ENDI Corp. - Annual Report: 2022 (Form 10-K)

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Annual Report on Form 10-K contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “estimate,” “expect,” “intend,” “anticipate,” “plan,” “project,” and similar expressions and variations thereof identify such forward-looking statements which speak only as of the dates on which they were made. The forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including, but not limited to, changes in economic and market conditions, lack of acceptance of our products, maintenance of strategic alliances, and other factors discussed in our filings with the Securities and Exchange Commission (the “SEC”).

All of our forward-looking statements are as of the date of this Annual Report on Form 10-K only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Annual Report on Form 10-K or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the SEC could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Annual Report on Form 10-K, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Annual Report on Form 10-K that modify or impact any of the forward-looking statements contained in this Annual Report on Form 10-K will be deemed to modify or supersede such statements in this Annual Report on Form 10-K.

This Annual Report on Form 10-K may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources.

INTRODUCTORY NOTE

ENDI Corp. (“ENDI”) was incorporated in Delaware on December 23, 2021. On August 11, 2022 (the “Closing Date”), the Company (as defined herein) completed its mergers (the “Mergers”) pursuant to that certain Agreement and Plan of Merger dated December 29, 2021 (as amended, the “Merger Agreement”) by and among ENDI, Enterprise Diversified, Inc. (“Enterprise Diversified”), Zelda Merger Sub 1, Inc., Zelda Merger Sub 2, LLC, CrossingBridge Advisors, LLC (“CrossingBridge” or “CBA”) and Cohanzick Management, LLC (“Cohanzick”). As a result of the Mergers, Enterprise Diversified and CrossingBridge merged with wholly owned subsidiaries of ENDI and now operate as wholly owned subsidiaries of the Company. The Company is the successor registrant to Enterprise Diversified’s SEC registration effective as of the Closing Date of the Mergers.

The reporting period covered by this Annual Report on Form 10-K for the year ended December 31, 2022 reflects the standalone business of CrossingBridge prior to the Closing Date of the Mergers and reflects the consolidated business of the Company, including CrossingBridge and Enterprise Diversified for the post-Merger period from August 12, 2022 through December 31, 2022.

On the Closing Date, Enterprise Diversified and CrossingBridge became wholly owned subsidiaries of ENDI as a result of the Mergers (collectively with the other transactions described in the Merger Agreement, the “Business Combination”). The Business Combination is accounted for as a reverse merger business combination using the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations, with CrossingBridge representing the accounting acquiror. Following Financial Accounting Standards Board guidance related to the accounting for reverse acquisitions, CrossingBridge’s historical carve-out financial statements replaced the Company’s (as the successor registrant to Enterprise Diversified) historical financial statements. Accordingly, the capital structure, and per share amounts presented in CrossingBridge’s historical carve-out financial statements for the periods prior to the Closing Date have been recast to reflect the capital activity in accordance with the Merger Agreement. CrossingBridge’s historical carve-out financial statements as of and for the year ended December 31, 2021, reflecting the recasting, are included as part of the consolidated financial statements presented in this Annual Report on Form 10-K.

The CrossingBridge carve-out for activity prior to the Closing Date, including the period from January 1, 2022 to August 11, 2022 and the year ended December 31, 2021, is part of the Cohanzick financial statements. Prior to the Closing Date of the Mergers, CrossingBridge was a wholly owned subsidiary of Cohanzick. The historical carve-out financial statements of CrossingBridge reflect the assets, liabilities, revenue, and expenses directly attributable to CrossingBridge, as well as allocations deemed reasonable by management, to present the financial position, statements of operations, statements of changes in stockholders’ equity, and statements of cash flows of CrossingBridge on a stand-alone basis and do not necessarily reflect the financial position, statements of operations, statements of changes in stockholders’ equity, and statements of cash flows of CrossingBridge in the future or what they would have been had CrossingBridge been a separate, stand-alone entity during the periods presented that include activity prior to the Closing Date.

Unless the context otherwise requires, and when used in this Annual Report on Form 10-K, the “Company,” “ENDI,” “ENDI Corp.,” “we,” “our,” or “us” refers to ENDI Corp. individually, or as the context requires, collectively with its subsidiaries as of and after the Closing Date, and to CrossingBridge for the periods up to the Closing Date, due to the determination that CrossingBridge represents the accounting acquiror.

PART 1

ITEM 1.     BUSINESS

Overview

During the year ended December 31, 2022, ENDI Corp. operated through the following four reportable segments:

The management of the Company also continually reviews various business opportunities for the Company, including those in other lines of business. The Company’s primary focus is on generating cash flow so that the Company has the flexibility to pursue opportunities as they present themselves. The Company intends to only invest cash in a segment if the Company believes that the return on the invested capital is appropriate for the risk associated with the investment. This consideration is measured against all investment opportunities available to the Company and is not limited to the foregoing segments nor the Company’s historical operations.

Mergers

On the Closing Date, the Company completed the Mergers pursuant to the Merger Agreement. As a result of the Mergers, Enterprise Diversified and CrossingBridge merged with wholly owned subsidiaries of ENDI and now operate as wholly owned subsidiaries of the Company. See “Introductory Note” for additional information.

Voting Agreement

On the Closing Date, the Company entered into a voting agreement (the “Voting Agreement”) with Cohanzick and Steven Kiel and Arquitos Capital Offshore Master, Ltd., in their capacity as the voting party (the “Voting Party”), pursuant to which the Voting Party shall vote all of its securities of the Company entitled to vote in the election of the Company’s directors that such Voting Party or its affiliates own (collectively, the “Voting Shares”) to elect or maintain in office the directors designated by Cohanzick (the “Cohanzick Member Designees”). The Voting Agreement will terminate automatically on the earlier of the date that (i) the holders of the Company’s Class B Common Stock or Cohanzick’s right to designate the Cohanzick Member Designees is terminated or expires for any reason, (ii) Steven Kiel is no longer a member of the Company’s board of directors and (iii) the Voting Party and its affiliates cease to hold any Voting Shares. The Voting Agreement will also terminate automatically with respect to any Voting Shares no longer held by the Voting Party or its affiliates.

