CROSSINGBRIDGE ADVISORS, LLC This section is intended to provide readers of our financial statements information regarding our financial condition, results of operations, and items that management views as important. The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related footnotes as of and for the year endedDecember 31, 2022 appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included elsewhere in this Annual Report on Form 10-K. The discussion of results, causes, and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future. Additionally, it should be noted that a uniform comparative analysis cannot be performed for all segments, as a segment's limited financial history or restructuring results in less comparable financial performance. As a result of the Business Combination that was consummated onAugust 11, 2022 , and the determination that the Business Combination would be accounted for as a reverse business combination, all historic activity for the year endedDecember 31, 2021 represents only the financial activity ofCrossingBridge Advisors, LLC . Activity presented for the year endedDecember 31, 2022 , includes CrossingBridge financial activity, which has been consolidated with the activity ofEnterprise Diversified, Inc. and its subsidiaries as ofAugust 11, 2022 through the year endedDecember 31, 2022 . All amounts are inU.S. dollars, unless otherwise noted. Overview
During the year ended
? CrossingBridge Operations - this segment includes revenue and expenses
derived from the Company's investment advisory and sub-advisory services
offered through various
? Willow Oak Operations - this segment includes revenue and expenses
derived from the Company's various joint ventures, service offerings,
and initiatives undertaken in the asset management industry through
Willow Oak Asset Management, LLC and its subsidiaries;
? Internet Operations - this segment includes revenue and expenses related
to the Company's sale of internet access, e-mail and hosting, storage,
and other ancillary services through Sitestar.net, Inc.; and
? Other Operations - this segment includes any revenue and expenses
from the Company's nonrecurring or one-time strategic funding or similaractivity that is not considered to be one of the Company's primary lines
of business, and any revenue or expenses derived from the Company's
corporate office operations, as well as expenses related to public
company reporting, the oversight of subsidiaries, and other items that
affect the overall Company.
The management of the Company also continually reviews various business opportunities for the Company, including those in other lines of business.
Summary of Financial Performance
Stockholders' equity increased from$591,909 atDecember 31, 2021 to$20,382,693 atDecember 31, 2022 . This change was primarily attributed to transactions that occurred as part of the Business Combination, which represented an increase of additional paid in capital of$20,217,472 . This change was also attributable to$3,288,940 of net income in the CrossingBridge operations segment for the year endedDecember 31, 2022 ,$96,324 of net income in the internet operations segment, a net loss of$112,058 in the Willow Oak operations segment, and a net loss of$890,621 in other segments for the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 . Corporate expenses for the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 included in the net loss from other operations totaled$2,131,102 . Total comprehensive net income for all segments for the year endedDecember 31, 2022 was$2,382,585 . Additionally, prior to the Closing Date, CBA issued$2,809,578 of distributions to its historical sole member, Cohanzick. Balance Sheet Analysis This section provides an overview of changes in our assets, liabilities, and equity and should be read together with our accompanying consolidated financial statements, including the accompanying notes to the financial statements included elsewhere in this Annual Report on Form 10-K. The table below provides a balance sheet summary for the periods presented and is designed to provide an overview of the balance sheet changes from quarter to quarter. Ending balances for Enterprise Diversified and its subsidiaries have been consolidated as of the quarterly period endedSeptember 30, 2022 , the period in which the Mergers occurred. December 31, September 30, December 31, 2022 2022 June 30, 2022 March 31, 2022 2021 Assets Cash and cash equivalents$ 10,690,398 $ 11,685,819 $ 1,062,375 $ 642,672 $ 1,272,924 Investments in securities, at fair value 5,860,688 5,721,047 2,248,556 2,262,239 2,265,088 Accounts receivable, net 744,638 726,841 506,593 649,854 511,248 Goodwill 737,869 1,677,425 - - - Intangible assets, net 1,223,926 1,300,444 - - - Deferred tax assets, net 1,441,234 400,283 - - - Other assets 772,742 959,162 11,416 - 4,567 Total assets$ 21,471,495 $ 22,471,021 $ 3,828,940
