ii) related net trading gains and losses from market making and dealing activities to facilitate customer orders. These activities and associated revenue are recorded on a trade date basis. Financial instruments owned and financial instruments sold, not yet purchased, are recorded on a trade-date basis at fair value with realized and unrealized gains and losses reflected in principal transactions, net in the accompanying statement of operations.
Investment Banking Fees
The Company earns fees for providing strategic advisory services in mergers and acquisitions and other transactions which are predominately comprised of fees based on the successful completion of a transaction, and from capital markets transactions which are comprised of underwriting securities offerings and arranging private placements, including both debt and equity offerings.
Advisory fees, net of deal related expenses, are recorded when earned, the fees are determinable and collection is reasonably assured. Nonrefundable upfront fees are deferred and recognized as revenue ratably over the expected period in which the related services are rendered. Upon successful completion of a transaction or termination of an engagement, the recognition of revenue would be accelerated.
Capital markets revenue arise from securities offerings and private placements in which the Company acted as a placement agent or underwriter. Private placement revenue is recorded when the underlying transaction is completed under the terms of the relevant agreement, typically on the closing date of the transaction. Underwriting revenue, which includes management fees, selling concessions and underwriting fees, net of related syndicate expenses, is recorded on a trade-date basis.
(d) | Fair Value of Financial Instruments |
The Company accounts for financial instruments that are being measured and reported on a fair value basis in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between current market participants at the measurement date.
7
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
March 31, 2011
(Unaudited)
FASB ASC 820 outlines a fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (which are considered level 1 measurements) and the lowest priority to unobservable inputs (which are considered level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are as follows:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 Quoted prices for similar instruments in active markets, quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, whether directly or indirectly;
Level 3 Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions would reflect the Companys own estimates of assumptions that market participants would use in pricing the asset or liability. Such valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.
Fair value is generally based on quoted market prices. If quoted market prices are not available, fair value is determined based on other relevant factors, including dealer price quotations, price activity for equivalent instruments and valuation pricing methods. Among the factors considered by the Company in determining the fair value of financial instruments for which there is no current quoted market prices are credit spreads, the terms and liquidity of the instrument, the financial condition, operating results and credit ratings of the issuer or underlying company, the quoted market price of publicly traded securities with similar duration and yield, assessing the underlying investments, market-based information, such as comparable company transactions, performance multiples and changes in market outlook as well as other measurements. Financial instruments owned and financial instruments sold, not yet purchased are stated at fair value, with related changes in unrealized appreciation or depreciation reflected in principal transactions, net in the accompanying statement of operations. See note 3 of the notes to the consolidated financial statements for additional discussion of ASC 820.
(e) | Securities Purchased and Sold Under Agreements to Resell and Repurchase |
Securities purchased under agreements to resell (reverse repurchase agreements) and securities sold under agreements to repurchase (repurchase agreements) are accounted for as collateralized financing transactions and are carried at contract value plus accrued interest. It is the policy of the Company to obtain possession of the collateral with market values equal to or in excess of the principal amount loaned under reverse repurchase agreements. Collateral is valued daily, and the Company may require counterparties to deposit additional collateral when appropriate. Reverse repurchase agreements and repurchase agreements are reported net by counterparty when permitted under applicable accounting standards.
8
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
March 31, 2011
(Unaudited)
As of March 31, 2011, the Company has the right to sell or repledge all of the securities it has received under reverse repurchase agreements. These repledged securities have been used in the normal course of business.
As of March 31, 2011, the Company has received securities with market values of $46,753,738 under resale agreements and pledged securities with market values of $46,095,373 under repurchase agreements, prior to netting. The Companys counterparties to its repurchase agreements have the right by contract to sell or repledge the Companys pledged securities.
As part of the companys matched-booked trading activities the Company can enter into futures transactions to manage its interest rate risk. As of March 31, 2011, the Company had no futures transactions outstanding.
(f) | Receivables and Payables from Clearing Broker |
Receivables from clearing broker include deposits and free credit balances with the Companys clearing broker, proceeds from securities sold, including financial instruments sold not yet purchased, and payables to clearing broker include margin loans. Proceeds related to financial instruments sold, not yet purchased may be restricted until the securities are purchased.
(g) | Receivables from Others |
Receivables from others include receivables related to advisory and capital markets fees earned in the Companys broker-dealer business, receivables related to capital contributions in noncontrolling interest, payroll tax receivables and purchased interest and income receivables related to trading activity.
