Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that as of December 31, 2023, our disclosure controls and procedures were effective.
Internal Control over Financial Reporting
This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
35
Table of Contents
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
As of the date of this Form 10-K, our directors and executive officers are as follows:
Name
Age
Position
Criag Gould
54
Chief Executive Officer and Chairman
David Shane
58
Chief Financial Officer and Director
David Crane
58
Director
Daniel Hynes
55
Director
Joel Marks
67
Director
Set forth below is biographical information about each of the individuals named in the tables above:
Executive Officers
Craig Gould . Mr. Gould is the Chief Executive Officer of Wentworth Management Services, a holding company that acquires and manages businesses in the wealth management industry.
Craig has over 25 years in senior management roles in the financial services industry, including Chief Executive Officer, National Sales Manager and Head of Investment Banking. Mr. Gould started Cabot Lodge Securities as its President in 2012. Previously, he was the President of Fintegra, a Midwest broker/dealer. Prior to Fintegra, he was the National Sales Manager for Wunderlich Securities, and prior to that he was the Vice Chairman of Olympic Cascade Financial Corporation (an AMEX listed company).
Mr. Gould graduated with a B.A. from the University of Wisconsin-Madison.
We believe Mr. Gould is qualified to serve on the Board because of the perspective and experience he brings as our Chief Executive Officer and his deep experience in our industry.
David Shane . Mr. Shane is acting as the Company’s Chief Financial Officer. Previously, David served as an independent consultant providing financial advisory services including accounting, financial reporting, regulatory reporting and transaction structuring services to companies primarily in the Financial Services Industry.
David has thirty plus years of experience in the financial services industry. David’s financial services experience includes dealings with securities broker-dealers, registered investment advisors, asset management companies and alternative asset companies including private equity, venture capital and hedge funds. David has extensive public accounting experience having served as a Financial Services Audit Partner for RSM and FGMK, LLC. David’s clients included both closely-held and publicly-held financial services companies. David also has experience in mergers and acquisitions, capital raising in both the public and private markets and transaction structuring. In addition to David’s public accounting experience, he has served as the Chief Financial Officer for financial services companies, with most recently as the Chief Financial Officer of Sanctuary Wealth. In addition to David’s technical skills and business acumen, he brings an extensive network within the financial services industry to Wentworth. David is a graduate of Indiana University with a degree in finance, a certified public accountant, and holds a Series 27 FINRA registration.
We believe Mr. Shane is qualified to serve on the Board because of his broad financial experience, with experience in our specific industry, and extensive public accounting experience.
Non-Employee Directors
Joel Marks. Throughout his almost 40-year career in the independent financial services industry, Mr. Marks held a variety of senior executive positions at two highly successful firms, each of which were subsequently acquired by larger organizations. JWGenesis Financial Corp. was acquired by First Union in 2001 and First Allied Holdings, Inc. was acquired by RCAP Holdings LLC in 2013. At the time of their acquisition by RCAP Holdings LLC, Mr. Marks served as Chairman of both First Allied Holdings and The Legend
36
Table of Contents
Group and with combined annual revenues of approximately $350 million, 1,400 independent financial advisors and assets under administration in excess of $35 billion.
Mr. Marks played a key role in the development and implementation of his prior firms’ business strategy and personally lead the acquisition and integration of more than twenty firms during his tenure. Upon his departure from First Allied at the end of 2014 Mr. Marks served as an independent consultant to the independent financial services industry and most recently represented NEXT Financial Group in its 2019 sale to Atria Wealth Solutions, Inc.
Mr. Marks graduated from the University of Florida in 1978 and immediately began a career with Deloitte LLP. He received his certification as a public accountant that same year and remained at Deloitte through 1983 at which time the entrepreneurial spirit came calling and he moved to Atlanta to co-found the business which was subsequently acquired by First Union in 2001. In addition, Mr. Marks is active in numerous civic and community affairs and is a lifetime trustee of the Jewish Federation of Greater Atlanta, Inc., having previously served as its board chair and serves on several governance committees.
We believe Mr. Marks is qualified to serve on the Board because of his knowledge and experience in the financial services industries and his experience with mergers and acquisitions in the financial services industry.
David Crane. Mr. Crane is a Principal at Bose Public Affairs Group where he manages a government relations practice focused primarily on financial services, energy, intellectual property, pharmaceutical and tax issues. Prior to joining Bose, Mr. Crane founded two successful lobbying firms, Quadripoint Strategies (sole proprietor) and TGC Group (Partnership). He is a legislative and public policy specialist with over 25 years of experience working at the highest levels in the United States Congress, national and state politics. Mr. Crane has extensive experience representing many of the largest financial services entities and trade associations on every aspect of financial services legislation and regulation both before Congress and regulators. The list of current and past clients includes: Bank of America, Royal Bank of Scotland, Citizens Financial Group, State Farm Insurance, Financial Services Roundtable, The Clearing House Association, Banks Policy Institute and the Securities Industry and Fund Manager’s Association as well as numerous issue-based industry coalitions. On Capitol Hill, Mr. Crane served as Senior Domestic Policy Advisor to Senate Majority Leader Trent Lott. He also served as senior advisor to Senator John McCain, including as Professional Staff on the Senate Commerce Committee and as Senior Domestic Policy Advisor to Senator McCain’s presidential campaigns in 2000 and 2008, and as Legislative Director for Senator Dan Coats of Indiana. Mr. Crane started his career in Washington doing opposition research at the National Republican Senatorial Committee under then-Chairman Senator Phil Gramm (TX).
Mr. Crane holds a degree in political science from Ball State University.
We believe Mr. Crane is qualified to serve on the Board because of his knowledge and experience in the financial services industries and with trade associations, as well as his knowledge of the legislation and regulation of the financial services industry.
Daniel Hynes. Mr. Hynes is a Vice Chairman & Managing Director at Jefferies, LLC where he provides a broad array of investment banking, municipal financing and asset management products and services to clients throughout the U.S. Prior to joining Jefferies, Mr. Hynes served as the Deputy Governor, Budget & Economy for the State of Illinois where he oversaw 15 agencies and all boards and commissions related to the budget and economy of the state, including the Governor’s Office of Management and Budget, where Mr. Hynes spearheaded all major budget and economic initiatives on behalf of the Governor, including, proposing, negotiating and implementing the $95 billion state budget, directing state tax policy and managing the state’s debt portfolio and capital markets. In addition, Mr. Hynes also served as the Executive Director, Head of Taft Hartley and Large Market Chicago at UBS Asset Management from September 2015 to December 2018.
We believe Mr. Hynes is qualified to serve on the Board because of the perspective he brings from his knowledge and experience of investment banking, municipal financing and asset management products and services.
Family Relationships
There are no family relationships between any of our executive officers and directors.
37
Table of Contents
Board Composition
Our business and affairs are organized under the direction of our board of directors. Our board of directors currently consists of ten members. The primary responsibilities of our board of directors is to provide oversight, strategic guidance, counseling and direction to our management. Our board of directors meets on a regular basis and additionally as required.
Our board of directors is divided into three classes, Class I, Class II and Class III, with members of each class serving staggered three-year terms. Currently, our board of directors is divided into the following classes:
● Class I, which consists of David Crane and Joel Marks, whose terms will expire at the first annual meeting of stockholders to be held in 2025;
● Class II, which consists of Daniel Hynes whose term will expire at the Company’s second annual meeting of stockholders to be held in 2026; and
● Class III, which consists of Craig Gould and David Shane, whose terms will expire at the Company’s third annual meeting of stockholders to be held in 2027.
At each annual meeting of stockholders to be held after the initial classification, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following their election and until their successors are duly elected and qualified. This classification of our board of directors may have the effect of delaying or preventing changes in our control or management.
Director Independence
We adhere to the rules of Nasdaq in determining whether a director is independent. The Board consults with its counsel to ensure that the Board’s determinations are consistent with those rules and all relevant securities and other laws and regulations regarding the independence of directors. The Nasdaq listing standards generally define an “independent director” as a person that, in the opinion of the issuer’s board of directors, has no material relationship with the listed company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the company). The parties have determined that David Crane, Daniel Hynes and Joel Marks are considered our independent directors. Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Board Leadership Structure and Role in Risk Oversight
The Board oversees the risk management activities designed and implemented by our management. The Board does not anticipate having a standing risk management committee, but rather executes its oversight responsibility both directly and through its standing committees. The Board also considers specific risk topics, including risks associated with our strategic initiatives, business plans and capital structure. Our management, including our executive officers, are primarily responsible for managing the risks associated with operation and business of the company and provide appropriate updates to the Board and the Audit Committee. The Board delegates to the Audit Committee oversight of its risk management process, and our other Board committees also consider risks as they perform their respective committee responsibilities. All board committees report to the Board as appropriate, including, but not limited to, when a matter rises to the level of a material or enterprise risk.
Board Committees
The Board has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, each of which has the composition and responsibilities described below.
38
Table of Contents
Audit Committee
Our Audit Committee is responsible for, among other things:
● evaluating the performance, independence and qualifications of the Company’s independent auditors and determining whether to retain the Company’s existing independent auditors or engage new independent auditors;
● reviewing the Company’s financial reporting processes and disclosure controls;
● reviewing and approving the engagement of the Company’s independent auditors to perform audit services and any permissible non-audit services;
● reviewing the adequacy and effectiveness of the Company’s internal control policies and procedures, including the responsibilities, budget, staffing and effectiveness of the Company’s internal audit function;
● reviewing with the independent auditors the annual audit plan, including the scope of audit activities and all critical accounting policies and practices to be used by the Company;
● obtaining and reviewing at least annually a report by the Company’s independent auditors describing the independent auditors’ internal quality control procedures and any material issues raised by the most recent internal quality-control review;
● monitoring the rotation of partners of the Company’s independent auditors on the Company’s engagement team as required by law;
● prior to engagement of any independent auditor, and at least annually thereafter, reviewing relationships that may reasonably be thought to bear on their independence, and assessing and otherwise taking the appropriate action to oversee the independence of the Company’s independent auditor;
● reviewing the Company’s annual and quarterly financial statements and reports, including the disclosures contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of such periodic reports, and discussing the statements and reports with the Company’s independent auditors and management;
● reviewing with the Company’s independent auditors and management significant issues that arise regarding accounting principles and financial statement presentation and matters concerning the scope, adequacy, and effectiveness of the Company’s financial controls and critical accounting policies;
● reviewing with management and the Company’s auditors any earnings announcements and other public announcements regarding material developments;
● establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding financial controls, accounting, auditing or other matters;
● preparing the report that the SEC requires in the Company’s annual proxy statement;
● reviewing and providing oversight of any related party transactions in accordance with the Company’s related party transaction policy and reviewing and monitoring compliance with legal and regulatory responsibilities, including the Company’s code of ethics;
● reviewing the Company’s major financial risk exposures, including the guidelines and policies to govern the process by which risk assessment and risk management is implemented; and
● reviewing and evaluating on an annual basis the performance of the audit committee and the audit committee charter.
39
Table of Contents
Our Audit Committee consists of Joel Marks, David Crane and Daniel Hynes, with Joel Marks serving as the audit committee chair. The Board has affirmatively determined that Joel Marks, David Crane and Daniel Hynes each meet the definition of “independent director” for purposes of serving on the audit committee under Rule 10A-3 of the Exchange Act and the Nasdaq rules. Each member of our Audit Committee also meets the financial literacy requirements of the Nasdaq listing standards. The Board has adopted a written charter for the Audit Committee, which is available on our corporate website. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K.
Compensation Committee
Our Compensation Committee is responsible for, among other things:
● reviewing and approving the corporate objectives that pertain to the determination of executive compensation;
● reviewing and approving the compensation and other terms of employment of the Company’s executive officers;
● reviewing and approving performance goals and objectives relevant to the compensation of the Company’s executive officers and assessing their performance against these goals and objectives;
● making recommendations to the the Board regarding the adoption or amendment of equity and cash incentive plans and approving amendments to such plans to the extent authorized by the the Board;
● reviewing and making recommendations to the the Board regarding the type and amount of compensation to be paid or awarded to the Company’s non-employee board members;
● reviewing and assessing the independence of compensation consultants, legal counsel and other advisors as required by Section 10C of the Exchange Act;
● administering the Company’s equity incentive plans, to the extent such authority is delegated by the the Board;
● reviewing and approving the terms of any employment agreements, severance arrangements, change in control protections, indemnification agreements and any other material arrangements for the Company’s executive officers;
● reviewing with management the Company’s disclosures under the caption “Compensation Discussion and Analysis” in the Company’s periodic reports or proxy statements to be filed with the SEC, to the extent such caption is included in any such periodic report or proxy statement;
● preparing an annual report on executive compensation that the SEC requires in the Company’s annual proxy statement; and
● reviewing and evaluating on an annual basis the performance of the compensation committee and recommending such changes as deemed necessary with the Board.