Stockholder Agreement

On the Closing Date, the Company entered into a stockholder agreement (the “Stockholder Agreement”) with Cohanzick pursuant to which, from and after the date that the holders of the Company’s Class B Common Stock, par value $0.0001 per share (“Class B Common Stock”), are no longer entitled to elect at least one director to the Company’s board of directors pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation, the following provisions apply: for so long as David Sherman, Cohanzick and any of their successors or assigns (collectively, the “Principal Stockholder”) and their Affiliates (as defined in the Stockholder Agreement) beneficially own at least 5% of the outstanding shares of the Company’s Class A Common Stock and Class B Common Stock (collectively, the “Common Stock”), the Principal Stockholder has the right to designate a number of directors of the Company’s board of directors (rounded up to the nearest whole number) equal to the percentage of the Company’s Common Stock beneficially owned by the Principal Stockholder and its Affiliates at the time of such designation; provided, however, that for purposes of this designation right, the Principal Stockholder and its Affiliates shall have the right to designate not more than a majority of the members of the Company’s board of directors then in office; and, provided further, that so long as the Principal Stockholder and its Affiliates beneficially owns at least 5% of the Company’s total outstanding shares of Common Stock, it shall have the right to designate at least one director to the Company’s board of directors

Pursuant to the Stockholder Agreement, upon the exercise of any Class W-1 Warrant to purchase shares of the Company’s Class A Common Stock (“Class W-1 Warrant” or “W-1 Warrant”) by any Class W-1 Warrant holder, the Company shall redeem the number of shares of the Company’s Class B Common Stock (on a pro rata basis from the holders of Class B Common Stock) that are equal to the number of shares of the Company’s Class A Common Stock issued to the Class W-1 Warrant holder upon exercise of the Class W-1 Warrant (a “Mandatory Redemption”) at the Redemption Price (as defined herein). On the fifth anniversary of the Closing (as defined in the Stockholder Agreement), any shares of the Company’s Class B Common Stock held by the Principal Stockholder that remain outstanding shall be redeemed by the Company at the Redemption Price, which is $0.0001 per share of Class B Common Stock, subject to adjustment (the “Redemption Price”). The Stockholder Agreement will terminate automatically on the date that the Principal Stockholder holds less than 5% of the outstanding shares of the Company’s Common Stock.

Registration Rights Agreement

On the Closing Date, the Company entered into a registration rights agreement (as amended, the “RRA”) with Cohanzick and certain holders of the Company’s securities (the “Holders”) pursuant to which the Company shall prepare and file or cause to be prepared and filed with the Securities and Exchange Commission, on or before May 1, 2023, a registration statement under the Securities Act for an offering to be made on a continuous basis, pursuant to Rule 415 of the Securities Act or any successor thereto, registering certain securities as set forth in the RRA.

Services Agreement

On the Closing Date, CrossingBridge entered into a Services Agreement (the “Services Agreement”) with Cohanzick pursuant to which CrossingBridge will make available to Cohanzick certain of its employees to provide investment advisory, portfolio management and other services to Cohanzick and, through Cohanzick, to Cohanzick’s clients. Any such individuals will be subject to the oversight and control of Cohanzick, and any services so provided to Cohanzick or a client of Cohanzick will be provided by such CrossingBridge employees in the capacity of a supervised person of Cohanzick. Cohanzick additionally may use the systems of CrossingBridge or its affiliates for its daily operations; provided that appropriate policies, procedures and other safeguards are established to assure that (a) the books and records of each of CrossingBridge and Cohanzick are created and maintained in a manner so as to be clearly separate and distinct from those of the other person and the clients of such person, and (b) confidential client and/or other material non-public information relating to the investment advisory activities of CrossingBridge or Cohanzick, as applicable, or other proprietary information regarding either such person or its clients, is safeguarded and maintained for the benefit of such person. As consideration for its services, Cohanzick will pay CrossingBridge a quarterly fee equal to 0.05% per annum of the monthly weighted average assets under management during such quarter with respect to all clients for which the Cohanzick has full investment discretion. Cohanzick and CrossingBridge will also split the payment of certain costs of other systems which use is shared between the Cohanzick and CrossingBridge. The term of the agreement is one year from the Closing Date.

Products and Services

CrossingBridge Operations

CrossingBridge Advisors, LLC (“CBA”) was formed as a limited liability company on December 23, 2016, under the laws of the State of Delaware. CBA derives its revenue and net income from investment advisory services. CBA is a registered investment adviser (“RIA”) under the Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”), and it provides investment advisory services to investment companies (including mutual funds and ETFs) registered under the Investment Company Act of 1940 Act, as amended (the “Investment Company Act”), both as an adviser and as a sub-adviser.

As of December 31, 2022, CBA serves as an advisor to its four proprietary products and sub-advisor to two additional products. As of December 31, 2022, the assets under management (“AUM”) for CBA, including advised and sub-advised funds, were in excess of $1.2 billion. The investment strategies for CBA include: ultra-short duration, low duration high yield, strategic credit, responsible credit, and special purpose acquisition companies (“SPACs”). These strategies primarily employ high yield and investment grade corporate debt, as well as credit opportunities in event-driven securities, post reorganization investments, and stressed and distressed debt. Details of CBA’s products are included below:

On November 18, 2022, CBA entered into a Purchase and Assignment and Assumption Agreement with RiverPark Advisors, LLC and Cohanzick pursuant to which RiverPark Advisors, LLC intends to sell to CBA certain assets and CBA intends to assume certain liabilities, including certain rights and responsibilities under the RiverPark Advisory Agreement (as defined herein) and the RiverPark Expense Limitation Agreement (as defined herein) relating to the provision of investment advisory services for the mutual fund known as RiverPark Strategic Income Fund, subject to certain terms and conditions set forth in such agreement. See “Business – RiverPark Advisors, LLC” for additional information. As of December 31, 2022, AUM of RiverPark Strategic Income Fund were approximately $239 million.

CBA’s investment strategies with associated advised and sub-advised mutual funds and the ETF are as follows:

Management believes that the greatest negative impact on portfolio returns is the failure of a large position to perform according to the original thesis, which results in loss of capital. We attempt to mitigate this risk through investment analysis, portfolio construction, and hedging of risks with respect to individual positions and/or the overall portfolio as we see fit. In most cases, our investment analysis begins with a fundamental understanding of an issuer’s business model and management objectives followed by an analysis of its capital structure. Depending on the nature of the investment, the analysis may continue with a more in-depth study of legal aspects, pending transactions, and processes that may impact the issuer. A good investment in a bad business is not a recipe for enduring success.

In the first half of 2022, given the strong demand for conservative, low duration strategies in the rising-interest rate environment, there was high demand for CBA products, and the funds collectively experienced net inflows of approximately $140 million of AUM. In the second half of 2022, with the federal reserve focused on raising interest rates to quell inflation, the CBA funds experienced disintermediation with collective net outflows of approximately $229 million of AUM. Consequently, comparing AUM at year end 2021 to AUM at year end 2022, CBA products collectively reported a net decrease of approximately $91 million of AUM.

All four of CBA’s proprietary advised products generated positive returns for investors in 2022.

CBA has seen interest in its funds continuing to grow in the RIA, bank/trust company, and family office segments of the market. CBA expects demand for the CrossingBridge Low Duration High Yield Fund to continue to increase as CBA has developed a strong track record of five years as of January 31, 2023. For the two newer mutual funds (CrossingBridge Ultra-Short Duration Fund and the CrossingBridge Responsible Credit Fund), although they do not have established track records as individual funds, CBA believes that the market environment paired with its long-standing reputation in the fixed income space will be helpful in continuing to raise assets for those funds. As for the CrossingBridge Pre-Merger SPAC ETF which was launched on September 20, 2021, we believe the fund remains a viable ultra-short, fixed income alternative; however, we believe the pre-merger SPAC market is set to face significant liquidations, which may reduce the size of the opportunity in the absence of an influx of new SPAC offerings.