(h) | Furniture, Equipment and Leasehold Improvements |
Furniture and equipment is stated as cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated life of the asset, generally two to five years. Leasehold improvements are stated at cost less accumulated amortization and are amortized on a straight-line basis over the lesser of the economic useful of the improvement or the initial term of the respective lease.
(i) | Foreign Currency Translation |
Assets and liabilities denominated in non-U.S. currencies are translated into U.S. dollar equivalents using year-end spot foreign exchange rates. Gains and losses resulting from translation to U.S. dollar equivalents are included in the statement of operations as part of principal transactions, net.
9
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
March 31, 2011
(Unaudited)
(j) | Member Accounts |
Net income or loss from operations is allocated to the capital accounts of the Members on a pro-rata basis in proportion to such Members profit units as of the last day of the applicable accounting period for which such net income or loss was determined. In connection with the withdrawal of a Member from the Company, the Company may repurchase such Members units in accordance with the terms of the Companys LLC agreement.
(k) | Interest Income and Interest Expense |
The Company recognizes contractual interest on financial instruments owned at fair value and financial instruments sold, not yet purchased on an accrual basis as a component of interest income or interest expense.
(l) | Advances to Employees |
Advances to employees include upfront compensation payments made to employees which are deferred and amortized on a straight-line basis over the relevant service period for which they are earned.
(m) | Income Taxes |
The Company and PrinceRidge Holdings LP are treated as partnerships for federal income tax purposes. The Companys operating subsidiaries, The PrinceRidge Group LLC and PrinceRidge Capital LLC, are single member limited liability companies and are treated as disregarded entities pursuant to Treasury Regulation Section 301.7701-3 for federal income tax purposes. Generally, disregarded entities are not subject to entity-level federal or state income taxation and, as such, the Company is not required to provide for income taxes under FASB ASC 740, Income Taxes. The operating subsidiaries taxable income becomes taxable to the respective members of the Company as a result of the Companys treatment as a nontaxable flow-through entity for federal income tax purposes. However, certain aspects of the Companys businesses are subject to local taxes such as the New York City unincorporated business tax (UBT).
(n) | Recent Accounting Developments |
In January 2010, the FASB issued ASU No. 2010-06, which updates the guidance in ASC 820, Fair Value Measurements and Disclosures. The ASU requires new disclosures including significant transfers in and out of Level 1 and Level 2 fair value measurements and a reconciliation of Level 3 fair value measurements including purchases, sales, issuances and settlements on a gross basis. The ASU also amends ASC Subtopic 820-10 to clarify certain existing disclosures regarding the level of disaggregation at which fair value measurements are provided for each class of assets and liabilities (instead of major category) and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring fair value measurements that fall in either Level 2 or Level 3. The majority of the provisions of this update, including those applicable to the Company, were effective for annual periods beginning after December 15, 2009, with the remainder being effective for annual reporting periods beginning after December 15, 2010. The adoption of the guidance effective in 2010 did not have a material impact on the Companys disclosures nor does the Company expect the adoption of the remaining guidance in 2011 to impact its disclosures.
10
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
March 31, 2011
(Unaudited)
(3) | Financial Instruments |
The following table sets forth by level within the fair value hierarchy the Companys financial instruments owned, at fair value, and financial instruments sold, but not yet purchased, at fair value as of March 31, 2011. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | | $ | | $ | | $ | | ||||||||
Financial instruments owned, at fair value: |
||||||||||||||||
Corporate debt |
| 37,110,359 | | 37,110,359 | ||||||||||||
Equities |
| | | | ||||||||||||
Government securities |
1,281,380 | | | 1,281,380 | ||||||||||||
Municipal securities |
| 2,249,157 | | 2,249,157 | ||||||||||||
Mortgage-backed securities |
| 2,010,439 | | 2,010,439 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total financial instruments owned |
1,281,380 | 41,369,955 | | 42,651,335 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 1,281,380 | $ | 41,369,955 | $ | | $ | 42,651,335 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Financial instruments sold, but not yet purchased at fair value: |
||||||||||||||||
Corporate debt |
$ | | $ | 14,309,515 | $ | | $ | 14,309,515 | ||||||||
Government securities |
7,974,186 | | | 7,974,186 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities at fair value |
$ | 7,974,186 | $ | 14,309,515 | $ | | $ | 22,283,701 | ||||||||
|
|
|
|
|
|
|
|
There have not been any significant transfers between level 1 and level 2 of the fair value hierarchy during the quarter ended March 31, 2011.