Our compensation committee consists of David Crane and Daniel Hynes, with Daniel Hynes serving as chairman. Our board of directors has determined that each of the members of the compensation committee is a non- employee director, as defined in Rule 16b-3 promulgated under the Exchange Act, and satisfies the independence requirements of the Nasdaq. The Board has adopted a written charter for the Compensation Committee, which is available on our corporate website. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee is responsible for, among other things:
● identifying, reviewing and making recommendations of candidates to serve on the Board;
40
Table of Contents
● evaluating the performance of the Board, committees of the Board and individual directors and determining whether continued service on the Board is appropriate;
● evaluating nominations by stockholders of candidates for election to the Board;
● evaluating the current size, composition and organization of the Board and its committees and making recommendations to the Board for approvals;
● developing a set of corporate governance policies and principles and recommending to the Board any changes to such policies and principles;
● reviewing issues and developments related to corporate governance and identifying and bringing to the attention of the Board current and emerging corporate governance trends; and
● reviewing periodically the nominating and corporate governance committee charter, structure and membership requirements and recommending any proposed changes to the Board, including undertaking an annual review of its own performance
Our Nominating and Corporate governance committee consists of David Crane and Joel Marks, with David Crane serving as chairman. Our board of directors has determined that each of the members of nominating and corporate governance committee satisfies the independence requirements of the Nasdaq and the SEC. The Board has adopted a written charter for the Nominating and Corporate Governance Committee, which is available on our corporate website. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K.
Limitation on Liability and Indemnification of Directors and Officers
Our Amended and Restated Certificate of Incorporation limits the Company’s directors’ liability to the fullest extent permitted under the DGCL. The DGCL allows for directors of a corporation to not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability:
● for any transaction from which the director derives an improper personal benefit;
● for any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
● for any unlawful payment of dividends or redemption of shares; or
● for any breach of a director’s duty of loyalty to the corporation or its stockholders.
If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. The DGCL and our Bylaws provide that the Company will, in certain situations, indemnify the Company’s directors and officers and may indemnify other employees and other agents, to the fullest extent permitted by law. Any indemnified person is also entitled, subject to certain limitations, to advancement, direct payment, or reimbursement of reasonable expenses (including attorneys’ fees and disbursements) in advance of the final disposition of the proceeding.
We maintain a directors’ and officers’ insurance policy pursuant to which our directors and officers are insured against liability for actions taken in their capacities as directors and officers. We believe these provisions in our Amended and Restated Certificate of Incorporation and Bylaws and the indemnification agreements are necessary to attract and retain qualified persons as directors and officers.
41
Table of Contents
Code of Business Conduct and Business Ethics for Employees, Executive Officers, and Directors
The Company has adopted a Code of Conduct and Business Ethics applicable to its directors, executive officers and employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions that complies with the rules and regulations of the Nasdaq. The Code of Conduct and Business Ethics codifies the business and ethical principles that govern all aspects of the Company’s business. A copy of the Code of Conduct and Business Ethics has been filed with the SEC and is provided on our website, gettyimages.com. The Company will disclose on its website all disclosures that are required by law or the Nasdaq listing standards concerning any amendments to or waivers of certain provisions of its Code of Conduct and Business Ethics. The information on any of our websites is deemed not to be incorporated in this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
Wentworth’s named executive officers for the year ended December 31, 2023, which consisted of Wentworth’s principal executive officer and the next two most highly compensated executive officers, were:
● Craig Gould, Wentworth’s President and Cabot Lodge Securities, LLC’s President and Chief Executive Officer;
● Roger Leibowitz, Cabot Lodge Securities, LLC’s Chief Financial Officer; and
● Kathrine Flouton, Purshe Kaplan Sterling Investments, Inc.’s Chief Executive Officer.
Summary Compensation Table
The following table sets forth information regarding the compensation of Wentworth’s named executive officers for the years ended December 31, 2023 and 2022.
Option
Nonequity
All Other
Salary
Awards
Incentive
Bonus
Compensation
Total
Name and Principal Position
Year
($)
($)
Compensation
($)
($)
($)
Craig Gould
2023
$
300,000
—
—
—
$
64,586
$
364,586
Wentworth’s President; Cabot Lodge Securities, LLC’s President and Chief Executive Officer
Wentworth’s Chief Executive Officer
2022
$
300,000
—
—
—
$
229,185
$
529,185
Roger Leibowitz
2023
$
200,000
—
—
—
$
59,044
$
259,044
Cabot Lodge Securities, LLC’s Chief Financial Officer
2022
$
200,000
—
—
—
$
52,339
$
252,339
Kathrine Flouton
2023
$
400,000
—
$
50,000
—
$
450,000
Purshe Kaplan Sterling
2022
$
350,000
$
41,667
$
391,667
Investments, Inc.’s President
42
Table of Contents
Outstanding Equity Awards at Fiscal Year-End
Wentworth had not issued any equity awards as of December 31, 2023 and 2022.
Employment Agreements — Craig Gould and Katherine Flouton
Set forth below is a description of the current employment agreements of Mr. Gould and Ms. Flouton as of December 31, 2022. Mr. Gould, as well as certain other key employees of Wentworth, will be entering into new employment agreements in connection with the Business Combination, which are discussed below in detail (see “Employment Agreements Effective as of the Closing”).
Agreement between Mr. Gould and Wentworth
Wentworth is party to an employment agreement with its President, Mr. Gould, dated January 31, 2020. Following the Guaranty Termination Date (as defined in the employment agreement), Wentworth can terminate the employment agreement at any time with or without Cause (as defined below), further to the provisions in Sections 7 and 8 of such agreement; provided, however, that Mr. Gould may terminate the employment agreement at any time with or without Cause.
During employment, Mr. Gould is permitted to manage and/or work on his brokerage, investment banking and investment advisory business (including, but not limited to, all brokerage and advisory accounts that Mr. Gould receives or shares compensation or fees on) (the “ Book ”) provided that managing the Book does not materially adversely affect performance of Mr. Gould’s duties to Wentworth under the employment agreement.
Mr. Gould’s initial annual base salary was set at $300,000, subject to increase from time to time. The employment agreement also provides that Mr. Gould will be paid discretionary bonuses based upon Wentworth’s and Mr. Gould’s performance. The employment agreement further provides that Mr. Gould remains eligible to receive commissions or fees payable in his role as a registered representative or investment advisor of any broker dealer or investment advisor affiliate of Wentworth pursuant to any agreement between Mr. Gould and such affiliate.
On or after the Guaranty Termination Date, Wentworth may terminate the employment agreement with or without Cause, or due to Mr. Gould’s death or disability. The “Guaranty Termination Date” means the date on which any and all personal guarantees by Mr. Gould in connection with any debt or other obligation or liability of Wentworth or its affiliates (including, but not limited to, any obligation of Wentworth or its affiliates to Oak Street Funding LLC or its affiliates), have been terminated.
In the event that Mr. Gould’s employment ends due to (i) termination for Cause by Mr. Gould, (ii) termination without Cause by Wentworth (upon providing 90 days’ prior written notice) or (iii) termination due to the death or disability of Mr. Gould, Wentworth will pay to Mr. Gould an amount equal to two times his then-current base salary, payable in 24 equal installments commencing immediately following such termination and every two weeks thereafter. In addition, if Mr. Gould timely and properly elects health continuation coverage under COBRA and remains eligible for it, Wentworth will pay monthly COBRA premiums for Mr. Gould and/or his spouse and dependents in the same amount paid by the Company prior to the termination date until the earliest of: (x) the one-year period following the termination date; (y) the date when Mr. Gould becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment; or (z) the date Mr. Gould ceases to be eligible for COBRA continuation coverage for any reason. Receipt of the severance pay and COBRA benefits is contingent upon Mr. Gould’s execution of a waiver and release agreement regarding employment related claims in a form satisfactory to Wentworth in its reasonable discretion, and only for so long as Mr. Gould has not violated his continuing obligations with respect to confidential information and non-solicitation of clients and employees of Wentworth.
For purposes of the foregoing, “Cause” triggering termination by Mr. Gould means: (i) any material breach of the employment agreement by Wentworth; (ii) Wentworth’s or members’ of the Board of Managers commission of any material act of dishonesty or a violation of the rules of FINRA or other regulator of the business of Wentworth; (iii) Wentworth requires Mr. Gould to move his principal business location, which is 1185 Avenue of the Americas, New York, NY 10036 as of the date hereof, to a location more than 20 miles one way commute from that location; or (iv) a material diminution of Mr. Gould’s base salary, bonus or title relative to his base salary, bonus or title immediately in effect prior to such reduction. “Cause” triggering termination by Wentworth means a finding by Wentworth that any of the following exist: (i) Mr. Gould’s conviction of a gross misdemeanor or felony which substantially relates
43
Table of Contents
to the business of the company; or (ii) a finding by FINRA or other securities regulatory body of a material violation by Mr. Gould of such body’s rules or regulations leading to a suspension of his duties for more than 90 days.
If Mr. Gould’s employment is terminated for any reason Mr. Gould (or his estate or personal representative, as applicable) will be entitled to receive within 30 days following the date of termination (i) all compensation earned and all benefits and reimbursements accrued and due through the effective date of termination including any unpaid annual bonus for the year prior to termination or any unpaid annual bonus for the year of termination which Mr. Gould would have received if he had remained employed, pro-rated based on the time employed during the year and (ii) reimbursement of any unreimbursed business expenses or professional fees that are reimbursable pursuant to the employment agreement.
Upon his termination for any reason, Mr. Gould is subject to: (i) ongoing confidentiality and non-disclosure obligations until two years after the last payment required to be paid pursuant to the employment agreement has been paid; provided, however, that trade secret information will remain a trade secret not subject to disclosure for the longest period allowed by applicable law; and (ii) restrictive covenants of non-solicitation of employees and non-solicitation of customer and clients, each for a period of 24 months following termination of employment; provided, however, that if Wentworth breaches its obligations regarding final pay, severance pay and COBRA benefits, then the non-solicitation covenants will no longer apply to Mr. Gould. Further, the restrictive covenants do not prevent Mr. Gould from accepting employment with an organization that competes with Wentworth, directly or indirectly, or from servicing, managing and/or working in the Book.
Agreement between Mr. Gould and Cabot Lodge Securities, Inc. (“Cabot Lodge”)
Mr. Gould has entered into an employment agreement with Cabot Lodge, dated January 5, 2015, in which he is employed as Chief Executive Officer and President of Cabot Lodge. The employment agreement is for an initial four-year term, which shall continue upon expiration unless and until one party provides the other party with 30 days’ prior notice of intent to terminate, or unless otherwise terminated as provided for in the employment agreement.
Mr. Gould’s initial annual base salary was set at $250,000, subject to increase from time to time by the Board of Governors of Cabot Lodge. The employment agreement also provides that Mr. Gould will be paid discretionary bonuses based upon Wentworth’s and Mr. Gould’s performance.
Other than through notice of intent to terminate as described above, Mr. Gould’s employment can also be terminated: (i) by Mr. Gould without cause, upon 30 days’ prior written notice to Cabot Lodge; (ii) by Mr. Gould with Cause (as defied below), if such Cause is not cured by Cabot Lodge within 60 days’ following written notice by Mr. Gould requesting that Cabot Lodge cure; (iii) by Cabot Lodge without Cause, upon 90 days’ written notice to Mr. Gould; (iv) by Cabot Lodge for Cause; or (v) upon Mr. Gould’s death or disability.