Liabilities and Stockholders' Equity Accounts payable$ 71,306 $ 21,381 $ - $ - $ - Accrued compensation 23,342 1,239,929 763,750 381,875 - Accrued expenses 260,185 233,857 8,829 24,469 84,627 Deferred revenue 156,859 175,552 - - - Class W-1 Warrant and Redeemable Class B Common Stock 576,000 954,000 - - - Due to affiliate - - 939,950 1,794,895 3,377,291 Other liabilities 1,110 1,898 - - - Total liabilities 1,088,802 2,626,617 1,712,529 2,201,239 3,461,918 Total stockholders' equity 20,382,693 19,844,405 2,116,411 1,353,526 591,909 Total liabilities and stockholders' equity$ 21,471,495 $ 22,471,021 $ 3,828,940 $ 3,554,765 $ 4,053,827 As of the year endedDecember 31, 2022 , the Company reported an increase in cash and cash equivalents of approximately$9.4 million , an increase in investments in securities at fair value of approximately$3.6 million , a combined increase in net intangible assets and goodwill of approximately$2.0 million , and an increase in net deferred tax assets of approximately$1.4 million when compared to the year endedDecember 31, 2021 . As ofDecember 31, 2022 , the Company also reported a decrease of approximately$3.4 million in its due to affiliate balance and an increase of approximately$0.6 million in its liability associated with the issuance of the Class W-1 Warrant and Class B Common Stock when compared to the year endedDecember 31, 2021 . These period-over-period changes are largely due to the purchase accounting of the Business Combination and the consolidation of the assets and liabilities of Enterprise Diversified. 19
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Table of Contents Results of Operations CrossingBridge Operations Revenue attributed to the CrossingBridge operations segment for the year endedDecember 31, 2022 was$7,271,332 , representing an increase of$2,984,247 compared to the year endedDecember 31, 2021 . This increase was primarily due to a corresponding increase in the AUM of CrossingBridge's advised funds year over year as well as the current year revenue attributed to its service agreement with Cohanzick. The increase in revenue was offset by an increase of$1,205,781 in operating expenses, which totaled$3,998,003 for the year endedDecember 31, 2022 . The increase in operating expenses for the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 , was primarily associated with an increase in employee compensation expenses and mutual fund expenses. Net profit margin increased from 35% for the year endedDecember 31, 2021 to 45% for the year endedDecember 31, 2022 . This was largely due to the increase in AUM of advised funds and corresponding increase in revenue. Compensation and related costs are typically comprised of salaries, bonuses, and benefits. Salary compensation and bonuses are generally the largest expenses for the CBA segment. Bonuses are subjective and based on individual performance, the underlying funds' performance, and profitability of the firm, as well as the consideration of future outlook. Compensation and related costs increased by$1,076,288 for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . This increase was due to an increase in allocated compensation expenses from Cohanzick due to the relative increase in the CBA funds' AUM for current year monthly periods compared to monthly periods for the prior year as well as expenses for a full year for three employees that were hired during 2021. Compensation expense can fluctuate period over period as management evaluates investment performance, individual performance, Company performance, and other factors. Mutual fund expenses increased by$161,144 for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . This increase was due to the relative