11
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
March 31, 2011
(Unaudited)
(4) | Receivable from Clearing Broker |
Securities transactions are recorded on a trade date basis. The receivable and payable amounts related to unsettled securities transactions are recorded on a net basis in the receivable from clearing broker in the accompanying statement of financial condition. Receivable from clearing broker consists of the following:
Clearing deposit |
$ | 397,146 | ||
|
|
|||
Total receivables from clearing broker |
$ | 397,146 | ||
|
|
(5) | Receivables from Others |
Receivables from others are comprised of:
Investment banking fee receivable (net of allowances $27,117) |
$ | 114,178 | ||
Due from noncontrolling interest |
327,850 | |||
Other receivables |
189,625 | |||
Purchased interest and interest income receivable |
455,225 | |||
|
|
|||
Total receivables from others |
$ | 1,086,878 | ||
|
|
(6) | Office Equipment and Leasehold Improvements |
Furniture, equipment and leasehold improvements consist of the following as of March 31:
Furniture and fixtures |
$ | 360,432 | ||
Equipment |
987,473 | |||
Leasehold improvements |
1,799,212 | |||
Software |
155,457 | |||
|
|
|||
Total |
3,302,574 | |||
Less: Accumulated depreciation and amortization |
607,651 | |||
|
|
|||
Total office equipment and leasehold improvements, net |
$ | 2,694,923 | ||
|
|
12
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
March 31, 2011
(Unaudited)
(7) | Commitments and Contingencies |
(a) | Leases |
The Company leases office space in New York City, Los Angeles and Chicago under operating lease agreements that expire at various times through 2015. The following table presents the Parents required future minimum rental payments for the office space under noncancelable operating leases that expire in 2015:
Year Ending: |
||||
2011 |
$ | 397,355 | ||
2012 |
880,870 | |||
2013 |
857,400 | |||
2014 |
857,400 | |||
2015 |
500,150 | |||
|
|
|||
Total minimum payments required |
3,493,175 | |||
Less: Sublease rentals under noncancellable subleases |
| |||
|
|
|||
Net minimum payments required |
$ | 3,493,175 | ||
|
|
(b) | Commitments |
In connection with underwriting activities, the Companys broker-dealer subsidiary may enter into firm commitments for the purchase of securities in return for a fee. These commitments may require the broker-dealer to purchase securities at a specified price. Securities underwriting exposes the Company to market and credit risk primarily in the event that, for any reason, securities purchased by the Company cannot be distributed at anticipated price levels. At March 31, 2011, the Company had no open underwriting commitments.
(c) | Contingencies |
The Company, together with various other brokers and dealers, corporations, and individuals, has been named as a defendant in various legal actions and other litigation arising in connection with the conduct of its business activities that allege violations of federal and state securities laws and claim substantial damages.
In accordance with ASC 450-20 (Loss Contingencies), the Company will accrue a liability when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not possible to determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no accrual is made until that time. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases in which claimants seek substantial or indeterminate damages, the Company cannot predict what the eventual loss or range of loss related to such matters will be. Subject to the foregoing, the Company continues to assess these cases and believes, based on information available to it, that the resolution of these matters will not have a material adverse effect on the financial condition of the Company.
13
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
March 31, 2011
(Unaudited)
(8) | Financial Instruments with Off-Balance Sheet Risk, Credit Risk or Market Risk |
The Companys broker-dealer clears securities transactions on behalf of customers through its clearing broker. Substantially all of the Companys transactions are executed with and on behalf of institutional investors, including other brokers and dealers, commercial banks, asset managers, and other financial institutions. In connection with these activities, unsettled customer trades may expose the Company to off-balance sheet credit risk in the event its customers are unable to fulfill their contractual obligations.
The majority of the Companys transactions, and consequently the concentration of its credit exposure, is with its clearing broker. The clearing broker is also a significant source of short-term financing for the Company, which is collateralized by cash and securities owned by the Company and held by the clearing broker. The Companys financial instruments may be pledged by the clearing broker.
In connection with its proprietary activities, the Company has sold securities that it does not own and will, therefore, be obligated to purchase such securities at a future date. The Company has recorded this obligation in the financial statements at fair value for the related securities and will record a trading loss if the market value of the securities increases subsequent to the date of the financial statements.
(9) | Income Taxes |
The Company and its subsidiaries are subject to UBT and have provided for income taxes based on a statutory rate of 4.00%. For the period ended March 31, 2011, the Company recorded a deferred tax asset of $320,936 related to its net operating loss, which can be carried forward for UBT tax purposes. At March 31, 2011, management has provided for a full valuation allowance for the deferred tax asset.