In the event that Mr. Gould’s employment ends due to (i) termination for Cause by Mr. Gould, (ii) termination without Cause by Cabot Lodge or (iii) termination due to the disability of Mr. Gould, Cabot Lodge will pay to Mr. Gould an amount equal to two times his then-current base salary, payable in 26 equal installments commencing immediately following such termination and every two weeks thereafter. Receipt of the severance pay is contingent upon Mr. Gould’s execution of a waiver and release agreement regarding employment related claims in a form satisfactory to Cabot Lodge in its reasonable discretion, and only for so long as Mr. Gould has not violated his continuing obligations with respect to confidential information and non-solicitation of clients and employees of Cabot Lodge.
For purposes of the foregoing, “Cause” triggering termination by Mr. Gould means: (i) any material breach of the employment agreement by Cabot Lodge; or (ii) Cabot Lodge’s or the members of the Board of Governor’s commission of any material act of dishonesty or a violation of the rules of FINRA or other regulator of the business of Cabot Lodge. “Cause” triggering termination by Cabot Lodge means a finding by Cabot Lodge that any of the following exist: (i) Mr. Gould’s conviction of a gross misdemeanor or felony which substantially relates to the business of the company; (ii) a finding by FINRA or other securities regulatory body of a material violation by Mr. Gould of such body’s rules or regulations leading to a suspension of his duties for more than 90 days; or (iii) Mr. Gould’s commission of material theft, or fraud, in any way related to Cabot Lodge.
If Mr. Gould’s employment is terminated for any reason, Mr. Gould (or his estate or personal representative, as applicable) will be entitled to receive all compensation earned and all benefits and reimbursements accrued and due through the effective date of termination.
44
Table of Contents
Upon his termination for any reason, Mr. Gould is subject to: (i) ongoing confidentiality and non-disclosure obligations until two years after the last payment required to be paid pursuant to the employment agreement has been paid; provided, however, that trade secret information will remain a trade secret not subject to disclosure for the longest period allowed by applicable law; and (ii) restrictive covenants of non-solicitation of employees and independent contractors, and non-solicitation of customer and clients, each for a period of 24 months following termination of employment; provided, however, that if Wentworth breaches its obligations under Section 7 of the employment agreement, then the non-solicitation covenants will no longer apply to Mr. Gould. Further, the restrictive covenants do not prevent Mr. Gould from accepting employment with an organization that competes with Wentworth, directly or indirectly.
Agreement between Katherine Flouton and Purshe Kaplan Sterling Investments, Inc. (“PKSI”)
Purshe Kaplan Sterling Investments Inc. is party to an employment agreement with Ms. Katherine Flouton, effective June 1, 2021. The term of the employment agreement continues unless and until one party provides the other party with written notice of its intent to terminate, or unless otherwise terminated as provided for in the employment agreement.
Ms. Flouton’s initial annual base salary is set at $350,000, less applicable payroll deductions, and the employment agreement also provides that Ms. Flouton will be paid a past due $100,000 bonus, in equal increments through June 2, 2022 in accordance with periodic payroll practices.
Other than through notice of intent to terminate as described above, Ms. Flouton’s employment can also be terminated: (i) by PKSI without Cause, upon written notice to Ms. Flouton; or (ii) by PKSI for Cause.
For purposes of the foregoing, “Cause” triggering termination by PKSI means a finding by PKSI that any of the following exist: (i) Ms. Flouton’s continued failure, on the expiration of 30 days written notice and cure period, to fulfill any terms of the employment agreement, to comply with PKSI policy or to comply with the directives of the board of directors in compliance with FINRA rules, (ii) Ms. Flouton’s conviction of a felony or gross misdemeanor for any crime involving money or other property of PKSI or any crime involving moral turpitude, (iii) Ms. Flouton’s commission of any act of fraud or misappropriation, (iv) Ms. Flouton’s unjustified insubordination to the board, (v) Ms. Flouton’s use of drugs or controlled substances during business hours, or on the premises, or any substance which impairs her performance of her job, (vi) Ms. Flouton’s prolonged or repeated absence without consent of the company unless on leave under federal, state or local law, or (vii) Ms. Flouton’s misappropriation of any material funds or property, commission of fraud or embezzlement.
If Ms. Flouton’s employment is terminated without Cause (including the event that she is rendered, via a mental or physical condition, unable to render services contemplated by the employment agreement for a period in excess of three (3) months, unless she is on approved leave of absence or otherwise prohibited by law from rendering services contemplated by the agreement), Ms. Flouton will be entitled to receive a severance payment of one-year’s base salary, payable b-weekly at the time of termination through the expiration of one- year, together with all compensation earned and all benefits and reimbursements accrued and due through the effective date of termination.
Upon termination for any reason, Ms. Flouton is subject to: (i) ongoing confidentiality and non- disclosure obligations, and (ii) restrictive covenants of non- solicitation of employees and independent contractors, and non-solicitation of customer and clients, each for a period of one year following termination of employment; provided, however, that trade secret information will remain a trade secret not subject to disclosure for the longest period allowed by applicable law. Further, the restrictive covenants do not prevent Ms. Flouton from accepting employment with an organization that competes with PKSI, directly or indirectly.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS1
The following table sets forth information regarding the beneficial ownership of our common stock as of the date of this Form 10-K by:
● each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
● each of our executive officers and directors; and
● all our executive officers and directors as a group.
45
Table of Contents
The SEC has defined “beneficial ownership” of a security to mean the possession, directly or indirectly, of voting power and/or investment power over such security. A stockholder is also deemed to be, as of any date, the beneficial owner of all securities that such stockholder has the right to acquire within 60 days after that date through (a) the exercise of any option, warrant or right, (b) the conversion of a security, (c) the power to revoke a trust, discretionary account or similar arrangement, or (d) the automatic termination of a trust, discretionary account or similar arrangement. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or other rights (as set forth above) held by that person that are currently exercisable, or will become exercisable within 60 days thereafter, are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person. Each person named in the table has sole voting and investment power with respect to all of the shares shown as beneficially owned by such person, except as otherwise indicated in the table or footnotes below.
Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
Name of Beneficial Owners (1)
Directors and Executive Officers
Number of Shares
%
Craig Gould (2)
309,235
1.88
%
David Shane
—
—
David Crane
—
—
Daniel Hynes
—
—
Joel Marks
—
—
All directors and executive officers as a group
309,235
1.88
%
Five Percent Holders
MHC Securities, LLC (3)
9,011,653
54.79
%
Wentworth Funding, LLC (4)
1,362,564
8.28
%
PPD Group, LLC (5)
1,384,323
8.41
%
Kingswood Global Sponsor LLC (6)
1,100,000
6.68
%
*
Less than one percent.
(1) Unless otherwise noted, the business address of each of those listed in the table above is 80 State Street, Albany, NY 12207.
(2) Represents shares held directly by Craig Gould. Mr. Gould has entered into arrangements under which he has pledged up to 100% of the shares of common stock that he beneficially owns to secure loans with Oak Street Funding LLC.
(3) Represents shares held by MHC Securities, LLC (“MHC”). Alexander C. Markowitz is the Manager of MHC and therefore he may be deemed to share voting and investment power over the shares held by MHC.
(4) Represents shares held directly by Wentworth Funding, LLC (“Wentworth Funding”). Wentworth Funding has entered into arrangements under which it has pledged up to 100% of the shares of common stock that it beneficially owns to secure loans with Oak Street Funding LLC.
(5) Represents shares held by PPD Group, LLC (“PPD”). Peter Purcell, Peter Sheehan and David Purcell are Managing Members of PPD and therefor may be deemed to share voting and investment power over the shares held by PPD.
(6) Represents 1.1 million shares held by Kingswood Global Sponsor LLC (the “Sponsor”) and placed in escrow at Closing with UMB Bank as escrow agent. Michael Nessim, David Hudd, Gary Wilder and Jonathan Massing are among the members of the Sponsor and share voting and investment discretion with respect to the shares held of record by the Sponsor. The address of the principal business office of the Sponsor is 17 Battery Place, Suite 625, New York, NY 10014.
46
Table of Contents
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Registration Rights Agreement
At the Closing, the Company entered into that certain Registration Rights Agreement with the PIPE Investor, Wentworth, certain equity holders of Wentworth and certain other parties identified therein (such persons, the “ Holders ”) (the “ Registration Rights Agreement ”). Pursuant to the terms of the Registration Rights Agreement, the Holders are entitled to certain piggyback registration rights and customary demand registration rights. The Registration Rights Agreement provides that the Company will, as soon as practicable, and in any event within 45 days after the Closing, file with the SEC a shelf registration statement. The Company will use its commercially reasonable efforts to have such shelf registration statement declared effective as soon as practicable after the filing thereof, but no later than the 90th day (or the 150th day if the Securities and Exchange Commission (the “ SEC ”) notifies the Company that it will “review” such shelf registration statement) following the filing deadline, in each case subject to the terms and conditions set forth therein; and the Company will not be subject to any form of monetary penalty for its failure to do so.
This summary is qualified in its entirety by reference to the text of Registration Rights Agreement, which is included as Exhibit 10.2 to this Current Report and is incorporated herein by reference.
Lock-Up Agreement
At the Closing, the Company entered into that certain Lock-up Agreement with the Holders (the “ Lock-Up Agreement ”), pursuant to which, subject to certain exceptions, the Holders agreed to not transfer or make any announcement of any intention to effect a transfer, in respect of the shares beneficially owned or otherwise held by the Holders prior to the termination of the applicable lock-up period, subject to certain customary exceptions, including: (i) transfers to permitted transferees upon written notice to the Company, such as a member of the person’s immediate family or to a trust, the beneficiary of which is a member of the person’s immediate family or an affiliate of such person; (ii) to a charitable organization upon written notice to the Company, by the laws of descent and distribution upon death, or pursuant to a qualified domestic relations order; and (iii) pursuant to any liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange their shares of Company common stock for cash, securities, or other property.
Voting Agreement
At the Closing, the Company entered into that certain Voting Agreement with the Holders (the “ Voting Agreement ”), pursuant to which the Holders agreed to vote in favor of any sale transaction approved by the PIPE Investor in the event of any breach or default under certation provisions of the Certificate of Designations.
Warrant Assumption Agreement
At Closing, Continental Stock Transfer & Trust Company (the “ Transfer Agent ”), KWAC and the Company entered into the Warrant Assumption and Assignment Agreement (the “ Warrant Assumption Agreement ”), pursuant to which, among other things, KWAC assigned to the Company all of KWAC’s right, title and interest in and to, and the Company assumed all of KWAC’s liabilities and obligations under the certain Warrant Agreement, dated as of November 19, 2020, between KWAC and Continental Stock Transfer & Trust Company (the “ Existing Warrant Agreement ”). As a result, each Warrant automatically ceased to represent a right to acquire KWAC Class A Common Stock and instead represents a right to acquire shares of Company common stock pursuant to the terms and conditions of the Existing Warrant Agreement (as amended by the Warrant Assumption Agreement).
Amendment to Master Credit Agreement
As previously disclosed in the Proxy Statement/Prospectus, on April 2, 2020, Wentworth entered into a debt facility with Oak Street Funding LLC (“ Oak Street ”) in the amount of $25,000,000 (as amended by the First Amendment to Master Credit Agreement dated as of June 19, 2020, the Second Amendment to Master Credit Agreement dated as of March 19, 2021, the Third Amendment to Master Credit Agreement dated as of May 28, 2021, the Fourth Amendment to Master Credit Agreement dated as of October 17, 2022, and as further amended, restated, amended and restated, extended, increased, supplemented or otherwise modified from time to time, the “ Credit Agreement ”).
47
Table of Contents
At Closing, Wentworth and certain other borrowers entered into the Fifth Amendment to the Credit Agreement (the “ Amendment ”) with Oak Street, pursuant to which, Oak Street consented to, among other things (i) the consummation of the Business Combination, (ii) the payoff of certain debt obligations and restructure of the notes, (iii) recognize each of Company, MHC Securities, LLC (“ MHC ”) and KWAC as a “guarantor” under the terms of the Credit Agreement and (iv) amend and restate the existing guarantees executed by Craig Gould and Alexander Markowitz to be unlimited guarantees.
Oak Street and its affiliates have in the past provided, and may from time to time in the future provide, commercial banking and other financial services to the Company.
Guarantee Agreements
At Closing and in connection with the Amendment, the Company, MHC and KWAC entered into, and Craig Gould and Alexandor Markowitz (the “ Guarantors ”) amended and restated, certain guarantee agreements (each a “ Guarantee Agreement ” and together, the “ Guarantee Agreements ”) with Oak Street, pursuant to which, the Guarantors unconditionally, absolutely and irrevocably guarantee to Oak Street the full and prompt payment and performance when due (whether at maturity by acceleration or otherwise) of any and all of the obligations under Credit Agreement.