increase of AUM in CBA's advised mutual funds year over year. Travel and entertainment expenses increased by$71,046 for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . This increase was substantially due to increased travel opportunities in the year endedDecember 31, 2022 as in-person meetings started returning to pre-pandemic levels. CBA expects that its net margin will fluctuate from period to period based on various factors, including: revenues, investment results, and the development of investment strategies, products, and/or channels. The table below provides a summary of income statement amounts over time. These figures are specific to the CrossingBridge operations segment and are presented for the annual and quarterly periods designated below. For the Quarterly Periods Ended December 31, September 30, CrossingBridge Operations 2022 2022 June
30, 2022
Revenue$ 1,808,079 $ 1,993,772 $ 1,762,357 $ 1,707,124 Cost of revenue - - - - Operating expenses 1,134,957 934,584 985,797 942,665 Other income (expense) 163 31,965 (13,675 ) (2,842 ) Net income$ 673,285 $ 1,091,153 $ 762,885 $ 761,617 Assets Under Management CBA derives its revenue from its investment advisory fees. Investment advisory fees paid to CBA are based on the value of the investment portfolios it manages and fluctuate with changes in the total value of its AUM. CBA's revenues are highly dependent on both the value and composition of AUM. The following is a summary of CBA's AUM by product and investment strategy, as ofDecember 31, 2022 andDecember 31, 2021 . Assets Under Management by Product December 31, 2022 December 31, 2021 % Change (in millions, except percentages) Advised funds 614 514 19.5 % Sub-advised funds 664 855 (22.3 )% Total AUM 1,278 1,369 (6.6 )% Assets Under Management by Investment Strategy December 31, 2022 December 31, 2021 % Change (in millions, except percentages) Ultra-Short Duration 81 59 37.3 % Low Duration 829 902 (8.1 )% Responsible Investing 23 16 43.8 % Strategic Income 345 392 (12.0 )% Total AUM 1,278 1,369 (6.6 )% 20
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Table of Contents
Market
Appreciation
Beginning Balance Gross Inflows Gross Outflows (Depreciation) Ending Balance
1Q 2022 395,646,554 246,380,999 (52,333,341 ) 761,371 590,455,583
2Q 2022 590,455,583 81,578,448 (113,049,267 ) (7,650,146 ) 551,334,618
3Q 2022 551,334,618 64,761,170 (72,441,879 ) 1,154,842 544,808,751
4Q 2022 544,808,751 64,535,197 (171,525,452 ) 9,774,294 447,592,790
Market
Beginning Appreciation
Balance Gross Inflows Gross Outflows (Depreciation) Ending Balance
1Q 2022 59,054,814 6,390,858 (2,836,014 ) 1,793 62,611,451
2Q 2022 62,611,451 6,911,112 (6,545,551 ) 125,669 63,102,681
3Q 2022 63,102,681 9,219,316 (4,567,382 ) 462,466 68,217,081
4Q 2022 68,217,081 19,355,710 (7,395,986 ) 1,101,691 81,278,496
Market
Beginning Appreciation
Balance Gross Inflows Gross Outflows (Depreciation) Ending Balance
1Q 2022 16,410,728 1,279,115 (798,198 ) (46,898 ) 16,844,747
2Q 2022 16,844,747 622,284 (854,348 ) (269,160 ) 16,343,523
3Q 2022 16,343,523 6,301,617 (1,749,280 ) 266,748 21,162,608
4Q 2022 21,162,608 3,378,563 (1,884,885 ) 429,010 23,085,296
CrossingBridge Pre-Merger SPAC ETF (in dollars)
Market
Beginning Appreciation
Balance Gross Inflows Gross Outflows (Depreciation) Ending Balance
1Q 2022 43,003,739 11,051,749 - 54,845 54,110,333
2Q 2022 54,110,333 8,806,469 (1,436,663 ) (119,608 ) 61,360,531
3Q 2022 61,360,531 9,217,570 (7,642,075 ) 375,499 63,311,525
4Q 2022 63,311,525 1,660,044 (4,173,316 ) 1,029,348 61,827,601
Market
Appreciation
Beginning Balance Gross Inflows Gross Outflows (Depreciation) Ending Balance1Q 2022 462,920,942 - - 1,243,070 464,164,012 2Q 2022 464,164,012 - - (6,746,187 ) 457,417,825 3Q 2022 457,417,825 - (5,000,000 ) (815,114 ) 451,602,711 4Q 2022 451,602,711 - (140,000,000 ) 7,644,667 319,247,378
Market
Appreciation
Beginning Balance Gross Inflows Gross Outflows (Depreciation) Ending Balance
1Q 2022 391,642,443 - (41,000,000 ) 7,203,378 357,845,821
2Q 2022 357,845,821 - (4,000,000 ) (15,473,946 ) 338,371,875
3Q 2022 338,371,875 - (8,000,000 ) (3,429,003 ) 326,942,872
4Q 2022 326,942,872 17,000,000 - 1,268,523 345,211,395
In the tables above, gross inflows include reinvested dividends and gross outflows include dividends paid/withdrawn from the funds.