During the year ended December 31, 2022, CBA’s contributions to the Destinations Low Duration Fixed Income Fund and the Destinations Global Fixed Income Opportunities Fund were accretive and CBA continues to serve as a core allocator within these funds.

CBA’s primary objective is to fulfill its fiduciary duty to its clients while its secondary objective is to grow its intrinsic value to achieve an adequate long-term return for our Company.

Willow Oak Operations

Beginning on August 12, 2022, the start of the post-Merger period (“Post-Merger”), the Company operates its Willow Oak operations business through its wholly owned subsidiaries, Willow Oak Asset Management, LLC (“Willow Oak”), Willow Oak Capital Management, LLC, Willow Oak Asset Management Affiliate Management Services, LLC (“Willow Oak AMS”) and Willow Oak Asset Management Fund Management Services, LLC (“Willow Oak FMS”).

Willow Oak is an asset management platform focused on partnering with independent asset managers throughout various phases of their firm’s lifecycle to provide comprehensive operational services that support the growth of their businesses. Through minority ownership stakes and bespoke service based contracts, Willow Oak offers affiliated managers strategic consulting, operational support, and growth opportunities. Services to date include consulting, fund launching, investor relations and marketing, accounting and bookkeeping, compliance program monitoring, fund management, and business development support. The Company intends to actively expand its Willow Oak platform with additional offerings that enhance the value of the Willow Oak platform to independent managers across the investing community.

Willow Oak earns revenue through three main product channels: (i) revenue fee shares with investment firms; (ii) bespoke service-based contracts with investment firms; and (iii) consulting service agreements with private partnerships. The suite of services that Willow Oak offers investment firms includes business development and operations management, compliance monitoring, investor relations and marketing, accounting and bookkeeping, fund launching, and ongoing fund management. Consulting services offered directly to private partnerships include administrative coordination, compliance program monitoring and tax and audit liaison services.

Through its revenue fee share arrangements, Willow Oak and its affiliates earn commensurate shares of management and performance fees earned by three independently managed investment firms: Bonhoeffer Capital Management, LLC (“Bonhoeffer Capital”), Focused Compounding Capital Management, LLC (“Focused Compounding”) and SVN Capital, LLC (“SVN Capital”). Bonhoeffer Capital is the general partner of Bonhoeffer Fund, LP, a private investment partnership launched by Willow Oak in 2017. Focused Compounding is the general partner of Focused Compounding Fund, LP, a private investment firm co-launched by Willow Oak in 2020. SVN Capital is the general partner of SVN Fund, LP, a private investment partnership launched in 2020. In addition to managing private investment firms, Focused Compounding and SVN Capital also manage capital for clients through separately managed accounts, which also generates revenue fee shares for Willow Oak and its affiliates.

Willow Oak, through a bespoke service-based contract with Arquitos Investment Manager, LP, Arquitos Capital Management, LLC, Arquitos Epicus, LP, and Arquitos Capital Offshore Master, Ltd. (collectively “Arquitos”), which are managed by our director, Steven Kiel, earned revenue for services provided to Arquitos including: strategic planning, investor relations, marketing, operations, compliance program monitoring and legal coordination, accounting and bookkeeping, annual audit and tax coordination, and liaison to third-party service providers. In exchange for these services, Steven Kiel, through Arquitos, was contracted to perform ongoing consulting services for the benefit of Willow Oak in the following areas: strategic development, marketing, networking, and fundraising. In addition to the foregoing exchange of services, Willow Oak also earned an annual performance revenue fee share through its contract with Arquitos. As of December 31, 2022, this service contract and revenue fee share have expired.

Through its consulting service agreements, Willow Oak and its affiliates earn a monthly fee from its private partnership clients, Bonhoeffer Fund, LP, Focused Compounding Fund, LP and SVN Fund, LP, for administrative, compliance and tax and audit liaison services provided to each partnership.

Internet Operations

Beginning Post-Merger, the Company operates its internet operations segment through Sitestar.net, its wholly owned subsidiary.

Sitestar.net is an internet service provider (“ISP”) that offers consumer and business-grade internet access, e-mail hosting and storage, wholesale managed modem services, web hosting, third-party software as a reseller, and various ancillary services. Sitestar.net provides services to customers in the United States and Canada. This segment markets and sells narrow-band (dial-up and integrated services digital network (“ISDN”)) and broadband services (Digital Subscriber Line (“DSL”), fiber-optic, and wireless), as well as web hosting and related services to consumers and businesses. Customers may also subscribe to web hosting plans to include email access and storage. Customer contracts through the internet operations segment can be structured as monthly or annual contracts. Under annual contracts, the subscriber pays a one-time annual fee and under monthly contracts, the subscriber is billed monthly. While Sitestar.net provides customer service support for account management and technical troubleshooting, Sitestar.net does not own or maintain the physical infrastructure (fiber-optic lines, cable lines, phone lines, or e-mail servers) through which its services are provided.

We may in the future be subject to U.S. and international laws and regulations applicable to access or commerce on the internet covering issues such as user privacy, freedom of expression, pricing, characteristics and quality of products and services, taxation, advertising, intellectual property rights, and information security. As such, our business may be affected by the repeal, modification, or adoption of various laws and regulations that cover a wide range of issues at the international, federal, state, and local levels.

In addition, the Company owns a portfolio of domain names. Management endeavors to identify the market value for domain names owned by the Company in order to assess potential income opportunities. Management evaluates these domain names for third-party sales potential, as well as for other marketing opportunities that could generate new revenue from current customers who utilize the domain names.

The current focus of our internet operations segment is to generate cash flow, work to make our costs variable, and reinvest in our operations when an acceptable return is available.

Other Operations

Beginning Post-Merger, the Company operates its other operations segment which includes nonrecurring or one-time strategic funding or similar activity and other corporate operations that are not considered to be one of the Company’s primary lines of business. Below are the primary activities comprising other operations. Additional investment activity that is not specifically mentioned below is included in the accompanying consolidated financial statements.

eBuild Ventures, LLC

Pursuant to the Merger Agreement, the Company was transferred interests of eBuild Ventures, LLC (“eBuild”) on the Closing Date. eBuild acquires, or provides growth equity to, consumer product businesses in the digital or brick and mortar marketplaces. Through eBuild, the Company also operates SPACinformer.com (“SPACinformer”), an electronic newsletter service focusing primarily on the aggregation and distribution of publicly-available SPAC data, news, and analytics. On September 8, 2022, through eBuild, the Company made a capital contribution of $450,000, representing approximately a 10% ownership stake, in a start-up phase private company that operates in the consumer beverage product space.

Financing Arrangement - Triad Guaranty, Inc.

In August 2017, Enterprise Diversified entered into an agreement with several independent third parties to provide debtor-in-possession financing to an unaffiliated third party, Triad Guaranty, Inc., through Triad DIP Investors, LLC. Triad Guaranty, Inc. exited bankruptcy in April 2018, and Enterprise Diversified was subsequently issued an amended and restated promissory note. Enterprise Diversified also holds shares of Triad Guaranty, Inc. common stock, which were received as consideration for certain amounts of accrued interest earned pursuant to the amended and restated promissory note. As of December 31, 2022, we attribute no value to the shares of Triad Guaranty, Inc. common stock held due to the stocks’ general lack of marketability.