Stock Pledge Agreement
At Closing, Craig Gould and MHC entered into the Stock Pledge Agreement (the “ Stock Pledge Agreement ”) with Oak Street pursuant to which, Mr. Gould and MHC (each a “ Pledgor ”) pledged 100% of the Company common stock held by each of them (the “ Pledged Interests ”) as collateral for the financial obligations due under the Credit Agreement.
Upon the occurrence and continuation of an Event of Default (as defined in the Stock Pledge Agreement) Oak Street shall have the right to:
i. have any or all of the Pledged Interests held by Oak Street be registered in the name of Oak Street in the name of Oak Street or its nominee as Oak Street and Oak Street or its nominee may thereafter, without notice, and after the occurrence and continuation of any Event of Default under the Credit Documents, exercise all available voting and shareholder rights at any meeting of the Company s or otherwise and exercise any and all rights pertaining to any of the Pledged Interests, (ii) Oak Street shall have the right to require that all distributions payable with respect to any part of the Pledged Interests be paid to Oak Street to be held by Oak Street as additional security hereunder until applied to the Pledgor’s Obligations.
ii. require that all distributions payable with respect to any part of the Pledged Interests be paid to Oak Street to be held by Oak Street as additional security until applied to the Pledgor’s Obligations.
iii. with prior notice, collect, receive, appropriate, and realize upon the Pledged Interests, or any part thereof, and/or may sell, assign, give an option or options to purchase, contract to sell, or otherwise dispose of and deliver the Pledged Interests, or any part thereof, in one or more parcels at public or private sale or sales.
Unless and until an Event of Default Occurs, the Pledgor shall have the right to vote all or any part of the Pledged Interests and to receive and collect or to have paid over all dividends declared or paid on the Pledged Interest, except with respect to any (i) any distributions relating to any redemptions or share repurchase or (ii) liquidating distributions (either partial or complete), provided that any and all such expected dividends shall constitute additional collateral.
Strategic Alliance Agreement
At Closing, the Company and Kingswood US LLC (“Kingswood”) entered into the Strategic Alliance Agreement (the “Alliance Agreement”), pursuant to which, among other things, the Company agreed that within a reasonable time after Closing, but not later than 90 days, the Company will cause its subsidiaries to enter into a non-exclusive investment banking and capital markets relationship with Kingswood to (i) promote Kingswood as a preferred partner to provide approved products for investment banking product distribution and markets, (ii) provide non-exclusive origination and introduction of investment banking products of the Company to Kingswood and (iii) to allow Kingswood to market itself as a strategic partner.
48
Table of Contents
Under the Alliance Agreement, the Company and Kingswood will split in equal portions any gross fees or gross profits on referrals from the Company to Kingswood.
The foregoing obligations are subject to compliance with applicable laws, including FINRA rules, regulations or policies applicable to the parties to the Alliance Agreement.
Related Party Policy
The audit committee of our board of directors has adopted a policy setting forth the policies and procedures for its review and approval or ratification of “related party transactions.” A “related party transaction” is any consummated or proposed transaction or series of transactions: (i) in which the company was or is to be a participant; (ii) the amount of which exceeds (or is reasonably expected to exceed) the lesser of $120,000 or 1% of the average of the company’s total assets at year end for the prior two completed fiscal years in the aggregate over the duration of the transaction (without regard to profit or loss); and (iii) in which a “related party” had, has or will have a direct or indirect material interest. “Related parties” under this policy will include: (i) our directors, nominees for director or executive officers; (ii) any record or beneficial owner of more than 5% of any class of our voting securities; (iii) any immediate family member of any of the foregoing if the foregoing person is a natural person; and (iv) any other person who maybe a “related person” pursuant to Item 404 of Regulation S-K under the Exchange Act. Pursuant to the policy, the audit committee will consider (i) the relevant facts and circumstances of each related party transaction, including if the transaction is on terms comparable to those that could be obtained in arm’s-length dealings with an unrelated third party, (ii) the extent of the related party’s interest in the transaction, (iii) whether the transaction contravenes our code of ethics or other policies, (iv) whether the audit committee believes the relationship underlying the transaction to be in the best interests of the company and its stockholders and (v) the effect that the transaction may have on a director’s status as an independent member of the board and on his or her eligibility to serve on the board’s committees. Management will present to the audit committee each proposed related party transaction, including all relevant facts and circumstances relating thereto. Under the policy, we may consummate related party transactions only if our audit committee approves or ratifies the transaction in accordance with the guidelines set forth in the policy. The policy will not permit any director or executive officer to participate in the discussion of, or decision concerning, a related person transaction in which he or she is the related party.]
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees for professional services provided by our independent registered public accounting firm include:
For the
For the
year ended
year ended
December
December
31, 2023
31, 2022
Audit Fees (1)
$
231,170
$
244,781
Audit-Related Fees (2)
58,420
28,148
Total
$
289,590
$
272,929
(1)
“Audit fees” include fees for audit services primarily related to the audit of our annual consolidated financial statements; audit services related to our subsidiaries in connection with statutory and regulatory filings; the review of our quarterly consolidated financial statements; assistance with and review of documents filed with the SEC; and other accounting and financial reporting consultation and research work billed as audit fees or necessary to comply with the standards of the Public Company Accounting Oversight Board (United States).
(2)
“Audit-related fees” primarily consists of fees for procedures performed in connection with service organizational control reports, comfort letters, consents, and for consultation regarding financial accounting and reporting matters.
49
Table of Contents
Policy on Board Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Auditors
The Audit Committee has adopted a policy and related procedures requiring its pre-approval of all audit and non-audit services to be rendered by FGMK, LLC. These policies and procedures are intended to ensure that the provision of such services does not impair FGMK LLC’s independence. These services may include audit services, audit-related services, and other services. The policy provides for the annual establishment of fee limits for various types of audit services, audit-related services, tax services and other services, within which the services are deemed to be pre-approved by the Audit Committee. FGMK, LLC is required to provide the Audit Committee back-up information with respect to the performance of such services.
All services performed by FGMK, LLC for the Company were pre-approved by the Audit Committee.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Form 10-K:
Financial Statements:
Page
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Statements of Financial Condition as of December 31, 2023 and 2022
F-3
Consolidated Statements of Operations for the years ended December 31, 2023 and December 31, 2022
F-4
Consolidated Statements of Changes in Members’ Equity for the years ended December 31, 2023 and December 31, 2022
F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and December 31, 2022
F-6
Notes to the Consolidated Financial Statements
F-7
(b)
Exhibits:
Exhibit No.
Description
2.1†
Agreement and Plan of Merger, dated as of July 7, 2022, by and among Kingswood Acquisition Corp., Binah Capital Group, Inc., Kingswood Merger Sub Inc., Wentworth Merger Sub Inc., CF OMS LLC and Wentworth Management Services, LLC (incorporated by reference to Exhibit 2.1 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
2.2*
First Amendment to Agreement and Plan of Merger, dated as of March 20, 2023, between Kingswood Acquisition Corp., Binah Capital Group, Inc., Kingswood Merger Sub, Inc., Wentworth Merger Sub, LLC and Wentworth Management Services LLC (incorporated by reference to Exhibit 2.2 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
2.3*
Second Amendment to Agreement and Plan of Merger, dated as of September 13, 2023, between Kingswood Acquisition Corp., Binah Capital Group, Inc., Kingswood Merger Sub, Inc., Wentworth Merger Sub, LLC and Wentworth Management Services LLC (incorporated by reference to Exhibit 2.3 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
3.1*
Amended and Restated Certificate of Incorporation of Binah Capital Group, Inc. (incorporated by reference to Exhibit 3.1 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
3.2*
Amended and Restated Bylaws of Binah Capital Group, Inc. (incorporated by reference to Exhibit 3.2 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
4.1*
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
4.2*
Specimen Warrant Certificate (incorporated by reference to Exhibit 4.2 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
50
Table of Contents
4.3*
Existing Warrant Agreement, dated November 19, 2020, between Kingswood Acquisition Corp. and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to Exhibit 4.3 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
4.4*
Warrant Assumption Agreement, dated March 15, 2024, by and among Continental Stock Transfer and Trust Company, Kingswood Acquisition Corp. and Binah Capital Group, Inc. (incorporated by reference to Exhibit 4.4 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
4.5*
Certificate of Designations (incorporated by reference to Exhibit 4.5 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
4.6*
Description of Securities
10.1*
Subscription Agreement, dated March 15, 2024, by and among Binah Capital Group, Inc., Wentworth Management Funding LLC and Pollen Street Capital Limited (incorporated by reference to Exhibit 10.1 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
10.2*
Registration Rights Agreement, dated March 15, 2024, by and among Binah Capital Group, Inc. and the holders party thereto (incorporated by reference to Exhibit 10.2 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
10.3*
Lock-Up Agreement, dated March 15, 2024, by and among Binah Capital Group, Inc. and the holders party thereto (incorporated by reference to Exhibit 10.3 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
10.4*
Voting Agreement, dated March 15, 2024, by and among Binah Capital Group, Inc. and the holders party thereto (incorporated by reference to Exhibit 10.4 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
10.5*
Fifth Amendment to the Master Credit Agreement, dated March 15, 2024, by and among Wentworth and certain other borrowers party thereto (incorporated by reference to Exhibit 10.5 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
10.6*
Binah Capital Group, Inc. Guarantee Agreement (incorporated by reference to Exhibit 10.6 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
10.7*
MHC Securities LLC Guarantee Agreement (incorporated by reference to Exhibit 10.7 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
10.8*
Kingswood Capital Acquisition Corp. Guarantee Agreement (incorporated by reference to Exhibit 10.8 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
10.9*
Craig Gould Guarantee Agreement (incorporated by reference to Exhibit 10.9 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
10.10*
Alexander Markowitz Guarantee Agreement (incorporated by reference to Exhibit 10.10 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
10.11*
Stock Pledge Agreement, dated March 15, 2024, by and among Craig Gould, MHC Securities, LLC and Oak Street Funding LLC. (incorporated by reference to Exhibit 10.11 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
10.12*
Strategic Alliance Agreement, dated March 15, 2024, by and between Binah Capital Group, Inc. and Kingswood US LLC. (incorporated by reference to Exhibit 10.12 to Binah Capital Group, LLC’s Form 8-K, filed with the SEC on March 21, 2024).
31.1*
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
97.1*
Claw Back Policy
†
Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request.
*
Filed Herewith
**
Furnished Herewith
51
Table of Contents
ITEM 16. FORM 10-K SUMMARY
None.
52
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 16 th day of April, 2024.
BINAH CAPITAL GROUP, INC.
By:
/s/ Craig Gould
Name:
Craig Gould
Title:
Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. The undersigned hereby constitute and appoint Craig Gould and David Shane, and each of them, their true and lawful agents and attorneys-in-fact with full power and authority in said agents and attorneys-in-fact, and in any one or more of them, to sign for the undersigned and in their respective names as Directors and officers of Binah Capital Group, Inc. any amendment or supplement hereto. The undersigned hereby confirm all acts taken by such agents and attorneys-in-fact, or any one or more of them, as herein authorized.
Signature
Title
Date
/s/ Craig Gould
Chief Executive Officer, and Director
April 16, 2024
Craig Gould
(Principal Executive Officer)
/s/ David Shane
Chief Financial Officer and Director
April 16, 2024
David Shane
(Principal Financial Officer and Principal Accounting Officer)
/s/ David Crane
Director
April 16, 2024
David Crane
/s/ Daniel Hynes
Director
April 16, 2024
Daniel Hynes
/s/ Joel Marks
Director
April 16, 2024
Joel Marks
53
Table of Contents
WENTWORTH MANAGEMENT SERVICES LLC
DECEMBER 31, 2023 AND 2022
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR’S REPORT
F- 2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
F- 3
Consolidated Statements of Operations
F- 4
Consolidated Statements of Changes in Members’ Equity
F- 5
Consolidated Statements of Cash Flows
F- 6
Notes to the Consolidated Financial Statements
F- 7 -F- 28
F-1
Table of Contents
WENTWORTH MANAGEMENT SERVICES LLC
CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT
DECEMBER 31, 2023 AND 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Binah Capital Group, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial condition of Wentworth Management Services LLC (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, changes in members’ equity, and cash flows for the years ended December 31, 2023 and 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years ended December 31, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ FGMK LLC
We have served as the Company’s auditor since 2021.