(10) | Regulatory Requirements |
The Companys subsidiary, The PrinceRidge Group LLC, is a registered broker-dealer and, accordingly, is subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (Net Capital Rule) which requires the maintenance of minimum net capital as defined. The PrinceRidge Group LLC has elected to use the alternative method, permitted by the Net Capital Rule, which requires that it maintain minimum net capital, as defined, equal to the greater of $250,000 or 2% of aggregate debit items arising from customer transactions. At March 31, 2011, the Company had net capital of $5,193,765 which was $4,943,765 in excess of its required net capital of $250,000.
(11) | Subsequent Events |
The Company has evaluated subsequent events for the period from March 31, 2011 through July 22, 2011, the date which the accompanying financial statements were issued.
14
PRINCERIDGE PARTNERS LLC
Notes to Consolidated Financial Statements
March 31, 2011
(Unaudited)
On June 1, 2011 the Company completed a transaction with Institutional Financial Markets, Inc. (IFMI) pursuant to which IFMI contributed the equity interests in a subsidiary comprising a substantial part of its capital markets segment in exchange for a majority interest in the Company. The fair value of the equity interests was approximately $45 million and was comprised of cash, trading securities, employees and other assets and liabilities.
On June 3, 2011 a Series A member provided written notice to the Company of their intent to withdrawal from the partnership. At the time of the notice the members capital consisted of less than 6% of the Companys total capital.
15
EXHIBIT 99.4
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
In this report on Form 8-K, unless otherwise noted or as the context requires: the Company,, Institutional Financial Markets, we, us, IFMI, and our refers to Institutional Financial Markets, Inc. and it subsidiaries (formerly known as Cohen & Company Inc.). IFMI LLC, refers to IFMI LLC (formerly known as Cohen Brothers, LLC), the main operating subsidiary of the Company. PrinceRidge refers to PrinceRidge Partners, LLC, and its consolidated entities, including PrinceRidge Holdings LP. Business Combination refers to the June 1, 2011 closing of the contribution transaction between IFMI and PrinceRidge.
On April 19, 2011, the Company entered into a contribution agreement, referred to herein, as amended, as the Contribution Agreement, with PrinceRidge. On June 1, 2011, the Company completed the Business Combination, pursuant to which the Company contributed the equity interests of its wholly owned subsidiary, Cohen and Company Capital Markets, LLC (CCCM) along with cash and other amounts payable to PrinceRidge in exchange for a 69.9% equity interest in PrinceRidge. The owners of PrinceRidge prior to the Business Combination are referred to herein as the PrinceRidge Principals. The PrinceRidge Principals retained a 30.1% interest in PrinceRidge subsequent to the Business Combination and contribution.
The following unaudited pro forma condensed combined statements give effect to the Business Combination as if it had been completed as of March 31, 2011 for balance sheet purposes, and at the beginning of the periods presented for statements of operations purposes. We have adjusted the historical consolidated financial statements of both IFMI and PrinceRidge to give effect to pro forma events that are (1) directly attributable to the Business Combination, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results. The manner in which this pro forma financial information is calculated may differ from similarly titled measures reported by other companies.
The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred if the Business Combination had been completed during the period or as of the dates for which the pro forma data is presented, nor is it necessarily indicative of future operating results or the future financial position of the combined company. These statements do not give effect to (1) IFMI or PrinceRidges results of operations or other transactions or developments since March 31, 2011, (2) the impact of possible enhancements, expense efficiencies or synergies expected to result from the Business Combination, or (3) the effects of events or developments that may occur subsequent to the Business Combination. The foregoing matters could cause both the combined companys pro forma historical financial position and results of operations, and the combined companys actual future financial position and results of operations, to differ materially from those presented in the accompanying unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined balance sheet and statement of operations and accompanying notes should be read in conjunction with the historical consolidated financial statements of IFMI and PrinceRidge. PrinceRidges audited financial statements for 2010 and 2011 are filed as an exhibit to the Form 8-K of which this exhibit is a part. IFMIs historical audited financial statements and interim unaudited quarterly financial statements are included on Form 10-K and Forms 10-Q filed with the Securities and Exchange Commission and are available via IFMIs website at www.ifmi.com.