Corporate Operations

Corporate operations include any revenue or expenses derived from the Company’s corporate office operations, as well as expenses related to public company reporting, the oversight of subsidiaries, and other items that affect the overall Company. Also included under corporate operations is investment activity earned through the reinvestment of corporate cash. Corporate investments are typically short-term, highly liquid investments, including vehicles such as mutual funds, ETFs, commercial paper, and corporate and municipal bonds.

During the year ended December 31, 2022, through Enterprise Diversified under the other operations segment, the Company invested a total of $4,500,000 among three CrossingBridge mutual funds: the CrossingBridge Responsible Credit Fund, the CrossingBridge Ultra Short Duration Fund, and the CrossingBridge Low Duration High Yield Fund. The Company also routinely invests in the CrossingBridge Pre-Merger SPAC ETF as well, which as of December 31, 2022, totaled $300,025.

Competition

CrossingBridge Operations

The asset management industry is highly competitive, has relatively low barriers to entry, and includes a wide array of investment products and services. CBA competes with, among others, investment firms that have longer and more established track records, higher AUM, greater personnel resources, and a broader variety of investment products. We believe that direct competitors of CBA include Osterweis Capital Management, Shenkman Capital Management, Lord Abbett & Company, and Brandywine Asset Management. CBA strives to distinguish itself from its competitors through its investment performance, fees charged to clients and the quality, diversity, and innovation of the products it offers. CBA’s success relies on its ability to generate attractive and consistent investment returns, attract and retain key personnel, and develop innovative and diverse investment products.

Willow Oak Operations

Willow Oak faces two primary forms of competitors - specialized outsourced service providers and investment firms with internally built management teams.

We believe that competitors that offer a variety of outsourced operational roles and are specialized in their areas of service include Junonia Partners, which offers outsourced Chief Financial Officer and Controller solutions; Repool, which offers fund and RIA launch and on-going back office support; and Freedom Advisors, which offers operational outsourcing to RIAs. Investment firms are also able to compete with Willow Oak’s services by hiring a dedicated management and administrative staff to internally manage the operational needs of the firm. Internally built teams can provide high degrees of customization and capacity for investment firms.

Notwithstanding the foregoing, management is not aware of any direct competitors who offer the same level of hands-on and comprehensive operational support to independent asset managers throughout all phases of their business lifecycle as competing third-party service providers are more specialized in their services, focusing on a single area such as fund administration, compliance, marketing consulting, or outsourced Chief Financial Officer solutions as a standalone service. We believe that Willow Oak’s success relies on our ability to partner with a variety of investment firms, attract and retain key personnel, and provide a comprehensive and competitive service offering for investment firms.

Internet Operations

The internet service provider space is highly competitive and growth is often achieved through mergers and acquisitions or large-scale infrastructure expansion. Our internet operation segment’s primary competitors include regional and national cable and telecommunications companies that have substantially greater market presence, brand-name recognition, and financial resources compared to Sitestar.net. Secondary competitors include local and regional ISPs that serve rural localities that larger providers have not yet expanded to.

The residential broadband internet access market is dominated by cable and telecommunications companies. These companies offer internet connectivity through the use of cable modems, DSL programs, and fiber-optic lines. These competitors have extensive scaling ability, pricing power, and significantly more resources than Sitestar.net, as they typically own or maintain at least a portion of the physical infrastructure that provides the internet access services. In addition, such competitors often offer incentives for customers to purchase internet access by offering discounts for bundled service offerings (i.e., phone, television, and internet) that are not readily available through Sitestar.net. As we are a reseller of our broadband services, including DSL and fiber services, our profit margin is heavily influenced by these competitive forces. A large portion of Sitestar.net’s customer base for its internet access services are located in rural areas with relatively fewer options for ISPs, as the infrastructure required for larger providers to service these areas is either outdated, has not yet been established, or is not economical to establish.

The e-mail and web hosting markets operate in a similar environment. A handful of large national or global technology companies offer inexpensive, if not free, suites of hosting services.

We believe Sitestar.net’s success relies on our ability to provide reliable and competitive services, attract and retain key personnel, and maintain our customer base.

RiverPark Advisors, LLC

On November 18, 2022, CBA, whose President is David Sherman, our Chief Executive Officer and director, entered into a Purchase and Assignment and Assumption Agreement, as amended on December 28, 2022 (as amended, the “RiverPark Agreement”), with RiverPark Advisors, LLC (“RiverPark”) and Cohanzick, a RIA established by David Sherman, pursuant to which RiverPark intends to sell to CBA certain assets and CBA intends to assume certain liabilities, including certain rights and responsibilities under the RiverPark Advisory Agreement (as defined herein) and the RiverPark Expense Limitation Agreement (as defined herein) relating to the provision of investment advisory services for the mutual fund known as RiverPark Strategic Income Fund (the “RiverPark Fund”), subject to certain terms and conditions set forth in the RiverPark Agreement.

Pursuant to the RiverPark Agreement, there is no consideration to be paid upon Closing (as defined in the RiverPark Agreement); however, if the Closing occurs, CBA shall pay an amount approximately equal to 50% of the RiverPark Fund’s management fees (as set forth in the RiverPark Fund’s prospectus) to RiverPark (the RiverPark Fund’s current adviser) and Cohanzick (the RiverPark Fund’s current sub-adviser) for a period of three years after Closing, and pay an amount approximately equal to 20% of the RiverPark Fund’s management fees in the fourth and fifth years after Closing as set forth in the RiverPark Agreement. Notwithstanding the foregoing, certain of the amounts payable based on the RiverPark Fund’s management fees pursuant to the RiverPark Agreement during the first three years after the Closing shall be capped such that they are less than $1.3 million in the aggregate.

Pursuant to the RiverPark Agreement, CBA will endeavor to procure the approval (the “RiverPark Stockholder Approval”) by the board of trustees of the RiverPark Fund and by a vote of a majority of the outstanding voting securities of RiverPark Fund for CBA to assume (i) the advisory services role under that certain Amended and Restated Investment Advisory Agreement (the “RiverPark Advisory Agreement”) dated February 14, 2012 by and between RiverPark and RiverPark Funds Trust (“RiverPark Trust”) pursuant to which RiverPark provides investment advisory services to the RiverPark Fund or under an equivalent agreement with a successor to the Fund and (ii) the Operating Expense Limitation Agreement (“RiverPark Expense Limitation Agreement”) dated as of July 1, 2019 by and between RiverPark and RiverPark Trust or pursuant to an equivalent agreement with a successor to the RiverPark Fund. Furthermore, pursuant to the terms of the RiverPark Agreement, if a Closing occurs, the parties to the RiverPark Advisory Agreement and that certain Sub-Advisory Agreement dated as of August 1, 2012 by and among RiverPark, Cohanzick and the RiverPark Trust, on behalf of the RiverPark Fund, have agreed to terminate such agreements upon such Closing, and to make CBA a party to the RiverPark Expense Limitation Agreement or an equivalent agreement with a successor to the RiverPark Fund. Pursuant to the RiverPark Agreement, if the Closing does not occur prior to May 15, 2023, as such date may be extended by CBA for up to an additional 30 days (the “RiverPark Termination Date”), the RiverPark Agreement shall terminate, unless otherwise mutually agreed upon by the parties.