Chicago, Illinois
April 16, 2024
F-2
Table of Contents
WENTWORTH MANAGEMENT SERVICES LLC
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2023 AND 2022
(in thousands)
2023
2022
ASSETS
Assets:
Cash, cash equivalents and restricted cash
$
7,621
$
7,849
Receivables, net:
Commissions receivable
8,220
7,944
Due from clearing broker
631
642
Other
1,587
1,878
Property and equipment, net
974
1,461
Right of use assets
4,332
4,523
Intangible assets, net
1,580
2,159
Goodwill
39,839
39,839
Other assets
2,626
2,389
TOTAL ASSETS
$
67,410
$
68,684
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities
$
9,082
$
8,905
Commissions payable
10,676
11,095
Operating lease liabilities
4,381
4,527
Notes payable, net of unamortized debt issuance costs of $645,382 and $748,643 as of December 31, 2023 and 2022, respectively
20,822
22,929
Promissory notes-affiliates
12,177
11,606
Due to members
5,169
4,725
TOTAL LIABILITIES
62,307
63,787
Members' equity
5,103
4,897
TOTAL LIABILITIES AND MEMBERS' EQUITY
$
67,410
$
68,684
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
WENTWORTH MANAGEMENT SERVICES LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
(in thousands)
2023
2022
Revenues:
Revenue from Contracts with Customers:
Commissions
$
138,191
$
149,297
Advisory fees
21,668
23,107
Total Revenue from Contracts with Customers
159,859
172,404
Interest and other income
8,096
6,446
Total revenues
167,955
178,850
Expenses:
Commissions and fees
136,169
145,651
Employee compensation and benefits
13,385
14,227
Rent and occupancy
1,189
950
Professional fees
4,709
6,077
Technology fees
2,457
1,892
Interest
5,119
3,318
Depreciation and amortization
1,216
1,523
Other
3,225
3,721
Total expenses
167,469
177,359
Income before provision (benefit) for income taxes
486
1,491
Provision (benefit) for income taxes
(85)
580
Net income
$
571
$
911
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
WENTWORTH MANAGEMENT SERVICES LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
(in thousands)
Total
Common
Class B Preferred
Accumulated
Members'
Units
Amount
Units
Amount
Capital
Deficit
Equity
Balance January 1, 2022
1,325
$
12,299
277
$
2,774
$
11,311
$
(20,172)
$
6,212
Distribution of capital
—
—
—
—
(2,225)
—
(2,225)
Net Income
—
—
—
—
—
911
911
Balance December 31, 2022
1,325
$
12,299
277
$
2,774
$
9,086
$
(19,261)
$
4,897
Distribution of capital
—
—
—
—
(200)
—
(200)
Redemption of Class B Preferred Units
—
—
(17)
(165)
—
—
(165)
Net Income
—
—
—
—
—
571
571
Balance December 31, 2023
1,325
$
12,299
260
$
2,609
$
8,886
$
(18,690)
$
5,103
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
WENTWORTH MANAGEMENT SERVICES LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2023 and 2022
(in thousands)
2023
2022
Cash Flows From Operating Activities
Net income
$
571
$
911
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
1,104
1,523
Deferred income taxes
993
573
Amortization of debt issuance costs
103
103
Non-cash lease expense
511
660
Capitalized interest - promissory notes-affiliates
697
697
Capitalized interest - due to members
444
491
Loss on disposal of property and equipment
41
82
Changes in operating assets and liabilities:
Commissions receivable
(276)
(94)
Due from clearing broker
11
1,692
Other receivables
291
977
Other assets
(1,230)
(350)
Accounts payable, accrued expenses and other liabilities
125
670
Commissions payable
(419)
(1,901)
Operating lease liabilities
(466)
(673)
Net Cash Provided By Operating Activities
2,553
5,361
Cash Flows From Investing Activities
Purchases of property and equipment
(80)
(327)
Net Cash Used In Investing Activities
(80)
(327)
Cash Flows From Financing Activities
Repayment - notes payable
(2,210)
(2,421)
Proceeds from borrowings from members
—
135
Repayment - promissory notes-affiliates
(126)
—
Redemption of Class B Preferred Units
(165)
—
Distribution of capital
(200)
(2,225)
Net Cash Used In Financing Activities
(2,701)
(4,511)
Net Change in Cash, Cash Equivalents and Restricted Cash
(228)
526
Cash, Cash Equivalents and Restricted Cash - Beginning of Year
7,849
7,323
Cash, Cash Equivalents and Restricted Cash - End of Year
$
7,621
$
7,849
Cash Paid During the Year for:
Interest
$
3,978
$
2,634
Income taxes
$
—
$
338
Supplemental Disclosure of Cash Flow Information
Right of use asset in exchange for operating lease liability
$
320
$
998
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
1. ORGANIZATION AND NATURE OF BUSINESS
Wentworth Management Services LLC (the “Company” or “WMS”) is a limited liability company organized under the laws of the State of Delaware in March 2016. WMS is a holding company of multiple businesses that operate in the financial services industry as follows:
● PKS Holdings, LLC (“PKSH”) maintains offices in Albany, New York, and branch offices throughout the United States of America, and includes the following entities (collectively, the “PKSH Entities”):
o
Purshe Kaplan Sterling Investments, Inc. (“PKSI”), incorporated in the State of New York, is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and is a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investors Protection Corporation (“SIPC”).
o
PKS Advisory Services, LLC (“PKSA”), a New York limited liability company, is an investment advisory firm, registered with the SEC, which provides advisory services to clients.
o
PKS Financial Services, Inc. (“PKSF”), incorporated in the State of New York, is an insurance entity providing financial services to clients.
o
Representatives Indemnity Company, Inc. (“Repco”), incorporated in the British Virgin Islands, holds a general business insurance license for the purpose of providing professional liability insurance coverage for affiliated entities under WMS.
● Cabot Lodge Securities LLC maintains offices in New York, New York and branch offices throughout the United States of America and includes the following entities (collectively, the Cabot Entities”):
o
Cabot Lodge Securities, LLC (“CLS”), a Delaware Limited Liability Company, is a broker-dealer registered with the SEC and is a member of FINRA and SIPC.
o
CL Wealth Management, LLC (“CLWM”), a Virginia Limited Liability Company, is an investment advisory firm, registered with the SEC, which provides advisory services to clients.
o
Wentworth Financial Partners LLC (“WFP”) (f/k/a CL General Agency), a Delaware Limited Liability Company, is an insurance entity providing financial services to clients.
● Michigan Securities, Inc. (“MSI”) maintains offices in Albany, New York and includes the following entities (collectively, the “MSI Entities”):
o
MSI, (d/b/a as Broadstone Securities, Inc., “Broadstone”), incorporated in the State of Michigan, is a financial services firm, and is a broker-dealer registered with the SEC and is a member of FINRA.
o
Michigan Advisors, Inc., (“MAI”) incorporated in the State of Michigan, was a SEC registered investment advisor. MAI withdrew its registration in September 2021.
o
Insurance Audit Agency, Inc. (“IAA”), incorporated in the state of Michigan, is an insurance agency.
● World Equity Group, Inc. (“WEG”), incorporated in the State of Illinois, is registered as a broker-dealer and investment advisor with the SEC and is a member of FINRA and SIPC. WEG maintains offices in Schaumburg, Illinois and has branch offices throughout the United States of America.
F-7
Table of Contents
2. BUSINESS COMBINATION
On July 7, 2022, Kingswood Acquisition Corp., a Delaware corporation (“KWAC”), Binah Capital Group, Inc., a Delaware corporation and wholly-owned subsidiary of KWAC (“Holdings”), Kingswood Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Holdings (“Kingswood Merger Sub”), Wentworth Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Holdings (“Wentworth Merger Sub”), and the Company, entered into an agreement and plan of merger (the “Merger Agreement”).
Holdings, Kingswood Merger Sub and Wentworth Merger Sub are newly formed entities that were formed for the sole purpose of entering into and consummating the transactions set forth in the Merger Agreement. Holdings is a wholly-owned direct subsidiary of KWAC and both Kingswood Merger Sub and Wentworth Merger Sub are wholly-owned direct subsidiaries of Holdings. Pursuant to the Merger Agreement, at closing, each of the following transactions will occur in the following order: (i) Kingswood Merger Sub will merge with and into KWAC (the “ Kingswood Merger ”), with KWAC surviving the Kingswood Merger as a wholly-owned subsidiary of Holdings (the “ Kingswood Surviving Company ”); (ii) simultaneously with the Kingswood Merger, Wentworth Merger Sub will merge with and into the Company (the “ Wentworth Merger ”), with the Company surviving the Wentworth Merger as a wholly-owned subsidiary of Holdings (the “ Surviving Company ”); and (iii) following the Wentworth Merger, Kingswood Surviving Company will acquire, and Holdings will contribute to Kingswood Surviving Company all of the common units of the Surviving Company directly held by Holdings after the Kingswood Merger (the “ Holdings Contribution ”), such that, following the Holdings Contribution, Surviving Company shall be a wholly-owned subsidiary of the Kingswood Surviving Company (the Kingswood Merger and the Wentworth Merger, together with the other transactions related thereto, the “ Business Combination ”).
On March 15, 2024, the Business Combination will be accounted for as a reverse recapitalization acquisition in accordance with FASB ASC 805-40, Business Acquisitions . Under this method of accounting, KWAC is expected to be treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the consolidated financial statements of Holdings will represent a continuation of the consolidated financial statements of the Company with the business combination treated as the equivalent of the Company issuing shares for the net assets of KWAC, accompanied by a recapitalization. The net assets of KWAC will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the business combination will be those of the Company in future reports of Holdings.
Under the terms of the Business Combination, the aggregate consideration paid in the Business Combination was approximately $217 million, paid in the form of common stock, par value $0.0001 per share (“Company Common Stock”) and assumed indebtedness.
Nasdaq Exchange Listing
The KWAC Class A Common Stock and KWAC Public Warrants are currently listed on the OTC Exchange under the symbols “KWAC” and “KWAC WS,” respectively. Certain of the shares of KWAC Class A Common Stock and KWAC Public Warrants currently trade as KWAC Units consisting of one share of KWAC Class A Common Stock and three-fourths of one redeemable KWAC Public Warrant and are listed on the OTC Exchange under the symbol “KWAC.U.” The KWAC Units will automatically separate into component securities of Holdings upon consummation of the Business Combination and, as a result, will no longer trade as an independent security.
On March 26, 2024, Holdings received approval for Holding’s securities to be listed on the Nasdaq Stock Market LLC. Holdings Common Stock is listed on the Nasdaq Global Market and its warrants will be listed on the Nasdaq Capital Market under the symbols “BCG” and “BCG.W”, respectively.
F-8
Table of Contents
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of WMS and its wholly-owned subsidiaries. Significant intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the valuation and impairment of intangible assets, the valuation of deferred income taxes, allowance for credit losses, and contingencies.
Revenue Recognition
Revenues from contracts with customers are recognized when control of the promised services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. For additional information see Note 4 - Revenues From Contracts with Customers .
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist primarily of cash on deposit and money market funds, all of which have original maturities of three months or less.
Restricted cash represents cash held by the Company’s lender related to its credit facility. As of December 31, 2023 and 2022, restricted cash amounted to approximately $0.4 million.
The Company regularly maintains cash, cash equivalents and restricted cash that exceed Federal Deposit Insurance Corporation limits. The Company has not experienced any losses and does not believe it is exposed to any significant credit risk from cash.
Receivables
Receivables, which amounted to approximately $10.5 and $13.0 million as of January 1, 2023 and 2022, respectively, represent amounts due to the Company from its clearing broker, clients, financial institutions and others. Receivables consists of unconditional amounts due to the Company and are reported at amortized costs. All receivables are uncollateralized.