TotalCBA AUM decreased by approximately$91 million fromDecember 31, 2021 compared toDecember 31, 2022 , however, this decrease was exclusively in CBA's sub-advised mutual funds, which earn a proportionally lower fee rate than its advised funds. This net AUM decrease consisted of approximately$89 million of net outflows and$2 million of net losses and capital losses, which were retained within the funds. 21
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Table of Contents
Performance
Although performance is a key metric to measure an advisor's success, there are
other metrics that CBA believes are more meaningful to its investors, including
downside protection during difficult environments, sensitivity to rising
interest rates, upside/downside capture, and the risk-adjusted return. Although
CBA does not manage to benchmarks, CBA does provide benchmarks to investors as a
frame of reference, which are set forth below:
Annual 2022 4Q 2022 3Q 2022 2Q 2022 1Q 2022
CrossingBridge Low Duration 1.01% 1.96% 0.21% (1.32)% 0.18%
High Yield Fund
ICE BofA 0-3 Year US HY (2.33)% 2.17% 1.02% (3.93)% (1.49)%
Index ex Financials
ICE BofA 1-3 Year Corporate (4.05)% 1.40% (1.29)% (1.01)% (3.16)%
Bond Index
ICE BofA 0-3 Year US (2.27)% 0.78% (0.99)% (0.37)% (1.69)%
Treasury Index
CrossingBridge Ultra-Short 2.45% 1.50% 0.72% 0.22% 0.00%
Duration Fund
ICE BofA 0-1 Year US 0.02% 1.12% 0.31% 0.04% (1.44)%
Corporate Index
ICE BofA 0-1 Year US 0.68% 0.85% 0.16% (0.11)% (0.22)%
Treasury Index
ICE BofA 0-3 Year US Fixed
Rate Asset Backed (1.99)% 0.70% (0.53)% (0.52)% (1.64)%
Securities Index
CrossingBridge Responsible 1.81% 1.98% 1.77% (1.62)% (0.29)%
Credit Fund
ICE BofA US High Yield (11.22)% 3.98% (0.68)% (9.97)% (4.51)%
Index
ICE BofA US Corporate Index (15.44)% 3.53% (5.11)% (6.71)% (7.74)%
ICE BofA 3-7 Year US (9.24)% 1.30% (3.94)% (1.91)% (4.91)%
Treasury Index
CrossingBridge Pre-Merger 2.03% 1.63% 0.44% (0.15)% 0.10%
SPAC ETF (Price)
CrossingBridge Pre-Merger 2.13% 1.64% 0.60% (0.21)% 0.09%
SPAC ETF (NAV)
ICE BofA 0-3 Year US (2.27)% 0.78% (0.99)% (0.37)% (1.69)%
Treasury Index
With respect to both Destinations Low Duration Fixed Income Fund and
Destinations Global Fixed Income Opportunities Fund (collectively, the
"Destination Funds"), CBA serves as one sub-adviser as part of a manager of
managers strategy. As one of many sub-advisers, CBA does not select the
benchmarks, and does not have a license to use, the benchmark performance
information for the Destination Funds. CBA believes that the benchmark
performance information is not material in this context because CBA's advisory
services with respect to the Destination Funds involves only a portion of the
assets of the Destination Funds while the benchmarks are selected as an
appropriate comparison based on the entire portfolio of the Destination Funds
across all of the relevant sub-advisers.
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Table of Contents Willow Oak Operations Beginning Post-Merger, the Company operates its Willow Oak operations business through its wholly owned subsidiaries,Willow Oak Asset Management, LLC ,Willow Oak Capital Management, LLC ,Willow Oak Asset Management Affiliate Management Services, LLC , andWillow Oak Asset Management Fund Management Services, LLC . Willow Oak generates its revenue through various fee share agreements with private investment firms and partnerships in exchange for providing its fund management services. Willow Oak does not manage, direct, or invest any capital itself, but rather earns fee shares based on the AUM and periodic performance of the investment firms and partnerships with which it partners. Fee shares earned on AUM, management fee shares, and fund management services revenue are recognized and recorded on a monthly or quarterly basis in alignment with the underlying terms of each investment partnership. Revenue fee shares earned on performance are recognized and recorded only when the underlying investment partnership's performance crystalizes, which is typically on an annual, calendar-year basis. As performance fee shares are based on investments returns, these fee shares have the potential to be highly variable. During the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 , the Willow Oak operations segment generated$61,499 of revenue. Operating expenses totaled$172,865 and other expenses were$692 . Willow Oak's net loss for the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 totaled$112,058 . Compensation and related costs represent Willow Oak's most significant operating expense during the Post-Merger period.
The table below provides a summary of income statement amounts for Willow Oak,
which are included in the consolidated statements of operations for the
Post-Merger period from
Year Ended December 31,
Willow Oak Operations Revenue 2022
Management fee revenue $ 22,176
Fund management services revenue 38,740
Performance fee revenue 583
Total revenue $ 61,499
For the Quarterly Periods Ended
Willow Oak Operations
Revenue $ 39,524 $ 21,975 Cost of revenue - - Operating expenses 118,318 54,547 Other income (expense) 570 (1,262 ) Net loss $ (78,224 ) $ (33,834 )
(a) Activity for the quarterly period includes only activity Post-Merger through the end of the quarterly period.