The RiverPark Agreement contains customary representations, warranties and agreements by the parties thereto and customary conditions to closing, including receipt of the RiverPark Stockholder Approval.

In connection with the RiverPark Agreement, Cohanzick and CBA intend to enter into an agreement which shall prohibit Cohanzick from competing with a substantially similar strategic income strategy as an adviser or sub- adviser to a fund registered under the Investment Company Act or any Undertakings for the Collective Investment in Transferable Securities products.

Intellectual Property

Our success depends in part on our ability to obtain and maintain intellectual property rights. To protect our intellectual property and proprietary rights we rely on a combination of trademarks as well as contractual restrictions on disclosure of confidential information with employees, consultants and other third parties. However, we cannot guarantee that such agreements and trademarks will provide us with sufficient protection or that we have entered into agreements restricting the disclosure of confidential information the with each party that has or may have had access to our confidential information.

As of March 22, 2023, CrossingBridge owns trademark registrations with the U.S. Patent & Trademark Office (“USPTO”) of CROSSINGBRIDGE and the CrossingBridge logo. In addition, the Company has filed applications to register ENDI and the ENDI logo with the USPTO, which applications are currently awaiting examination.

In addition, we reserve and register domain names when and where we deem appropriate. As of March 22, 2023, we owned 242 registered domain names.

Our success will depend on our ability to obtain, maintain, enforce and protect our intellectual property and proprietary rights and operate our business without infringing, misappropriating or otherwise violating any intellectual property or proprietary rights of third parties. However, there can be no assurance that our efforts will be successful. Even if our efforts are successful, we may incur significant costs in defending our intellectual property and proprietary rights or combating allegations by third parties. From time to time, we may be subject to legal proceedings or claims, or threatened legal proceedings or claims, including allegations of infringement, misappropriation or other violations of third-party intellectual property or proprietary rights.

Government Regulations

Asset management is a highly regulated business subject to numerous legal and regulatory requirements. These regulations are intended to protect customers whose assets are under management and, as such, may limit our ability to develop, expand or carry out our asset management business in the intended manner. In particular, CBA is required to act in the best interest of its clients. In addition, regulators have substantial discretion in determining what is in the best interest of a client and have increased their scrutiny of potential conflicts as well as the disclosure of such conflicts to an asset manager’s clients. Appropriately dealing with conflicts of interest is complex and if we fail, or appear to fail, to deal appropriately with any of these conflicts of interest, we may face reputational damage, litigation, regulatory proceedings, or penalties, fines or sanctions, any of which may have a material and negative impact on our asset management business.

It is very difficult to predict the future impact of the legislative and regulatory requirements affecting our business and our clients’ businesses. CBA is registered as an “investment adviser” with the SEC under the Investment Advisers Act and is regulated thereunder. The Investment Advisers Act and the Investment Company Act, together with related regulations and interpretations of the SEC, impose numerous obligations and restrictions on investment advisers and registered investment companies (including mutual funds and ETFs), including requirements relating to the safekeeping of client funds and securities, limitations on advertising, disclosure and reporting obligations, prohibitions on fraudulent activities, restrictions on certain transactions between an adviser and its clients, and between a registered investment company and its advisers and affiliates, and other detailed operating requirements, as well as general fiduciary obligations. All of the foregoing laws and regulations, as well as any other laws and regulations we are or may become subject to, are complex, and we are required to expend significant resources to monitor and maintain our compliance with such laws and regulations. Any failure on our part to comply with these and other applicable laws and regulations could result in regulatory fines, suspensions of personnel or other sanctions, including revocation of CBA’s registration as an investment adviser which would, among other things, have a material adverse effect on our results of operations, financial condition or business.

In addition to the foregoing, our business is subject to various federal, state, local and international laws and regulations. For example, the Federal Communications Commission frequently considers imposing new broadband-related regulations, and from time to time, imposing new regulatory obligations on ISPs. States and localities also consider new broadband-related regulations from time to time, including those regarding government-owned broadband networks, net neutrality and broadband affordability. New broadband regulations, if adopted, may have adverse effects on our business. In addition to the foregoing, a variety of state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, security, disclosure, transfer and other processing of personal and other data. Many of these laws are complex and change frequently and may conflict with the laws in other jurisdictions. Furthermore, we may in the future be subject to U.S. and international laws and regulations relating to freedom of expression, pricing, characteristics and quality of products and services, taxation and advertisements. As such, our business may be affected by the repeal, modification, or adoption of various laws and regulations that cover a wide range of issues at the international, federal, state, and local levels. Despite our best efforts to comply with these requirements, any noncompliance could result in, among other things, us incurring substantial penalties and sustaining reputational damage.

Employees

As of March 22, 2023, we employed 17 full-time individuals (11 through the CrossingBridge segment, two through the Willow Oak segment, two through the internet segment, and two through the other operations segments) and no part-time employees. We also utilize outside contractors as necessary to assist with consulting, technical support, and customer service. Our employees are not unionized, and we consider relations with employees to be good.

Available Information

The Company’s website address is www.endicorp.com. The contents of, or information accessible through, the Company’s website are not part of this Annual Report on Form 10-K, and the Company’s website address is included in this document as an inactive textual reference only. The Company makes its filings with the SEC, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, available free of charge on its website as soon as reasonably practicable after it files such reports with, or furnish such reports to, the SEC. The public may read and copy the materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that contains reports, proxy and information statements and other information. The address of the SEC’s website is www.sec.gov. The information contained in the SEC’s website is not intended to be a part of this filing.

ITEM 1A.     RISK FACTORS

Operational Risks Associated with the Business Combination

We may experience difficulties, unexpected costs and delays in integrating the businesses of CBA and Enterprise Diversified and may not realize synergies, efficiencies or cost savings from the Business Combination.

CBA and Enterprise Diversified operated independently prior to the consummation of the Business Combination. Our success depends in large part on our ability to integrate the two companies’ businesses, business models and cultures. In particular, asset management businesses such as Enterprise Diversified’s and CBA’s depend, to a large degree, on the efforts and performance of individual employees whose efforts and performance may be affected by any difficulties in the integration of the businesses. In the process of integrating CBA and Enterprise Diversified, CBA and Enterprise Diversified may experience difficulties, unanticipated costs and delays. The challenges involved in the integration may include:

The integration of certain operations is taking time and may continue to require the dedication of significant management resources, which may temporarily distract management’s attention from the ongoing businesses of our Company.

It is possible that the integration process could result in the loss of key employees, diversion of each company’s management’s attention, the disruption or interruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with clients and employees or the ability to achieve benefits related to the Business Combination, or could reduce our earnings or otherwise adversely affect our business and financial results. In addition, the ongoing integration may strain our financial and managerial controls and reporting systems and procedures. This may result in the diversion of management and financial resources from our core business objectives.