Institutional Financial Markets, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of March 31, 2011
(In thousands, except share amounts)
IFMI | PrinceRidge | Adjustments | Pro Forma | |||||||||||||
Cash and cash equivalents |
$ | 49,548 | $ | 3,241 | $ | 52,789 | ||||||||||
Restricted cash |
1,880 | 1,880 | ||||||||||||||
Receivables from: |
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Brokers, dealers, and clearing agencies |
397 | 397 | ||||||||||||||
Related parties |
771 | 353 | 1,124 | |||||||||||||
Other receivables |
5,632 | 1,676 | 7,308 | |||||||||||||
Investments - trading |
316,394 | 42,651 | 359,045 | |||||||||||||
Other investments, at fair value |
44,766 | 44,766 | ||||||||||||||
Receivables under resale agreements |
| 42,764 | 42,764 | |||||||||||||
Goodwill |
10,184 | 806 | (A) | 10,990 | ||||||||||||
Other assets |
12,613 | 4,424 | 166 | (B) | 17,203 | |||||||||||
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Total assets |
$ | 441,788 | $ | 95,506 | $ | 972 | $ | 538,266 | ||||||||
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Payables to: |
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Brokers, dealers, and clearing agencies |
$ | 113,885 | $ | 6,205 | $ | 120,090 | ||||||||||
Related parties |
60 | 60 | ||||||||||||||
Accounts payable and other liabilities |
13,842 | 3,823 | 17,665 | |||||||||||||
Accrued compensation |
9,072 | 2,725 | 11,797 | |||||||||||||
Trading securities sold, not yet purchased |
54,351 | 22,284 | 76,635 | |||||||||||||
Securities sold under agreement to repurchase |
105,490 | 42,410 | 147,900 | |||||||||||||
Deferred income taxes |
8,639 | 8,639 | ||||||||||||||
Debt |
43,258 | 43,258 | ||||||||||||||
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Total liabilities |
348,597 | 77,447 | | 426,044 | ||||||||||||
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Redeemable non controlling interest |
19,031 | (C) | 19,031 | |||||||||||||
Preferred stock |
5 | 5 | ||||||||||||||
Common stock |
11 | 11 | ||||||||||||||
Additional paid in capital |
62,762 | 62,762 | ||||||||||||||
Retained earnings |
6,212 | 6,212 | ||||||||||||||
Accumulated comprehensive loss |
(448 | ) | (448 | ) | ||||||||||||
Treasury stock |
(328 | ) | (328 | ) | ||||||||||||
Members equity |
| (231 | ) | 231 | (D) | | ||||||||||
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Total controlling interest |
68,214 | (231 | ) | 231 | 68,214 | |||||||||||
Non controlling interest |
24,977 | 18,290 | (18,290 | ) (D) | 24,977 | |||||||||||
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Total stockholders equity |
93,191 | 18,059 | (18,059 | ) | 93,191 | |||||||||||
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Total liabilities and equity and redeemable non controlling interest |
$ | 441,788 | $ | 95,506 | $ | 972 | $ | 538,266 | ||||||||
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IFMI Shares outstanding |
12,160,249 | 848,742 | (E) | 13,008,991 |
2
Institutional Financial Markets, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Three Months Ended March 31, 2011
(In thousands, except share and per share amounts)
IFMI | PrinceRidge | Adjustments | Pro Forma | |||||||||||||
Revenues |
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Net trading |
$ | 27,274 | $ | 7,049 | 34,323 | |||||||||||
Asset management |
5,970 | 5,970 | ||||||||||||||
New issue and advisory |
109 | 2,319 | 2,428 | |||||||||||||
Principal transactions and other income |
(1,039 | ) | (1,039 | ) | ||||||||||||
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Total revenues |
32,314 | 9,368 | | 41,682 | ||||||||||||
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Operating expenses |
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Compensation and benefits |
21,988 | 6,545 | 497 | (E) | 29,030 | |||||||||||
Business development, occupancy, equipment |
1,439 | 499 | 1,938 | |||||||||||||
Subscriptions, clearing, and execution |
2,815 | 1,180 | 3,995 | |||||||||||||
Professional services and other operating |
4,015 | 866 | 4,881 | |||||||||||||
Depreciation and amortization |
470 | 208 | 678 | |||||||||||||
Impairment of intangible asset |
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Total operating expenses |
30,727 | 9,298 | 497 | 40,522 | ||||||||||||
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Operating income / (loss) |
1,587 | 70 | (497 | ) | 1,160 | |||||||||||
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Non operating income / (expense) |
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Interest expense |
(1,482 | ) | (1,482 | ) | ||||||||||||
Gain on sale of management contracts |
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Income / (loss) from equity method affiliates |
95 | 95 | ||||||||||||||
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Income / (loss) before income taxes |
200 | 70 | (497 | ) | (227 | ) | ||||||||||
Income taxes |