No comparable activity is available or included for the Willow Oak operations segment for periods presented prior toAugust 12, 2022 because the Willow Oak operations were not part of CBA pre-merger. See Note 4 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information. Internet Operations Revenue attributed to the internet operations segment during the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 totaled$305,680 and cost of revenue totaled$103,843 . Operating expenses for the segment totaled$105,115 for the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 and other expenses totaled$398 . Total net income for the internet operations segment was$96,324 for the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 . As ofDecember 31, 2022 , the internet operations segment has a total of 5,723 customer accounts across theU.S. andCanada . As ofDecember 31, 2022 , approximately 92% of our customer accounts areU.S. -based, while 8% areCanada -based. During the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 , approximately 52% of our revenue was driven by internet access services, with the remaining 48% being earned though web hosting, email, and other web-based services. Revenue generated by ourU.S. customers totaled$291,472 , and revenue generated by our Canadian customers totaled$14,208 during the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 . The table below provides a summary of income statement amounts for the internet operations segment, which are included in the consolidated statements of operations for the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 . For the Quarterly Periods Ended Internet Operations December 31, 2022 September 30, 2022(a) Revenue $ 194,021 $ 111,659 Cost of revenue 70,280 33,563 Operating expenses 73,103 32,012 Other income (expense) 293 (691 ) Net income $ 50,931 $ 45,393
(a) Activity for the quarterly period includes only activity Post-Merger through the end of the quarterly period.
No comparable activity is available or included for the internet operations
segment for periods presented prior to
23
--------------------------------------------------------------------------------Other Operations During the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 , the Company's other operations segment did not produce any revenue or cost of sales. Operating expenses totaled$2,153,767 and other income totaled$1,263,146 . Corporate operating expenses accounted for$2,131,102 of reported operating expenses for our other operations segment. Included in corporate operating expenses reported for the period are$881,755 of non-cash stock compensation expenses incurred in conjunction with the Business Combination. These expenses were associated with the issuance of Class A Common Stock and the Class W-2 Warrant to purchase shares of the Company's Class A Common Stock ("Class W-2 Warrant" or "W-2 Warrant"). During the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 , the other operations segment also reported transaction expenses incurred as part of the Business Combination totaling$470,329 . These transaction expenses were offset by$900,000 of other income reported as part of the Company's periodic revaluation of its liability associated with the Class W-1 Warrant and Class B Common Stock. This resulted in a net loss of$890,621 for the other operations segment for the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 . Included in corporate operating expenses for the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 were$439,472 of professional expenses related to legal, accounting, and consulting services, as well as$237,638 of compensation related expenses. During the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 , the Company reported$191,678 of income tax benefit related to the current year change in the Company's net deferred tax assets. As noted above, due to CBA's disregarded status for periods prior to the Closing Date, no comparable income tax expenses existed for the year endedDecember 31, 2021 . The table below provides a summary of income statement amounts for the other operations segment, which are included in the consolidated statements of operations for the Post-Merger period fromAugust 12, 2022 throughDecember 31, 2022 . For the Quarterly Periods Ended Other Operations December 31, 2022 September 30, 2022(a) Revenue $ - $ - Cost of revenue - - Operating expenses 448,255 1,705,512 Other income 340,551 922,595 Net income (loss) $ (107,704 ) $ (782,917 )
(a) Activity for the quarterly period includes only activity Post-Merger through the end of the quarterly period.
No comparable activity is available or included for the other operations segment for periods presented prior toAugust 12, 2022 because other operations were not part of CBA pre-merger. See Note 4 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information. 24
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Table of Contents
Liquidity and Capital Resources
During the year endedDecember 31, 2022 , the Company carried out its business strategy in four operating segments: CrossingBridge operations, Willow Oak operations, internet operations, and other operations. As a result of the Merger that occurred onAugust 11, 2022 and the determination that the Merger would be accounted for as a reverse business combination, activity presented for the year endedDecember 31, 2022 includes CrossingBridge financial activity for the full 12-month period and Enterprise Diversified activity as of the Closing Date of the Merger throughDecember 31, 2022 . Our primary focus is on generating cash flow so that we have the flexibility to pursue opportunities as they present themselves. We intend to only invest cash in a segment if we believe that the return on the invested capital is appropriate for the risk associated with the investment. This consideration is measured against all investment opportunities available to us and is not limited to these particular segments nor the Company's historical operations. A significant amount of the Company's assets are comprised of cash and cash equivalents, investments in securities, and accounts receivable. The Company's main source of liquidity is cash flows from operating activities, which are primarily generated from investment advisory fees generated through CrossingBridge operations. Cash and cash equivalents, investments in securities, and accounts receivable represented approximately$10.7 million ,$5.9 million and$0.7 million of total assets as ofDecember 31, 2022 , respectively, and approximately$1.3 million ,$2.3 million and$0.5 million of total assets as ofDecember 31, 2021 , respectively. The Company believes that these sources of liquidity, as well as its continuing cash flows from operating activities will be sufficient to meet its current and future operating needs for at least the next 12 months. In line with the Company's objectives, it anticipates that its main uses of cash will be for operating expenses and seed capital to fund new and existing investment strategies through its CrossingBridge operations segment. The Company's management regularly reviews various factors to determine whether it has capital in excess of that required for its business, and the appropriate uses of any such excess capital.