Even if CBA and Enterprise Diversified are able to integrate their businesses and operations successfully, there can be no assurance that this integration will result in any synergies, efficiencies or cost savings or that any of these benefits will be achieved within a specific time frame. Any of these factors could adversely affect our business and results of operations.

In certain circumstances, Cohanzick may pursue certain business opportunities with unrelated third parties that may compete with our business.

Pursuant to our Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”), Cohanzick will not be prohibited from pursuing business opportunities with unrelated third parties that may compete with our business, for which Cohanzick may receive compensation. Although, CrossingBridge and Cohanzick have entered into a Services Agreement pursuant to which Cohanzick agrees that during the term of the Services Agreement and, if terminated by Cohanzick, for a period of six months after termination, Cohanzick shall not begin to serve as the investment adviser or sub-adviser to any open end registered U.S. mutual fund or U.S. ETF governed under the Investment Company Act that pursues an investment strategy that is substantially similar to any investment strategy provided by CrossingBridge or its affiliates to any of their clients, without the written consent of CrossingBridge, this restriction shall not apply to any existing clients of Cohanzick as of the date of execution of the Services Agreement or for any period after such restriction terminates.

We may be deemed an investment company in the future, which could impose on us burdensome compliance requirements and restrict our activities.

Under the Investment Company Act, and absent an applicable exemption, a company will generally be deemed an investment company under section 3(a)(1)(C) of the Investment Company Act if the value of its investment securities is more than 40% of its total assets (exclusive of government securities and cash items) on an unconsolidated basis. While we do not believe that we are deemed to be an investment company as a result of the consummation of the Business Combination, if we are deemed to be an investment company it could result in us becoming subject to the registration and other requirements of the Investment Company Act, unless we qualify for an applicable exemption, which would impose significant compliance and other costs and expenses.

The rules and interpretations of the SEC and the courts relating to the definition of “investment company,” “investment securities,” and potential applicable exemptions are complex. We intend to continue our business to ensure that it does not fall within the Investment Company Act’s definition of “investment company” under applicable SEC and court interpretations. However, we can provide no assurance that the SEC or a court would not take the position that we would be required to register under the Investment Company Act and comply with the Investment Company Act’s registration and reporting requirements, capital structure requirements, affiliate transaction restrictions, conflict of interest rules, requirements for disinterested directors and other substantive provisions. If we were to become an “investment company” and be subject to the restrictions of the Investment Company Act, those restrictions would likely require changes in the way we conduct our business and add significant administrative burdens to our operations. To ensure that we do not fall within the Investment Company Act, we may need to take various actions which we may otherwise not pursue.

Risks Related to Our Business

Changes in the value levels of the assets may cause CBA’s AUM, revenue and earnings to decline. If CBA were to lose a significant amount of its AUM, revenue would decrease.

CBA’s asset management business is primarily comprised of fees based on a percentage of the value of AUM and, in some cases, performance fees which are normally expressed as a percentage of returns to the client. Numerous factors, including price movements in the assets in the markets in which we manage assets, could cause:

The occurrence of any of these events may cause CBA’s AUM, revenue and earnings, if any, to decline and may negatively impact the success of our asset management business, results of operations and financial condition.

CBA is the adviser to four registered investment companies. The combined AUM for these advised funds was approximately $614 million and $514 million as of December 31, 2022 and 2021, respectively. CBA is also the sub-adviser to two Investment Company Act registered mutual funds with AUM totaling approximately $664 million and $855 million as of December 31, 2022 and 2021, respectively. The gross revenue from the advised funds totaled approximately $4.3 million and $1.6 million for the years ended December 31, 2022 and 2021, respectively, and gross revenue from the sub-advised funds totaled approximately $2.7 million for the years ended December 31, 2022 and 2021, respectively. If CBA were to lose a significant amount of its assets under management, CBA’s revenue would also decrease which would negatively impact our results of operations and financial condition.

Increased competition may cause CBA’s AUM, revenue and earnings to decline.

The asset management industry is highly competitive and has relatively low barriers to entry. CBA competes based on a number of factors including: investment performance, the level of fees charged, the quality and diversity of services and products provided, name recognition and reputation, and the ability to develop new investment strategies and products to meet the changing needs of investors. In addition, the introduction of new technologies, as well as regulatory changes, may significantly alter the competitive landscape for investment managers. This could lead to fee compression or require us to spend more to modify or adapt our product offerings to attract and retain customers and remain competitive with products and services offered by new competitors in the industry. Increased competition on the basis of any of these factors, including competition leading to fee reductions, may cause CBA’s AUM, revenue and earnings to decline and materially and negatively impact the success of our asset management business and affect our overall business, results of operations and financial condition.

The success of the asset management business depends in part on its key personnel and loss of key personnel could adversely affect business. 

The success of CBA and Enterprise Diversified’s asset management business depends on its ability to attract and retain qualified portfolio managers and other key personnel. Competition in recruiting and retaining these personnel may make it difficult for CBA or Enterprise Diversified to continue its growth and success. The loss of their services or the inability in the future to attract and retain portfolio managers and other key personnel could hinder the implementation of their strategy. In addition, the loss of the services of David Sherman, CBA’s founder and Chief Executive Officer, and our Chief Executive Officer and director, may materially adversely affect our business.

The success of the launch of new funds depends on their growth, and the lack of growth may impact CBA’s results of operations.

During 2021, CBA launched three new funds, the CrossingBridge Ultra-Short Duration Fund, the CrossingBridge Responsible Credit Fund and the CrossingBridge Pre-Merger SPAC ETF, each of which has limited operating history. As a result, prospective investors have a limited track record on which to base their investment decisions. There is also a risk that one or more of these new funds will not grow or maintain an economically viable size, in which case they could ultimately liquidate without stockholder approval, which could negatively impact our results of operations and financial condition.

We may be exposed to business risks as a result of our internet operations.

Our Internet operations are subject to risks, including rapid technological change and the implementation of new systems and platforms; problems associated with the operation, security and availability of third-party infrastructure and our internet access, hosting, and storage systems; computer malware; electronic break-ins and similar disruptions. The failure of our systems to perform as expected could result in disruptions and costs to our operations and could adversely affect our business, financial condition, results of operations, and/or cash flows.

Cybersecurity incidents and other issues related to our information systems, technology and data may materially and adversely affect us.

Cybersecurity incidents and cyberattacks have been occurring globally at a more frequent and severe level and will likely continue to increase in frequency in the future. The information and technology systems used by us and our service providers, and other third parties, are vulnerable to damage or interruption from, among other things: hacking, ransomware, malware and other computer viruses; denial of service attacks; network failures; computer and telecommunication failures; phishing attacks; infiltration by unauthorized persons; security breaches; usage errors by their respective professionals; power outages; terrorism; and catastrophic events such as fires, tornadoes, floods, hurricanes and earthquakes.

We may become subject to intellectual property disputes, which may be costly and may subject us to significant liability and increased costs of doing business.