F-9
Table of Contents
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial Instruments – Credit Losses . The Company accounts for estimated credit losses on financial assets measured at an amortized cost basis and certain off-balance sheet credit exposures in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326-20, Financial Instruments-Credit Losses . FASB ASC 326-20 requires the Company to estimate expected credit losses over the life of its financial assets and certain off-balance sheet exposures as of the reporting date based on relevant information about past events, current conditions, and reasonable and supportable forecasts. The Company records the estimate of expected credit losses as an allowance for credit losses. For financial assets measured at an amortized cost basis the allowance for credit losses is reported as a valuation account on the statement of financial condition that adjusts the asset’s amortized cost basis. Changes in the allowance for credit losses are reported in credit loss expense, if applicable. Management believes its risk of loss on currently recorded receivables is minimal and accordingly an allowance for credit losses has been recorded as of December 31, 2023, December 31, 2022, and January 1, 2022, in the amount of $0.2 million.
Property and Equipment, net
Property and equipment are recorded at cost, less accumulated depreciation and amortization. The Company depreciates its property and equipment for financial reporting purposes using the straight-line method over the estimated useful lives of the assets once the asset is placed in service, which range from 2 to 10 years. Leasehold improvements are amortized over the lesser of the useful life of the asset or the initial lease term. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred, and expenditures, which extend the useful life, are capitalized. When assets are retired, or otherwise disposed of, the costs and related accumulated depreciation or amortization are removed from the accounts and any gain or loss on disposal is recognized.
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. No impairment occurred for the years ended December 31, 2023 and 2022.
Goodwill and Other Intangible Assets
Goodwill is tested annually for impairment or if certain events occur indicating that the carrying amounts may be impaired. If a qualitative assessment is used and the Company determines that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50%) less than its carrying amount, a quantitative impairment test will be performed. An impairment loss will be recognized if a reporting unit’s carrying amount exceeds its fair value, to the extent that it does not exceed the total carrying amount of goodwill. No impairment of goodwill was recognized for the years ended December 31, 2023 and 2022.
Intangible assets that are deemed to have definite lives are amortized over their useful lives, generally ranging from 5 to 10 years. They are reviewed for impairment when there is evidence that events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value.
There was no impairment of intangible assets recognized for the years ended December 31, 2023 and 2022. See Note 8 - Intangible Assets , for additional information regarding the Company’s intangible assets.
Debt Issuance Costs
Debt issuance costs are capitalized and amortized as additional interest expense over the expected term of the related debt agreement. Debt issuance costs are presented as a direct reduction from the carrying amount of the related debt liability.
F-10
Table of Contents
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases
The Company accounts for its leases in accordance with FASB ASC 842- Leases . The Company is a lessee in several noncancelable operating leases for office space. The Company determines if an arrangement is a lease, or contains a lease, at inception of a contract and when the terms of an existing contract are changed. The Company recognizes a lease liability and right of use (“ROU”) asset at the commencement date of the lease.
ROU assets. A lessee’s ROU asset is measured at the commencement date at the amount of the initially measured lease liability plus any lease payments made to the lessor before or at the commencement date, minus any lease incentives received; plus any initial direct costs. Unless impaired, the ROU asset is subsequently measured throughout the lease term at the amount of the lease liability (that is, present value of the remaining lease payments), plus unamortized initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease cost for lease payments is recognized on a straight-line basis over the lease term.
Lease Liabilities . A lease liability is measured based on the present value of its future lease payments. Variable payments are included in the future lease payments when those variable payments depend on an index or a rate and are measured using the index or rate at the commencement date. Lease payments, including variable payments based on an index rate, are remeasured when any of the following occur: (1) the lease is modified (and the modification is not accounted for as a separate contract), (2) certain contingencies related to the variable lease payments are resolved, or (3) there is a reassessment of any of the following: the lease term, purchase options or amounts that are probable of being owed under a residual value guarantee. The discount rate is the implicit rate if it is readily determinable; otherwise, the Company uses its incremental borrowing rate. The implicit rates of the Company’s leases are not readily determinable; accordingly, the Company uses it incremental rate based on the information available at the commencement date for each lease. The Company’s incremental borrowing rate for a lease is the rate of interest it would pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms and in a similar economic environment. The Company determines its incremental borrowing rates by starting with the interest rates on its recent borrowings and other observable market rates and adjusting those rates to reflect the differences in the amount collateral and the payment terms of the leases.
Accounting policy election for short-term leases. The Company has elected, for all underlying classes of assets, to not recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less at lease commencement, and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. The Company recognizes lease cost associated with its short-term leases on a straight-line basis over the lease term.
See Note 12 - Leases for additional information.
Income Taxes
WMS is treated as a partnership for income tax purposes and therefore not subject to federal taxes. The Company is subject to certain state and local income taxes.
The PKSH Entities, Cabot Entities and WEG are taxable entities and are subject to federal, state, and local income taxes. Therefore, these consolidated financial statements include an income tax provision for the taxable entities only. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company periodically evaluates deferred tax assets and net operating loss carryforwards to determine their recoverability based primarily on the Company’s ability to generate future taxable income. A valuation allowance may be established to reduce deferred tax assets, if it is more likely than not that all, or some portion, of such deferred tax assets will not be realized.
F-11
Table of Contents
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company accounts for taxes in accordance with the asset and liability method of accounting for income taxes. Under this method, the Company must recognize the tax benefit from an uncertain tax position only if it is “more likely than not” that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.
Contingent Liabilities
The Company recognizes liabilities for contingencies when there is an exposure that, when fully analyzed, indicates potential losses become probable and can be reasonably estimated. Whether a potential loss is probable and can be reasonably estimated is based on currently available information and is subject to significant judgment, a variety of assumptions and uncertainties.
When a potential loss is probable and the loss or range of loss can be estimated, the Company will accrue the most likely amount within that range. No liability is recognized for those matters which, in management’s judgment, the determination of a reasonable estimate of potential loss is not possible, or for which a potential loss is not determined to be probable.
The determination of these liability amounts requires significant judgment on the part of management. See Note 14 – Commitments and Contingencies for additional information.
Recently Issued Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures to enhance the transparency of income tax disclosures relating to the rate reconciliation, disclosure of income taxes paid, and certain other disclosures. The ASU should be applied prospectively and is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact on the related disclosures; however, it does not expect this update to have an impact on its financial condition or results of operations.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve the disclosures about reportable segments and include more detailed information about a reportable segment’s expenses. This ASU also requires that a public entity with a single reportable segment, like the Company, provide all of the disclosures required as part of the amendments and all existing disclosures required by Topic 280. The ASU should be applied retrospectively to all prior periods presented in the consolidated financial statements and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact on the related disclosures; however, it does not expect this update to have an impact on its financial condition or results of operations.
Recently Adopted Accounting Pronouncements
There were no new accounting pronouncements adopted during the years ended December 31, 2023 and 2022 that materially impacted the Company’s consolidated financial statements and related disclosures .
F-12
Table of Contents
4. REVENUES FROM CONTRACTS WITH CUSTOMERS
Revenues from contracts with customers are recognized when control of the promised services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues are analyzed to determine whether the Company is the principal (i.e., reports revenues on a gross basis) or agent (i.e., reports revenues on a net basis) in the contract. Principal or agent designations depend primarily on the control an entity has over the product or service before control is transferred to a customer. The indicators of which party exercises control include primary responsibility over performance obligations, inventory risk before the good or service is transferred and discretion in establishing the price.
Commissions
Commission revenues represent sales commissions generated by advisors for their clients’ purchases and sales of securities on exchanges and over-the-counter, as well as purchases of other investment products. The Company views the selling, distribution and marketing, or any combination thereof, of investment products to such clients as a single performance obligation to the product sponsors.
The Company is the principal for commission revenues, as it is responsible for the execution of the clients’ purchases and sales and maintains relationships with the product sponsors. Advisors assist the Company in performing its obligations. Accordingly, total commission revenues are reported on a gross basis.
The Company generates two types of commission revenues: sales-based commissions that are recognized at the point of sale on the trade date and trailing commissions that are recognized over time as earned. Sales-based commission revenues vary by investment product and are based on a percentage of an investment product’s current market value at the time of purchase. Trailing commission revenues are generally based on a percentage of the current market value of clients’ investment holdings in trail-eligible assets, and are recognized over the period during which services, such as ongoing support, are performed. As trailing commission revenues are based on the market value of clients’ investment holdings, the consideration is variable, and an estimate of the variable consideration is constrained due to dependence on unpredictable market impacts. The constraint is removed once the value of the clients’ investment holdings can be determined.
Advisory Fees
Advisory fees represent fees charged to advisors’ clients’ accounts on the Company’s corporate advisory platform. The Company provides ongoing investment advice, brokerage and execution services on transactions, and performs administrative services for these accounts. This series of performance obligations transfers control of the services to the client over time as the services are performed. These revenues are recognized ratably over time to match the continued delivery of the performance obligations to the client over the life of the contract. The advisory revenues generated from the Company’s corporate advisory platform are based on a percentage of the market value of the eligible assets in the clients’ advisory accounts. As such, the consideration for these revenues is variable and an estimate of the variable consideration is constrained due to dependence on unpredictable market impacts on client portfolio values. The constraint is removed once the value of the clients’ investments holdings can be determined.
The Company provides advisory services to clients on its corporate advisory platform through the advisor. The Company is the principal in these arrangements and recognizes advisory revenues on a gross basis, as the Company is responsible for satisfying the performance obligations and has control over determining the fees.
F-13
Table of Contents
4. REVENUES FROM CONTRACTS WITH CUSTOMERS (continued)
The following table presents total revenues from contracts with customers disaggregated by investment product for the years ended December 31 (in thousands) :
For the years ended December 31,
Revenue From Contracts With Customers
2023
2022
Variable annuities and other insurance commissions
$
102,218
$
104,700
Mutual fund commissions
19,022
19,688
Securities commissions
10,810
12,589
Alternative investments
6,141
12,320
Advisory fees
21,668
23,107
Total Revenue From Contracts With Customers
$
159,859
$
172,404
The following tables presents sales-based and trailing revenues disaggregated by product category for the years ended December 31 (in thousands) :
Sales-based (Point in time)
2023
2022
Variable annuities and other insurance commissions
$
52,209
$
53,530
Mutual fund commissions
5,422
5,623
Securities commissions
10,810
12,589
Alternative investments
6,084
12,246
Total Sales Based Revenues
$
74,525
$
83,988
Trailing (Over time)
2023
2022
Variable annuities and other insurance commissions
$
50,009
$
51,170
Mutual fund commissions
13,600
14,065
Advisory fees
21,668
23,107
Alternative investments
57
74
Total Trailing Revenues
85,334
88,416
Total Revenue From Contracts With Customers
$
159,859
$
172,404
Contract Balances
The timing of revenue recognition may differ from the timing of payment by the Company’s customers. The Company records a receivable when revenue is recognized prior to payment and there is an unconditional right to payment. The Company records a contract asset when the Company has recognized revenue prior to payment but the Company’s right to payment is conditional on something other than the passage of time. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenues (a contract liability) until the performance obligations are satisfied. As of December 31, 2023 and 2022, the Company had receivables from contracts with customers totaling approximately $8.9 million and $8.6 million, respectively. The opening balance of receivables from contracts with customers was approximately $10.0 million as of January 1, 2022. As of December 31, 2023, December 31, 2022, and January 1, 2022, the Company had no liabilities from contracts with customers.
Interest and Other Income
The Company earns interest income from client margin accounts and cash equivalents. This revenue is not generated from contracts with customers. Additionally, the Company receives marketing fees and sponsorship income.
F-14
Table of Contents
5. DUE FROM CLEARING BROKER AND CLEARING DEPOSIT
PKSI, CLS and WEG clear customer transactions through a clearing broker and, therefore, they operate pursuant to exemptions contained in Rule 15c3-3 of the Securities and Exchange Act of 1934. As of December 31, 2023 and 2022 , clearing deposits, which are included in other assets on the consolidated statements of financial condition and receivables due from clearing brokers were as follows (in thousands) :
2023
2022
Due from
Due from
Clearing
Clearing
Clearing
Clearing
Entity
Deposit
Broker
Deposit
Broker
PKSI
$
519
$
373
$
326
$
406
CLS
180
214
180
155
WEG
175
44
175
80
Total
$
874
$
631
$
681
$
641
6. FAIR VALUE
FASB ASC 820, Fair Value Measurement , defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard establishes the following hierarchy used in fair value measurements and expands the required disclosures of assets and liabilities measured at fair value:
● Level 1 - Inputs use quoted unadjusted prices in active markets for identical assets or liabilities that the Company can access.