The aging of accounts receivable as of
December 31, 2022 December 31, 2021
Current $ 741,363 $ 511,248
30 - 60 days 3,275 -
60+ days - -
Total $ 744,638 $ 511,248
We have no material capital expenditure requirements.
Cash Flow Analysis
Cash Flows Provided By Operating Activities
The Company reported$1,725,722 of net cash provided by operating activities for the year endedDecember 31, 2022 . Other income recognized from the W-1 Warrant revaluation and expenses related to the issuance of the W-2 Warrant and additional share purchases represented significant adjusting items to cash flows generated through operations. During the year endedDecember 31, 2021 , the Company reported$1,201,415 of net cash provided by operating activities, which was primarily attributed to net income generated for the year.
Cash Flows (Used In) Provided By Investing Activities
The Company reported$11,827,999 of net cash provided by investing activities for the year endedDecember 31, 2022 . This was primarily related to the consolidation of Enterprise Diversified's assets and liabilities pursuant to the Business Combination. During the year endedDecember 31, 2021 , the Company reported$2,265,086 of net cash used in investing activities, which was primarily attributed to an increase in investments.
Cash Flows (Used In) Provided By Financing Activities
The Company reported$4,136,247 of net cash flows used in financing activities for the year endedDecember 31, 2022 . Prior to the Closing Date, the Company repaid the balance of its due to affiliate amount and made distributions to CrossingBridge's historical sole member. These outflows were offset by the issuance of Class A Common Stock pursuant to the Business Combination. During the year endedDecember 31, 2021 , the Company reported$77,925 of net cash provided by financing activities, which was primarily attributed to distributions paid and an offsetting increase in the due to affiliate amount.
Summary Discussion of Critical Accounting Estimates
The financial statements were prepared in accordance withU.S. generally accepted accounting principles, which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions affect various matters, including our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the financial statements; our disclosure of contingent assets and liabilities at the dates of the financial statements; and our reported amounts of revenues and expenses in our pre-merger carve-out statements of operations during the reporting periods. These estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management's control. As a result, actual amounts could materially differ from these estimates. TheSEC defines critical accounting estimates as those that are both most important to the portrayal of a company's financial condition and results of operations and require management's most difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. We base our estimates on historical experience and on various other assumptions we believe to be reasonable according to current facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In Note 2 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we discuss our significant accounting policies, including those that do not require management to make difficult, subjective, or complex judgments or estimates. The most significant areas involving management's judgments and estimates are described below. 25
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Table of Contents
Fair-Value of Long-Term Assets
Assets Acquired Pursuant to the Business Combination
The excess of purchase consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill, which is primarily attributed to the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized including expected synergies and the assembled workforce in place. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management's estimates and assumptions and may be subject to change as additional information is received. During and as of the three-month period endedDecember 31, 2022 , the Company recorded three measurement period adjustments to the preliminary recorded fair values assigned to certain long-term Company assets acquired as of the Closing Date. The fair value assigned to the Company's note receivable was reduced from$300,000 to$50,000 , the fair value assigned to the Company's domain names was reduced from$235,000 to$175,000 , and the fair value assigned to the Company's net deferred tax assets was increased from$0 to$1,249,556 . The net changes in fair value, totaling an increase of$939,556 , proportionally decreased the balance of residual goodwill from$1,677,425 to$737,869 as ofDecember 31, 2022 . These adjustments are the product of an expanded valuation analysis performed by management duringDecember 2022 . The Company expects to finalize the fair values of assets acquired as soon as practicable, but not later than one year from the Closing Date. See Note 4 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.Goodwill The Company tests its goodwill annually as ofDecember 31 , or more often if events and circumstances indicate that those assets might not be recoverable. Impairment testing of goodwill is required at the reporting-unit level (operating segment or one level below operating segment). The impairment test involves calculating the impairment of goodwill based solely on the excess of the carrying value of the reporting unit over the fair value of the reporting unit. Prior to performing the impairment test, the Company may make a qualitative assessment of the likelihood of goodwill impairment to determine whether a detailed quantitative analysis is required. This