We may become subject to actual and threatened legal proceedings, claims and counterclaims, including allegations relating to infringement of the intellectual property and proprietary rights of third parties. Our success depends, in part, on our ability to operate without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third parties. However, we may not be aware or we may disagree that our products or services are infringing, misappropriating or otherwise violating third-party intellectual property rights and such third parties may bring claims alleging such infringement, misappropriation or violation. Lawsuits are often time-consuming and expensive to resolve and they may divert management’s time and attention. We cannot predict the outcome of lawsuits and cannot ensure that the results of any such actions will not have an adverse impact on our business, financial condition or results of operations.

We may be materially adversely affected by health epidemics such as COVID-19.

The outbreak of COVID-19 evolved into a global pandemic as COVID-19 spread to many regions of the world. The extent to which COVID-19 impacts our business and operating results may continue to depend on future developments that are uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, including variants, and the actions to contain COVID-19 or treat its impact, among others. For example, as a result of COVID-19, much of the world instituted stay-at-home orders, restrictions on travel, bans on public gatherings, the closing of non-essential businesses or limiting their hours of operation and other restrictions on businesses and their operations, which adversely impacted global commercial activity and contributed to significant volatility and a downturn in global financial markets.

The spread of COVID-19, which caused a broad impact globally may have a material economic effect on our business. While the potential economic impact brought by the pandemic may be difficult to assess or predict, it has already caused, and may result in further, disruption of global financial markets, which may reduce our ability to access capital either at all or on favorable terms. In addition, a recession, depression or other sustained adverse market event resulting from COVID-19 could materially and adversely affect our business and the value of our common stock. The ultimate impact of the COVID-19 pandemic, or any other health epidemic, is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business or the global economy as a whole. However, these effects could have a material impact on our operations.

Risks Related to the Proposed Acquisition of RiverPark Strategic Income Fund

The announcement of the proposed RiverPark Strategic Income Fund acquisition could disrupt our relationships with our customers, business partners and others, as well as our operating results and business generally.

Whether or not the RiverPark Fund acquisition and related transactions are ultimately consummated, as a result of uncertainty related to the proposed transactions, risks related to the impact of the announcement of the acquisition on our business may include the following:

In addition, David Sherman, our Chief Executive Officer and director, is the President of CBA and the founder of Cohanzick, both of which are parties to the RiverPark Agreement, and as such, he may have interests that are in addition to the interests of our stockholders.

If any of the aforementioned risks were to materialize, they could lead to significant costs which may have a material adverse effect on our results of operations.

If completed, the RiverPark Fund acquisition may not be successful or achieve its anticipated benefits.

If the RiverPark Fund acquisition is completed, we may not be able to successfully realize anticipated growth opportunities and synergies. In addition, upon the completion of the acquisition, CBA will assume certain liabilities of and take on other obligations of RiverPark as set forth in the RiverPark Agreement. We may not successfully or cost-effectively integrate the RiverPark Fund’s business and operations with our business and operations. Even if we are able to integrate the combined businesses and operations successfully, this integration may not result in the realization of the full benefits of the synergies and other opportunities that we currently expect from the acquisition within the anticipated time frame, or at all. The RiverPark Fund may not increase its AUM over time as quickly as currently expected and the RiverPark Expense Limitation Agreement may cause CBA to bear greater costs than currently expected.

Risks Related to Government Regulations

The financial services industry is subject to government regulation in the United States, and our failure to comply with these regulations or regulatory action against us could adversely affect our results of operations, financial condition or business.

The financial services industry is among the most extensively regulated industries in the United States. We are subject to numerous state and federal laws and regulations of general application. It is very difficult to predict the future impact of the legislative and regulatory requirements affecting our business and our clients’ businesses. CBA is registered as an “investment adviser” with the SEC under the Investment Advisers Act and is regulated thereunder. The Investment Advisers Act and the Investment Company Act, together with related regulations and interpretations of the SEC, impose numerous obligations and restrictions on investment advisers and registered investment companies (including mutual funds and ETFs), including requirements relating to the safekeeping of client funds and securities, limitations on advertising, disclosure and reporting obligations, prohibitions on fraudulent activities, restrictions on certain transactions between an adviser and its clients, and between a registered investment company and its advisers and affiliates, and other detailed operating requirements, as well as general fiduciary obligations. All of the foregoing laws and regulations, as well as any other laws and regulations we are or may become subject to, are complex and we are required to expend significant resources to monitor and maintain our compliance with such laws and regulations. Any failure on our part to comply with these and other applicable laws and regulations could result in regulatory fines, suspensions of personnel or other sanctions, including revocation of CBA’s registration as an investment adviser which would, among other things, have a material adverse effect on our results of operations, financial condition or business.

The Investment Advisers Act effectively requires client consent for any assignment of an investment advisory contract. Under the Investment Advisers Act and rules and guidance promulgated thereunder, an assignment includes a change of control of a registered investment adviser. With respect to clients that are registered investment companies, generally client consent requires consent of the board of directors or equivalent governing body of each registered investment company and the consent of the stockholders of the fund. We believe that the Mergers and related transactions did not constitute a change of control of CBA under the Investment Advisers Act and therefore are not an assignment of CBA’s investment advisory contracts. Therefore, we have not sought the consent of CBA’s clients. If the Mergers and related transactions are deemed to be an assignment under the Investment Advisers Act, we would likely need to seek the consent of CBA’s clients, which may require a lengthy and costly stockholder voting process. CBA may also lose AUM, be subject to regulatory fines or be subject to other material adverse effects on our results of operations, financial condition or business.

The asset management business is highly regulated.

Asset management is a highly regulated business subject to numerous legal and regulatory requirements. These regulations are intended to protect customers whose assets are under management and, as such, may limit our ability to develop, expand or carry out our asset management business in the intended manner. In particular, we are required to act in the best interest of our clients. In addition, regulators have substantial discretion in determining what is in the best interest of a client and have increased their scrutiny of potential conflicts as well as the disclosure of such conflicts to an asset manager’s clients. Appropriately dealing with conflicts of interest is complex and if we fail, or appear to fail, to deal appropriately with any of these conflicts of interest, we may face reputational damage, litigation, regulatory proceedings, or penalties, fines or sanctions, any of which may have a material and negative impact on our asset management business. In addition, to the extent that we are required to obtain client or investor consent in connection with any potential conflict, any failure or delay in obtaining such consent may have a material and negative impact on our ability to take advantage of certain business opportunities.

Further, Cohanzick actively manages mutual funds, private funds and separate accounts pursuant to various investment management and other similar agreements. CBA is not a party to these agreements. Counterparties to such agreements could claim that CBA should also be deemed a party and if successful, CBA could have contingent liabilities resulting from the actions or omissions of Cohanzick.

Risks Related to Our Common Stock

The price of our Class A Common Stock may fluctuate substantially which may affect the value of an investment in our Class A Common Stock.

You should consider an investment in our Class A Common Stock to be risky, and you should invest in our Class A Common Stock only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our Class A Common Stock to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K as well as the risk factors disclosed in our other reports filed with the SEC from time to time, are:

The securities market has, from time to time, experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. In a volatile market, we may experience wide fluctuations in the market price of our Class A Common Stock. If the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our Class A Common Stock could decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

Unstable market and economic conditions and adverse developments with respect to financial institutions and associated liquidity risk may have serious adverse consequences on our business, financial condition and stock price.