(213 | ) | (213 | ) | ||||||||||||
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Net income (loss) |
413 | 70 | (497 | ) | (14 | ) | ||||||||||
Less: Net (loss) income attributable to the noncontrolling interest |
38 | 76 | (335 | ) (F) | (221 | ) | ||||||||||
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Net income (loss) attributable to controlling interest |
$ | 375 | $ | (6 | ) | $ | (162 | ) | $ | 207 | ||||||
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Earnings (loss) per share - basic: (H) |
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Weighted average shares outstanding-Basic |
10,819,995 | 10,819,995 | ||||||||||||||
Basic earnings (loss) per share |
$ | 0.03 | $ | 0.02 | ||||||||||||
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Earnings (loss) per share-diluted: (H) |
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Weighted average shares outstanding-Diluted |
16,125,155 | 223,687 | (E) | 16,348,842 | ||||||||||||
Diluted earnings (loss) per share |
$ | 0.03 | $ | 0.02 | ||||||||||||
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3
Institutional Financial Markets, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2010
(In thousands, except share and per share amounts)
IFMI | PrinceRidge | Adjustments | Pro Forma | |||||||||||||
Revenues |
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Net trading |
$ | 70,809 | $ | 20,385 | 91,194 | |||||||||||
Asset management |
25,281 | 25,281 | ||||||||||||||
New issue and advisory |
3,778 | 4,357 | 8,135 | |||||||||||||
Principal transactions and other income |
25,684 | 25,684 | ||||||||||||||
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Total revenues |
125,552 | 24,742 | | 150,294 | ||||||||||||
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Operating expenses |
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Compensation and benefits |
77,446 | 19,369 | 1,986 | (E) | 98,801 | |||||||||||
Business development, occupancy, equipment |
5,470 | 1,681 | 7,151 | |||||||||||||
Subscriptions, clearing, and execution |
8,733 | 3,649 | 12,382 | |||||||||||||
Professional services and other operating |
17,198 | 3,780 | 20,978 | |||||||||||||
Depreciation and amortization |
2,356 | 818 | 3,174 | |||||||||||||
Impairment of intangible asset |
5,607 | | 5,607 | |||||||||||||
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Total operating expenses |
116,810 | 29,297 | (1,986 | ) | 148,093 | |||||||||||
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Operating income / (loss) |
8,742 | (4,555 | ) | (1,986 | ) | 2,201 | ||||||||||
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Non operating income / (expense) |
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Interest expense |
(7,686 | ) | (7,686 | ) | ||||||||||||
Gain on repurchase of debt |
2,555 | 2,555 | ||||||||||||||
Gain on sale of management contracts |
971 | 971 | ||||||||||||||
Income / (loss) from equity method affiliates |
5,884 | 5,884 | ||||||||||||||
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Income / (loss) before income taxes |
10,466 | (4,555 | ) | (1,986 | ) | 3,925 | ||||||||||
Income taxes |
(749 | ) | (749 | ) | ||||||||||||
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Net income (loss) |
11,215 | (4,555 | ) | (1,986 | ) | 4,674 | ||||||||||
Less: Net (loss) income attributable to the noncontrolling interest |
3,620 | (4,479 | ) | 1,592 | (G) | 733 | ||||||||||
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Net income (loss) attributable to controlling interest |
$ | 7,595 | $ | (76 | ) | $ | (3,578 | ) | $ | 3,941 | ||||||
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Earnings (loss) per share - basic: (H) |
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Weighted average shares outstanding-Basic |
10,404,017 | 10,404,017 | ||||||||||||||
Basic earnings (loss) per share |
$ | 0.73 | $ | 0.38 | ||||||||||||
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Earnings (loss) per share-diluted: (H) |
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Weighted average shares outstanding-Diluted |
15,687,573 | 378,578 | (E) | 16,066,151 | ||||||||||||
Diluted earnings (loss) per share |
$ | 0.73 | $ | 0.37 | ||||||||||||
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4
Note 1 Basis of Presentation
The unaudited pro forma condensed combined statements give effect to the Business Combination as a transaction to be accounted for as a purchase business combination under FASB Accounting Standards Codification (ASC) 805 Business Combinations and as if the acquisition of PrinceRidge had been completed as of March 31, 2011 for balance sheet purposes and at the beginning of the periods presented for statements of operations purposes. IFMI is the acquirer for accounting purposes. IFMI will record the acquisition of PrinceRidges assets and liabilities as of the effective date of the Business Combination.