qualitative assessment and the ongoing evaluation of events and circumstances represent critical accounting estimates. Management considers a variety of factors when making these estimates, which include, but are not limited to, internal changes in the segment's operations, external changes that affect the segment's industry, and overall financial condition of the segment and Company. Management did not identify any events or circumstances during the year endedDecember 31, 2022 that would indicate potential goodwill impairment, nor did management's qualitative assessment performed onDecember 31, 2022 indicate a potential goodwill impairment. Total goodwill reported on the consolidated balance sheets was$737,869 as of the year endedDecember 31, 2022 .Long-Term Investments When investment inputs or publicly available information are limited or unavailable, management estimates the value of certain long-term investments using the limited information it has available, which can include the Company's cost basis. This process, which was used to measure the value of the Company's investment in the private company made through eBuild, represents a critical accounting estimate. Management utilizes the available inputs to perform an initial valuation estimate and subsequently updates that valuation when additional inputs become available.
Management did not identify any events or circumstances during the year ended
Other Intangible Assets When management determines that material intangible assets are acquired in conjunction with the purchase of a business, the Company determines the fair values of the identifiable intangible assets by taking into account internal and external appraisals. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. These initial appraisals, as well as the subsequent evaluation of events and circumstances that may indicate impairment, represent critical accounting estimates. Management did not identify any events or circumstances during the year endedDecember 31, 2022 that would indicate potential impairment of the Company's customer lists, trade names, or domain names. The total value of the Company's customer lists, trade names, and domain names, net of amortization, reported under long-term assets on the consolidated balance sheet is$1,223,926 as of the year endedDecember 31, 2022 .
Deferred Tax Assets and Liabilities
Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in the consolidated financial statements. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management's analysis of the amount of deferred tax assets that will ultimately be realized represents a critical accounting estimate. As ofDecember 31, 2022 , the Company had federal and state net operating loss carryforwards of approximately$6.8 million . A portion of these carryforwards will expire in various amounts beginning in 2035; however the majority of these carryforwards will not expire as they were generated afterDecember 31, 2017 . The Company expects it will be able to use its carryforwards subject to expiration in full prior to 2035. Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"), limits the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a company. Net operating losses that arose prior to that ownership change will have limited availability to offset taxable income arising in periods following the ownership change. During the year endedDecember 31, 2022 , the Company performed an analysis to determine if a change of control occurred as a product of the Business Combination, and has determined that a change of control is more likely than not to have occurred onAugust 11, 2022 . Under Section 382, net operating loss carryforwards that arose prior to the ownership change will have limited availability to offset taxable income arising in future periods following the ownership change. Section 382 imposes multiple separate and distinct limits on the utilization of pre-change of control net operating losses based on the fair market value of the Company immediately prior to the change of control, as well as certain activities that may or may not occur during the 60 months immediately following the change of control. While the majority of the Company's historic net operating losses will be limited to an annual threshold, the majority of historic net operating losses also will not be subject to future expiration. As of the year endedDecember 31, 2022 , the Company has not provided a valuation allowance against its net operating losses as the Company expects to be able to use its net operating losses in full to offset future taxable income generated by the Company. See Note 10 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information. As described further in Note 4 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K, during the three-month period endedDecember 31, 2022 , the Company recorded a measurement period adjustment to the preliminary recorded fair value assigned to the Company's acquired net deferred tax assets on the Closing Date. The fair value of acquired net deferred tax assets was increased from$0 to$1,249,556 , with the corresponding decrease allocated to the Company's residual amount of goodwill as ofDecember 31, 2022 . This adjustment was the product of the Section 382 analysis described above. 26
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Contingencies, Commitments, and Litigation
Liabilities are recognized when management determines that contingencies, commitments, and/or litigation represent events that are more likely than not to result in a measurable obligation to the Company. Management's analysis of these events represents a critical accounting estimate.