● Level 2 - Fair value measurements use other inputs that are observable, either directly or indirectly. These inputs include quoted prices for similar assets and liabilities in active markets as well as other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
● Level 3 - Inputs that are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability. The inputs or methodology used for valuing assets and liabilities are not necessarily an indication of the risk associated with investing in those assets and liabilities.
Certain financial instruments are carried at cost on the consolidated statements of financial condition, which approximates fair value due to their short-term, highly liquid nature. The carrying value of debt approximates their fair value since the interest rates on these obligations represent current market rates.
F-15
Table of Contents
7. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following as of December 31 (in thousands) :
2023
2022
Computer hardware
$
2,587
$
2,601
Office furniture and equipment
971
1,010
Leasehold improvements
41
44
3,599
3,655
Less: accumulated depreciation and amortization
(2,625)
(2,195)
Property and equipment, net
$
974
$
1,460
Depreciation and amortization expense related to property and equipment amounted to approximately $0.5 million for the years ended December 31, 2023 and 2022.
8. INTANGIBLE ASSETS
The components of intangible assets were as follows as of December 31, 2023 (in thousands) :
Gross
Estimated
Carrying
Accumulated
Net Carrying
Useful Life
Amount
Amortization
Amount
Policies and procedures library
5 years
$
2,200
$
2,200
$
—
Developed technology
7 years
1,600
1,391
209
Trade name
10 years
3,500
2,129
1,371
Total
$
7,300
$
5,720
$
1,580
The components of intangible assets were as follows as of December 31, 2022:
Gross
Estimated
Carrying
Accumulated
Net Carrying
Useful Life
Amount
Amortization
Amount
Policies and procedures library
5 years
$
2,200
$
2,200
$
—
Developed technology
7 years
1,600
1,162
438
Trade name
10 years
3,500
1,779
1,721
Total
$
7,300
$
5,141
$
2,159
Amortization expense related to intangible assets amounted to approximately $0.6 million and $1.0 million for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2023, the estimated future amortization expense for intangible assets over the next four years is as follows (in thousands) :
2024
$
560
2025
350
2026
350
2027
320
$
1,580
F-16
Table of Contents
9. DEBT
On April 2, 2020, the Company entered into a Credit Agreement (the “Credit Agreement”) with Oak Street Funding LLC (“Oak Street”) in the amount of $25 million. This note payable bears interest at the prime rate (“Prime”) (8.50% as of December 31, 2023) plus 2.25% and has a 10-year term and a 3-month interest only repayment provision. As of December 31, 2023 and 2022, the outstanding balance of the Oak Street note, net of unamortized debt issuance costs was $17,6 million and $19,.5 million, respectively.
On April 25, 2021, the Company entered into an additional promissory note with Oak Street in the amount of $4.1 million related to the acquisition of WEG (“WEG Note”). This note payable bears interest at Prime plus 2.25% and has a 10-year term. As of December 31, 2023 and 2022, the outstanding balance of this note, net of unamortized debt issuance costs was $3.2 million and $3.4 million, respectively.
Under the Oak Street notes, the Company is subject to certain covenants as defined in the agreements. As of December 31, 2022 and March 31, 2023, the Company did not meet a certain debt service coverage ratio and subsequently obtained a waiver from Oak Street for such covenant violations. For the period from April 1, 2023 to December 31, 2023, the Company was in compliance with all financial related covenants.
The minimum calendar year payments and maturities of the Oak Street notes as of December 31, 2023, are as follows (in thousands) :
2024
$
2,418
2025
2,702
2026
3,012
2027
3,357
2028
3,739
Thereafter
6,239
Total
$
21,467
Subsequent to December 31, 2023, and in connection with the closing of the Business Combination, the Company entered into an amendment to the Credit Agreement with Oak Street providing for, among other things, consenting to the Business Combination, and the payoff and restructuring of certain debt obligations. Additionally, the rate of interest being charged will increase at rate of .15% per annum until the interest rate reaches a maximum of 15.00%, provided that in no event the interest rate will not be less than 10.75% (the “Floor”). Additionally, in connection with the amendment the Company has agreed to pay a fee equal to $0.14 million (the “Deferred Fee”), which is due and payable in the amounts of $0.025 million and $0.115 million on June 12, 2024 and August 12, 2024, respectively. If the obligations under this Credit Agreement are paid in full prior to the respective deferral fee dates, the respective deferral fees would be waived.
The amended Credit Agreement also includes a guarantee provision whereby each of the Company, KWAC, Holdings and MHC Securities, LLC are guarantors under the Credit Agreement. Additionally, certain of the members of the Company provide guarantees under the Credit Agreement.
F-17
Table of Contents
10. PROMISSORY NOTES – AFFILIATES
On November 30, 2017, WMS issued subordinated promissory notes in the aggregate principal amount of approximately $3.6 million to certain sellers in connection with the acquisition of the PKSH Entities. These notes had a maturity date of May 17, 2023 and accrued interest at a rate of 10% annually. The interest on these notes has continued to accrue until such time as these notes are paid.
Additionally, in connection with the acquisition of the PKSH Entities, the Company agreed to pay contingent consideration in the amount of $5.0 million to certain sellers. The conditions related to this contingency were met on November 30, 2018, and thus the notes have been issued to the sellers. These subordinated promissory notes had a maturity date of May 30, 2023, and accrued interest at a rate of 10% annually. The interest on these notes has continued to accrue until such time as these notes are paid.
As of December 31, 2023 and 2022, the amount of principal and accrued interest related to these promissory notes were approximately $12.2 million and $11.6 million, respectively. Related interest expense was approximately $0.9 million for each of the years ended December 31, 2023 and 2022.
Subsequent to December 31, 2023, and in connection with the closing of the Business Combination, the Company paid approximately $3,5 million on these notes. In addition to the paydown, the noteholders agreed to forgive the remaining accrued but unpaid interest of approximately $3.8 million and entered into a new promissory note in the principal amount of approximately $5.3 million. The terms of this new promissory note provides for maturity on May 15, 2027 and carries an interest rate of Prime plus 1.00%, but no less than 7.50% per annum.
11. DUE TO MEMBERS
The Company has entered into promissory notes with certain of its members to provide for working capital. As of December 31, 2023 and 2022, the amount of principal and accrued interest related to these notes were approximately $5.2 million and $4.7 million, respectively. The notes bear interest at the rate of 10% and are due on demand. For the years ended December 31, 2023 and 2022 interest expense related to these notes amounted to approximately $0.4 million and $0.5 million, respectively.
Subsequent to December 31, 2023, and in connection with the closing of the Business Combination, the noteholders agreed to satisfy all outstanding obligations, including the payment of principal and interest, in exchange for an amount of cash equal to approximately $0.9 million, forgiveness of certain other obligations owed to a noteholder and the issuance of 357,000 shares of Company Common Stock of Binah Capital Group, Inc.
F-18
Table of Contents
12. LEASES
The Company has obligations as a lessee for office space with initial noncancelable terms in excess of one year. The Company classifies these leases as operating leases. These leases generally contain renewal options for periods ranging from 2 to 10 years. Because the Company is not reasonably certain to exercise these renewal options, the optional periods are not included in determining the lease term, and associated payments under these renewal options are excluded from lease payments used to determine the lease liability. The Company’s leases do not include termination options for either party to the lease or restrictive financial or other covenants. Payments due under the lease contracts include fixed payments plus, for many of the Company’s leases, variable payments. The Company’s office space leases require it to make variable payments for the Company’s proportionate share of the building’s property taxes, insurance, and common area maintenance. These variable lease payments are not included in lease payments used to determine lease liability and are recognized as variable costs when incurred.
The components of lease cost for the years ended December 31, 2023 and 2022 are as follows (in thousands) :
2023
2022
Operating lease cost
$
1,141
$
908
Variable lease cost
48
41
Total lease cost
$
1,189
$
950
Total lease cost is included rent and occupancy on the consolidated statements of operations.
Amounts reported in the consolidated statements of financial condition as of December 31, 2023 and 2022 were as follows (in thousands) :
2023
2022
Operating leases ROU assets
$
4,332
$
4,524
Operating lease liabilities
$
4,381
$
4,527
Other supplemental information related to leases as of December 31, 2023 and 2022 was as follows:
Cash paid for amounts included in the measurement of lease liabilities for the years ended December 31, 2023 and 2022 (in thousands) :
2023
2022
Operating leases
$
466
$
673
ROU assets obtained in exchange for lease liabilities for the year ended December 31, 2023 and 2022 (in thousands) :
2023
2022
Operating leases
$
319
$
998
Reductions to ROU assets and lease liabilities as a result of lease termination during the year ended December 31, 2022 (in thousands) :
2022
ROU asset
$
1,670
Lease liability
$
2,189
F-19
Table of Contents
12. LEASES (continued)
Weighted-average remaining lease term as of December 31, 2023 and 2022:
2023
2022
Operating leases
6.7 years
8.0 years
Weighted-average discount rate as of December 31, 2023 and 2022:
2023
2022
Operating leases
5.5
%
5.6
%
Amounts disclosed for ROU assets obtained in exchange for lease liabilities and reductions to ROU assets resulting from reductions to lease liabilities include amounts added to or reduced from the carrying amount of ROU assets resulting from new leases, lease modifications or reassessments.
Maturities of lease liabilities as of December 31, 2023 were as follows (in thousands) :
2024
$
768
2025
777
2026
767
2027
731
2028
731
Thereafter
1,400
5,174
Less: Imputed interest
(792)
Lease liability
$
4,382
Sublease
CLS entered into an agreement to sublease its former office space which expired September 2022. Rental income and reimbursement of lease costs for the year ended December 31, 2022 amounted to approximately $0.2 million and is included in other income in the accompanying consolidated statement of operations.
F-20
Table of Contents
13. INCOME TAXES
WMS is classified as a partnership for income tax purposes and is therefore not subject to federal, and certain state, and local income taxes. PKSH elected to be taxed as a corporation. The PKSH Entities and WEG are taxable entities and are subject to federal, state, and local income taxes. Therefore, these consolidated financial statements include an income tax provision for the taxable entities only, which is the primary reason for the difference between the statutory tax rate and the effective tax rate.
The income tax provision (benefit) for the years ended December 31, consisted of the following:
2023
2022
Federal:
Current
$
180
$
(174)
Deferred
(354)
512
State and local:
Current
119
181
Deferred
(30)
61
Income tax provision (benefit)
$
(85)
$
580
The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective tax rate for the year ended December 31, 2023 was as follows:
U.S federal statutory rate
21.00
%
State income taxes, net of federal benefit
13.21
%
Non-deductible meals and entertainment
6.32
%
Deferred adjustments
(127.28)
%
Non-taxable pass through entities
69.74
%
Other adjustments
(0.48)
%
Effective rate
(17.49)
%
Deferred Taxes
Deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates. Temporary differences, and net operating loss carryforwards that give rise to deferred tax assets and liabilities are summarized as follows as of December 31:
2023
2022
Deferred tax assets/(liabilities):
Property, and equipment, net
$
(92)
$
79
IRC 163(j) interest limitation, carryover
190
47
Net operating loss
832
391
Other
63
56
Total
993
573
Valuation Allowance
—
—
Net deferred tax liability
$
993
$
573
F-21
Table of Contents
13. INCOME TAXES (continued)
Net Operating Losses
At December 31, 2023, the Company and its subsidiaries had federal and state net operating loss carry forwards of approximately $4.4 million. These carry forward losses are available to offset future U.S. federal and state taxable income and are not subject to IRC Section 382 limitations. All federal net operating losses being carried forward were incurred in tax years beginning after December 31, 2017, and therefore will carry forward indefinitely.
Valuation Allowance
The Company provides for recognition of deferred tax assets if the realization of such assets is more likely than not to occur in accordance with accounting standards that address income taxes. Significant management judgment is required in determining the period in which the reversal of a valuation allowance should occur. The Company has considered all available evidence, both positive and negative, such as historical levels of income and future forecasts of taxable income amongst other items, in determining its valuation allowance and has concluded that a valuation allowance is not warranted.
Unrecognized Tax Benefits
Based on the Company’s evaluation, it has been concluded that there are no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements for the year ended December 31, 2023.
The Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and other expense, respectively. There were no amounts accrued for interest or penalties on unrecognized tax benefits for the year ended December 31, 2023. Management does not expect any material changes in its unrecognized tax benefits in the next year.