The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred if the Business Combination had been completed during the period or as of the dates for which the pro forma data is presented, nor is it necessarily indicative of future operating results or the financial position of the combined company.
The purchase price of PrinceRidge has been allocated to the assets acquired and liabilities assumed based upon managements preliminary estimates of their respective fair values as of the assumed date of acquisition as described above. The purchase price allocation reflected in the unaudited pro forma condensed combined financial statements is preliminary, and the final allocation will be based upon the fair values of the actual assets and liabilities of PrinceRidge as of the effective date of the combination. Accordingly, the actual purchase price adjustments may differ materially from those presented in these statements.
Certain reclassifications have been made to the PrinceRidge historical balances in the unaudited pro forma condensed combined financial statements in order to conform to IFMIs presentation. IFMI has completed a preliminary review of PrinceRidges accounting policies but the review is ongoing. As such, additional reclassifications or pro forma adjustments may be identified.
Note 2 Assets and Liabilities Acquired
The following represents the identifiable assets and liabilities acquired and the values assigned as of March 31, 2011:
Values Assigned to Identifiable Net Assets Acquired
PrinceRidge Recorded Value |
Purchase Accounting Adjustments |
Purchase Accounting Value |
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Cash and cash equivalents |
$ | 3,241 | $ | 3,241 | ||||||||
Receivables from brokers, dealers, and clearing agencies |
397 | 397 | ||||||||||
Receivables from related parties |
353 | 353 | ||||||||||
Other receivables |
1,676 | 1,676 | ||||||||||
Investments - trading |
42,651 | 42,651 | ||||||||||
Receivables under resale agreements |
42,764 | 42,764 | ||||||||||
Other assets |
4,424 | 166 | 4,590 | |||||||||
Payables to brokers, dealers, and clearing agencies |
(6,205 | ) | (6,205 | ) | ||||||||
Accounts payable and other liabilities |
(6,548 | ) | (6,548 | ) | ||||||||
Trading securities sold, not yet purchased |
(22,284 | ) | (22,284 | ) | ||||||||
Securities sold under agreement to repurchase |
(42,410 | ) | (42,410 | ) | ||||||||
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Fair Value of Net Assets |
18,225 | |||||||||||
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Note 3 Pro Forma Adjustments
5
(A) | Goodwill is calculated as: |
Calculation of Goodwill
Purchase price |
$ | 19,031 | ||
Fair value of net assets acquired |
(18,225 | ) | ||
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Goodwill |
$ | 806 | ||
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The purchase price equals the fair value of the non-controlling interest retained by the PrinceRidge Principals. The fair value is calculated in (C) below.
(B) | $166 represents the estimated value of broker-dealer license. The $166 value of PrinceRidges broker-dealer license is an initial estimate. This value will be finalized in the future. Any adjustment to this value in the final purchase accounting will result in an offsetting adjustment to the amount assigned to goodwill. |
(C) | Represents the fair value of the non-controlling interest retained by the PrinceRidge Principals. |
Calculation of Fair Value of Non Controlling Interest
Fair value of net assets of PrinceRidge - Historical |
18,225 | |||
Contribution from IFMI |
45,000 | |||
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Pro Forma fair value of PrinceRidge equity |
63,225 | |||
Non controlling interest percentage |
30.1 | % | ||
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Fair value of non controlling interest |
19,031 | |||
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This interest represents the membership interests of PrinceRidge that are not owned by IFMI, LLC. The members of PrinceRidge have the right to withdraw from PrinceRidge and require PrinceRidge to redeem the interests for cash over an agreed upon payment period. The Company has concluded it will treat these interests as temporary equity under Accounting Series Release 268 (ASR 268). These interests will be shown outside of the permanent equity of IFMI in its consolidated balance sheet as redeemable non controlling interests.