W-1 Warrant and Class B Common Shares
Pursuant to the Merger Agreement, during the year endedDecember 31, 2022 , the Company issued a Class W-1 Warrant to purchase 1,800,000 of the Company's Class A Common Stock. The liability associated with the issuance of the such warrant, and the embedded shares of Class B Common Stock, is based on an independent third-party valuation, which includes a Black-Scholes pricing model. As of the year endedDecember 31, 2022 , the long-term liability reported on the Company's consolidated balance sheet for the W-1 Warrant and shares of ClassB Common Stock totals$576,000 . See Note 5 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.RiverPark Advisors, LLC OnNovember 18, 2022 , CBA, whose President isDavid Sherman , our Chief Executive Officer and director, entered into the RiverPark Agreement with RiverPark and Cohanzick, a RIA established byDavid Sherman , pursuant to which RiverPark intends to sell to CBA certain assets and CBA intends to assume certain liabilities, including certain rights and responsibilities under the RiverPark Advisory Agreement and the RiverPark Expense Limitation Agreement relating to the provision of investment advisory services for theRiverPark Fund , subject to certain terms and conditions set forth in the RiverPark Agreement. Pursuant to the RiverPark Agreement, there is no consideration to be paid upon Closing; however, if the Closing occurs, CBA shall pay an amount approximately equal to 50% of theRiverPark Fund's management fees (as set forth in theRiverPark Fund's prospectus) to RiverPark (theRiverPark Fund's current adviser) and Cohanzick (theRiverPark Fund's current sub-adviser) for a period of three years after Closing, and pay an amount approximately equal to 20% of theRiverPark Fund's management fees in the fourth and fifth years after Closing as set forth in the RiverPark Agreement. Notwithstanding the foregoing, certain of the amounts payable based on theRiverPark Fund's management fees pursuant to the RiverPark Agreement during the first three years after the Closing shall be capped such that they are less than$1.3 million in the aggregate. Pursuant to the RiverPark Agreement, CBA will endeavor to procure the RiverPark Stockholder Approval by the board of trustees of theRiverPark Fund and by a vote of a majority of the outstanding voting securities ofRiverPark Fund for CBA to assume (i) the advisory services role under the RiverPark Advisory Agreement pursuant to which RiverPark provides investment advisory services to theRiverPark Fund or under an equivalent agreement with a successor to theRiverPark Fund and (ii) the RiverPark Expense Limitation Agreement or pursuant to an equivalent agreement with a successor to theRiverPark Fund . Furthermore, pursuant to the terms of the RiverPark Agreement, if a Closing occurs, the parties to the RiverPark Advisory Agreement and that certain Sub-Advisory Agreement dated as ofAugust 1, 2012 by and among RiverPark, Cohanzick and theRiverPark Trust , on behalf of theRiverPark Fund , have agreed to terminate such agreements upon such Closing, and to make CBA a party to the RiverPark Expense Limitation Agreement or an equivalent agreement with a successor to theRiverPark Fund . Pursuant to the RiverPark Agreement, if the Closing does not occur prior to the RiverPark Termination Date, the RiverPark Agreement shall terminate, unless otherwise mutually agreed upon by the parties.
The RiverPark Agreement contains customary representations, warranties and agreements by the parties thereto and customary conditions to closing, including receipt of the RiverPark Stockholder Approval.
In connection with the RiverPark Agreement, Cohanzick and CBA intend to enter into an agreement which shall prohibit Cohanzick from competing with a substantially similar strategic income strategy as an adviser or sub- adviser to a fund registered under the Investment Company Act or any Undertakings for theCollective Investment inTransferable Securities products.
Discussion Regarding COVID-19 Potential Impacts
Due to the continuing uncertainty surrounding the COVID-19 pandemic, management has continued to regularly monitor and assess all Company operations for potential impacts of the COVID-19 pandemic. As of the year endedDecember 31, 2022 , the Company has not been required to make significant operational changes as a result of the pandemic. Management does not anticipate additional challenges in meeting existing obligations, nor does it expect significant customer or vendor interruptions. However, the extent to which the continuing COVID-19 pandemic ultimately may impact the Company's business, financial condition, liquidity, and results of operations likely will continue to depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the direct and indirect impact of the pandemic on the Company's employees, customers, and service providers, as well as theU.S. economy and the actions taken by governmental authorities and other third parties in response to the pandemic. 27
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