The Company files income tax returns, including returns for its subsidiaries, with federal and state jurisdictions. The Company is generally not subject to examinations for its federal and state returns for any periods prior to the 2018 tax year. The Company is not currently under examination for any tax years.
F-22
Table of Contents
14. COMMITMENTS AND CONTINGENCIES
Litigation
Certain conditions may exist as of the date the consolidated financial statements are issued which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the accompanying consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed.
There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
The Company is a defendant or respondent in various pending and threatened arbitrations, administrative proceedings and lawsuits seeking compensatory damages. Claim amounts are infrequently indicative of the actual amounts the Company will be liable for, if any. Many of these claimants also seek, in addition to compensatory damages, punitive or treble damages, and all seek interest, costs and fees. These matters arise in the normal course of business. The Company intends to vigorously defend itself in these actions, and the ultimate outcome of these matters cannot be determined at this time.
In many lawsuits, arbitrations, and regulatory proceedings, it is not possible to determine whether a liability has been incurred or to estimate the amount of that liability until the matter is close to resolution. However, accruals are reviewed regularly and are adjusted to reflect management’s estimates of the impact of developments, rulings, advice of counsel and any other information pertinent to a particular matter.
Because of the inherent difficulty in predicting the ultimate outcome of legal and regulatory actions, management cannot predict with certainty the eventual loss or range of loss related to such matters. The Company believes, based upon current information, that the outcome of any such legal proceeding, claim, dispute, or investigation will not have a material effect on the Company’s financial position, results of operations or cash flows. However, the actual outcomes of such legal proceedings, claims, disputes, or investigations could be material to the Company’s operating results and cash flows for a particular future period as additional information is obtained.
Settlement Agreements
On August 18, 2021, the Company entered into a 2021 Settlement Agreement with the Saginaw Chippewa Indian Tribe of Michigan whereby the Paying Parties, as defined, were to make six payments totaling approximately $3.7 million, which represented the remaining amount due plus interest. The members of the Company, under the terms of an agreement are jointly and severally liable for the full settlement amount. The Company entered into a First Amendment to the 2021 Settlement Agreement on February 17, 2022, which stipulated that payment terms of the remaining amount owed of approximately $1.5 million, plus interest to be paid during 2022. Such amount was satisfied in June 2022 and recorded as a distribution of members’ capital.
F-23
Table of Contents
14. COMMITMENTS AND CONTINGENCIES (continued)
Indemnification
The activities of the Company’s customers are transacted on either a cash or margin basis through the facilities of its clearing broker. In margin transactions, the clearing broker extends credit to the customers, subject to various regulatory and margin requirements, collateralized by cash and securities in the customer’s account. In connection with these activities, the clearing broker may also execute and clear customer transactions involving the sale of securities not yet purchased.
The clearing broker monitors required margin levels daily and, pursuant to such guidelines, requires the customers to deposit additional collateral, or reduce positions, when necessary.
These transactions may expose the Company to significant off-balance sheet risk in the event margin requirements are not sufficient to fully cover losses which the customers may incur. In the event the customers fail to satisfy their obligations to the clearing broker, the Company may be required to compensate the clearing broker for losses incurred on behalf of the customers.
The Company, through its clearing broker, seeks to control the risk associated with its customers’ activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. As of December 31, 2023 and 2022, management of the Company had not been notified by any clearing brokers, nor were they otherwise aware of any potential losses relating to this indemnification.
15. RELATED-PARTY TRANSACTIONS
Certain of the Company’s subsidiaries earn revenue from entities that are controlled by a principal member of the Company as well as from entities controlled or by individuals that are members or officers of the Company. The revenue earned by the subsidiaries and amounts due to or due from these affiliated entities as of and for the years ended December 31, 2023 and 2022 are as follows (in thousands) :
Revenue
Due from/(Due to)
Subsidiary
2023
2022
2023
2022
PKSI
$
—
$
8
$
—
$
—
CLS
1,000
1,491
(0.1)
—
WEG
—
4,123
—
—
Total
$
1,000
$
5,622
$
(0.1)
$
—
The revenue amounts and amounts due to and due from are included in commissions on the accompanying consolidated statements of operations and other assets on the consolidated statements of financial condition, respectively.
F-24
Table of Contents
16. MEMBERS’ EQUITY
Incentive units
The Company authorized a class of units designated as Incentive Units. As of December 31, 2023 and 2022, no Incentive Units have been issued.
Voting Rights - Incentive Units will generally have no voting rights, except as required by law.
Profit interest - Incentive Units constitute an interest in the profits of the Company. All Incentive Units received by a service provider are received in exchange for the provision of services by the service provider for the benefit of the Company.
Call Right - At any time prior to the consummation of a Qualified Public Offering or a Change of Control, following the termination of employment or other engagement of any service provider with the Company, the Company may, at its election, require the service provider to sell to the Company all or any portion of such service provider’s Incentive Units at the following respective purchase prices:
For any Incentive Units that have not vested pursuant to the terms of the incentive plan or any award agreement (“Restricted Incentive Units”), under all circumstances of termination, a price equal to the lesser of their fair value or their initial cost (the “Cause Purchase Price”).
For any Incentive Units that have vested pursuant to the terms of the incentive plan or any associated award agreement (“Unrestricted Incentive Units”), the Cause Purchase Price, in the event of:
● Service provider is terminated with cause; or
● Service provider resigns without good reason.
For the Unrestricted Incentive Units, a price equal to their fair value, in the event of:
● Service provider is terminated without cause;
● Service provider resigns for good reason;
● Service provider resigns for any reason after 5 years; or
● Death or disability.
Put Right - At any time prior to the consummation of a Qualified Public Offering or a Change of Control, if a service provider’s employment or other engagement with the Company is terminated as a result of such service provider’s death or disability, and the Company has not delivered a repurchase notice within ninety (90) days of such termination, then, subject to certain other provisions, such service provider may elect to sell to the Company all or any percentage of the Unrestricted Incentive Units held by such Person at a price equal to the fair value of such Unrestricted Incentive Units as of the date of termination.
F-25
Table of Contents
16. MEMBERS’ EQUITY (continued)
Class A Preferred Units
The Company authorized a class of units designated as Class A Preferred Units. As of December 31, 2023 and 2022, no Class A Preferred Units have been issued.
Voting Rights - Class A Preferred Units will generally have no voting rights, except as required by law.
Pre-Emptive Rights - Class A Preferred Units will have the right to purchase their applicable pro rata portion of any new securities that the Company may from time to time propose to issue or sell to any party after the consummation of a Qualified Public Offering.
Protective Provisions - For as long as the Class A Preferred Units are outstanding, the holders will be afforded certain protection provisions pursuant to the warrant holders’ rights agreement. There were no warrants outstanding as of December 31, 2023 and 2022, respectively.
Class B Preferred Units
The Company authorized a class of units designated as Class B Preferred Units. Effective September 4, 2023, the Company entered into an agreement with the holder of the Class B Preferred Units whereby beginning on September 30, 2023, monthly payments in the amount of $61,676 (inclusive of the principal and the yield) will be made to redeem the Class B Preferred Unit holders. The payment of the Class B Preferred Units are intended to be completed no later than eighteen months from the date or the agreement or upon the consummation of the contemplated Business Combination . As of December 31, 2023 and 2022, 260,834 and 277,364 Class B Preferred Units are outstanding at a value of $2.6 million and $2,8 million, respectively.
Voting Rights - Class B Preferred Units will generally have no voting rights, except as required by law, and except that the affirmative vote of the holders of a majority of the then outstanding units of Class B Preferred Units is required to authorize the issuance of any units that are senior in any respect to the Class B Preferred Units.
Pre-Emptive Rights - Class B Preferred Units will have the right to purchase their applicable pro rata portion of any new securities that the Company may from time to time propose to issue or sell to any party between the date of issuance and the consummation of a Qualified Public Offering.
Conversion - Class B Preferred Units are convertible into Common Units (subject to adjustment as provided in the related operating agreements, rights and limitations) at any time at the option of the holder at a conversion price equal to (a) if the conversion notice date is on or prior to the date that is 6 months after the closing date, the result of $10,172,877 divided by the number of Common Units outstanding as of the conversion notice date. Or (b), if the conversion notice date is after the date that is 6 months after the closing date, the result of (x) enterprise value less net debt less aggregate Class B Preferred unreturned capital value of all outstanding Class B Preferred Units as of the measurement date (all as defined) divided by (y) the number of Common Units as of the conversion notice date. The Class B Preferred Units are convertible up to only an aggregate of 10% of the fully diluted outstanding equity interests of WMS.
Redemption - Class B Preferred Units are redeemable upon a change in control, the termination of employment of the holder or upon exercise by the holder on the third anniversary of the instrument. The redemption price of a Class B Preferred Unit shall be equal to the sum of (x) the Class B preferred yield in respect of such Class B Preferred Unit and the Class B Preferred capital value, (all as defined) less (y) the aggregate amount of all distributions made by the Company in respect of such Class B Preferred Unit.
Preferred Yield - Class B Preferred Units are entitled to a cumulative preferred yield of 2.06% per annum and a default rate of 9% per annum, compounded quarterly, on the sum of (a) the Class B Preferred Unit unreturned capital value and (b) the Class B
F-26
Table of Contents
16. MEMBERS’ EQUITY (continued)
Preferred unpaid yield accumulated for all prior quarterly compounding periods. For the year ended December 31, 2022, the cumulative preferred yield amounted to approximately $0.3 million, which was paid during the year ended December 31, 2023.
Subsequent to December 31, 2023, and in connection with the Business Combination, the Class B Preferred units were redeemed in full for approximately $2,5 million.
Common Units
The Company authorized a class of units designated as Common Units, which have voting rights. As of December 31, 2023 and 2022, there are 1,325,433 Common Units issued and outstanding at a value of approximately $12.3 million.
Priority of Distributions
The priority of distributions after making any required tax advances is as follows:
1. Pro rata to the holders of Class A Preferred Units on a fully diluted basis in an amount equal to the product of (a) the aggregate distribution amount; times (b) this group’s fully diluted membership interest expressed as a percentage of the overall fully diluted membership interest;
2. Pro rata to the holders of Class B Preferred Units in an amount equal to any unpaid cumulative preferred yield;
3. Pro rata to the holders of Class B Preferred Units in an amount equal to any unreturned capital contribution;
4. Pro rata to the holders of Common Units in an amount equal to any unreturned capital contribution;
5. Pro rata to the holders of Common Units and Incentive Units in an amount equal to any remainder.
17. RETIREMENT PLAN
PKSI maintains a 401(k) retirement plan for the benefit of its employees. Contributions to the PKSI Plan are limited to a maximum of 3% of employee compensation and are based upon employee contributions. Employees must be 21 years of age and employed for three months to participate. The PKSI contribution to the plan amounted to approximately $0.3 million and $0.2 million for the years ended December 31, 2023 and 2022, respectively.
Additionally, WEG maintains a 401(k) plan for qualified employees. WEG matches 50% of employee contributions up to 3% of employee compensation, and may make discretionary contributions to the plan, subject to certain limitations as set forth in the plan agreement. WEG’s aggregate contribution to the plan for the years ended December 31, 2023 and 2022 was approximately $0.02 million and $0.03 million, respectively. WEG also has a separate profit-sharing plan, making discretionary contributions as defined in the plan, subject to certain limitations set forth in the plan agreement. The Company did not make a separate profit-sharing plan contribution for the years ended December 31, 2023 and 2022.
18. NET CAPITAL REQUIREMENTS
The Company operates four registered broker-dealers that are subject to the SEC Uniform Net Capital Rule (Rule 15c3-1). This requires the Company to maintain certain minimum net capital requirements. At December 31, 2023 and 2022, all broker-dealers had net capital in excess of the required minimums.
F-27
Table of Contents
19. CREDIT RISK AND CONCENTRATIONS
Financial instruments that subject the Company to credit risk consist principally of receivables and cash and cash equivalents. The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its counterparties and, based upon factors surrounding the credit risk of its counterparties, establishes an allowance for credit losses and, consequently, believes that its receivables credit risk exposure beyond such allowances is limited.
20. SUBSEQUENT EVENTS
The Company evaluated subsequent events that occurred after the balance sheet date up to April 16, 2024, the date that the consolidated financial statements were available to be issued.
F-28
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.