(D) | Adjustment to eliminate the historical equity accounts of PrinceRidge. |
(E) | To record expense and dilutive share effect of equity compensation granted to PrinceRidge Principals contemporaneous with the business combination. |
6
(F) | Adjustment to non controlling interest for the three months ended March 31, 2011 is calculated as follows: |
Calculation of Adjustment to Non Controlling Interest
Prince Ridge historical net income |
70 | |||||||||||
Pro forma equity compensation recognized by PrinceRidge |
(199 | ) | ||||||||||
Historical net loss of CCCM |
(456 | ) | ||||||||||
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Pro Forma net loss of PrinceRidge |
(585 | ) | ||||||||||
PrinceRidge non controlling interest percentage |
30.1 | % | ||||||||||
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Pro Forma loss attributable to non controlling interest of PrinceRidge |
(176 | ) | ||||||||||
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IFMI LLC historical net income |
115 | |||||||||||
Pro forma equity compensation recognized by IFMI |
(298 | ) | ||||||||||
Historical net loss of CCCM |
456 | |||||||||||
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Pro forma income of IFMI LLC before PrinceRidge |
273 | |||||||||||
Pro Forma net loss of PrinceRidge |
(585 | ) | ||||||||||
Pro Forma loss attributable to non controlling interest of PrinceRidge |
176 | |||||||||||
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IFMI LLCs share of PrinceRidge pro forma net income |
(409 | ) | ||||||||||
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Pro Forma income of IFMI LLC |
(136 | ) | ||||||||||
IFMI non controlling interest percentage |
32.76 | % | ||||||||||
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IFMI pro forma non controlling interest |
(45 | ) | ||||||||||
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Consolidated pro forma non controlling interest |
(221 | ) | ||||||||||
Less: Historical combined non controlling interest |
114 | |||||||||||
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Adjustment required |
$ | (335 | ) | |||||||||
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(G) | Adjustment to non controlling interest for the year ended December 31, 2010 is calculated as follows: |
Calculation of Adjustment to Non Controlling Interest
Prince Ridge historical net income |
(4,555 | ) | ||||||||||
Pro forma equity compensation recognized by PrinceRidge |
(796 | ) | ||||||||||
Historical net income of CCCM |
1,959 | |||||||||||
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Pro Forma net loss of PrinceRidge |
(3,392 | ) | ||||||||||
PrinceRidge non controlling interest percentage |
30.1 | % | ||||||||||
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Pro Forma loss attributable to non controlling interest of PrinceRidge |
(1,021 | ) | ||||||||||
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IFMI LLC historical net income |
10,707 | |||||||||||
Pro froma equity compensation recognized by IFMI |
(1,190 | ) | ||||||||||
Historical net income of CCCM |
(1,959 | ) | ||||||||||
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Pro forma income of IFMI LLC before PrinceRidge |
7,558 | |||||||||||
Pro Forma net loss of PrinceRidge |
(3,392 | ) | ||||||||||
Pro Forma loss attributable to non controlling interest of PrinceRidge |
1,021 | |||||||||||
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IFMI LLCs share of PrinceRidge pro forma net income |
(2,371 | ) | ||||||||||
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Pro Forma Income of IFMI LLC |
5,187 | |||||||||||
IFMI non controlling interest percentage |
33.81 | % | ||||||||||
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IFMI pro forma non controlling interest |
1,754 | |||||||||||
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Consolidated pro forma non controlling interest |
733 | |||||||||||
Less: Historical combined non controlling interest |
(859 | ) | ||||||||||
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Adjustment required |
$ | 1,592 | ||||||||||
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7
(H) | The following table shows the calculation of the earnings per share amounts: |
Historical Year Ended December 31, 2010 |
Proforma Year Ended December 31, 2010 |
Historical Three Months Ended March 31, 2011 |
Proforma Three Months Ended March 31, 2011 |
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Basic |
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Net income attributable to controlling interest |
7,595 | 3,941 | 375 | 207 | ||||||||||||
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Weighted average shares outstanding |
10,404 | 10,404 | 10,820 | 10,820 | ||||||||||||
Earnings per share |
$ | 0.73 | $ | 0.38 | $ | 0.03 | $ | 0.02 | ||||||||
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Diluted |
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Net income attributable to controlling interest |
7,595 | 3,941 | 375 | 207 | ||||||||||||
Income attributable to units of IFMI, LLC that are exchangeable into IFMI shares |
3,620 | 1,754 | 38 | (45 | ) | |||||||||||
Adjustment to income tax expense for exchange at units to shares |
260 | 260 | 145 | 145 | ||||||||||||
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Net income on a fully converted basis |
11,475 | 5,955 | 558 | 307 | ||||||||||||
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Weighted shares outstanding |
15,688 | 16,066 | 16,125 | 16,349 | ||||||||||||
Earnings per share |
$ | 0.73 | $ | 0.37 | $ | 0.03 | $ | 0.02 | ||||||||
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8