The global credit and financial markets have recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, inflationary pressure and interest rate changes, increases in unemployment rates and uncertainty about economic stability. The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including the conflict between Russia and Ukraine, terrorism or other geopolitical events. Sanctions imposed by the United States and other countries in response to such conflicts, including the one in Ukraine, may also adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability. More recently, the closures of Silicon Valley Bank and Signature Bank and their placement into receivership with the Federal Deposit Insurance Corporation (“FDIC”) created bank-specific and broader financial institution liquidity risk and concerns. Although the Department of the Treasury, the Federal Reserve, and the FDIC jointly confirmed that depositors at SVB and Signature Bank would continue to have access to their funds, even those in excess of the standard FDIC insurance limits, under a systemic risk exception, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access near-term working capital needs, and create additional market and economic uncertainty. There can be no assurance that future credit and financial market instability and a deterioration in confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, liquidity shortages, volatile business environment or continued unpredictable and unstable market conditions. If the equity and credit markets deteriorate, or if adverse developments are experienced by financial institutions, it may cause short-term liquidity risk and also make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon our business plans. In addition, there is a risk that one or more of our current clients, financial institutions or other third parties with whom we do business may be adversely affected by the foregoing risks, which may have an adverse effect on our business.

Our management owns a significant percentage of our common stock and will be able to exert significant control over matters subject to stockholder approval.

As of March 22, 2023, our executive officers, directors and their affiliates beneficially owned 3,509,923 shares of our Class A Common Stock, representing approximately 74.0% of our outstanding shares of Class A Common Stock (including the shares of Class A Common Stock issuable upon exercise of the Class W-1 and Class W-2 Warrant), and 1,800,000 shares of our Class B Common Stock, representing 100.0% of our outstanding shares of Class B Common Stock. Of such shares, Cohanzick beneficially owns 2,400,000 shares of our Class A Common Stock and 1,800,000 shares of our Class B Common Stock, representing approximately 59.2% of our outstanding shares of Class A Common Stock (including the shares of Class A Common Stock issuable upon exercise of the Class W-1 and Class W-2 Warrant) and 100.0% of our outstanding shares of Class B Common Stock. David Sherman, our Chief Executive Officer and director, is the Managing Member of Cohanzick and owns approximately 71% of Cohanzick. In addition, Steven Kiel, a director, beneficially owns 754,015 shares of our Class A Common Stock (including the shares of Class A Common Stock issuable upon exercise of the Class W-1 and Class W-2 Warrant), representing approximately 13.8% of our outstanding shares of Class A Common Stock. Until the earlier of such date that (i) Mr. Kiel is no longer our director or (ii) neither Cohanzick nor any holder of our Class B Common Stock shall have the right to designate a director pursuant to the Voting Agreement. Mr. Kiel and the entities controlled by him have agreed to vote and cause their affiliate to vote in such manner as may be necessary to vote for the Class B Common Stock director designee. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control, merger, consolidation, takeover or other business combination of our Company. This concentration of ownership could also discourage a potential acquiror from making a tender offer or otherwise attempting to obtain control of our Company, which could in turn have an adverse effect on the market price of securities. These stockholders, acting together, would be able to significantly influence all matters requiring stockholder approval. For example, these stockholders would be able to significantly influence elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction and the interests of these stockholders may be different from your interests.

Future sales, or the perception of future sales, of shares of Class A Common Stock could cause the market price for our shares of Class A Common Stock to decline.

The sale of substantial amounts of shares of our Class A Common Stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A Common Stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

As of March 22, 2023, 5,468,133 shares of Class A Common Stock are issued and outstanding. All 2,647,383 shares of Class A Common Stock issued in exchange for historical Enterprise Diversified, Inc. outstanding common shares in the Business Combination are freely tradable without registration under the Securities Act and without restriction by persons other than our “affiliates” (as defined under Rule 144 of the Securities Act, referred to herein as “Rule 144”), including our directors, executive officers and other affiliates. In addition, certain shares of our Class A Common Stock held by certain of our stockholders that are our affiliates are eligible for resale, subject to volume, manner of sale and other limitations under Rule 144. Furthermore, we have agreed to file a resale registration statement under the Securities Act on or before May 1, 2023 registering certain shares of our Class A Common Stock (including shares of our Class A Common Stock issuable upon exercisable of certain securities). Upon effectiveness of such registration statement, such shares of Class A Common Stock may be freely sold in the public market.

Sales of a large number of shares of our Class A Common Stock or the perception that such sales could occur could cause the market price of the our Class A Common Stock to decline.

We have not historically paid cash dividends on our shares of our Class A Common Stock so any returns may be limited to the value of our shares.

To date, we have not paid any cash dividends on our capital stock. We intend to periodically review our policy for issuing dividends as a potential method for returning value to our stockholders. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors that our board of directors deems relevant. Therefore, any return to stockholders may be limited to the increase, if any, of our share price.

Financial reporting obligations of being a public company in the United States are expensive and time-consuming, and our management will be required to devote substantial time to compliance matters.

As a publicly traded company we incur significant legal, accounting and other expenses. The obligations of being a public company in the United States require significant expenditures and place significant demands on our management and other personnel, including costs resulting from public company reporting obligations under the Exchange Act and the rules and regulations regarding corporate governance practices, including, but not limited to, those under Sarbanes-Oxley, the Dodd-Frank Wall Street Reform and Consumer Protection Act. These rules require the establishment and maintenance of effective disclosure and financial controls and procedures, internal control over financial reporting and changes in corporate governance practices, among many other complex rules that are often difficult to implement, monitor and maintain compliance with. Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements and to keep pace with new regulations, otherwise we may fall out of compliance and risk becoming subject to litigation, among other potential problems.

Our Class A Common Stock is and may continue to be subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.

Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience and objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our Class A Common Stock and cause a decline in the market value of our Class A Common Stock.

Failure to maintain effective internal controls could cause our investors to lose confidence in us and adversely affect the market price of our Class A Common Stock. If our internal controls are not effective, we may not be able to accurately report our financial results or prevent fraud.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. In connection with the audit of our financial statements for the year ended December 31, 2022, our independent registered public accounting firm identified material weaknesses. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal controls over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses that have been identified by our independent registered public accounting firm relate to segregation of duties and the financial close and reporting process. While we intend to take steps to remediate the material weaknesses in our internal control over financial reporting by developing a phased approach that is intended to increase the effectiveness of the design and operation of our financial reporting controls and processes, we may not be successful in remediating such weaknesses in a timely manner, if at all, which may undermine our ability to provide accurate, timely and reliable reports on our financial and operating results. Furthermore, if we remediate our current material weaknesses but identify new material weaknesses in our internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A Common Stock may be negatively affected. As a result of such failures, we could also become subject to investigations by the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management resources from our business.

Our Certificate of Incorporation designates the Court of Chancery of the State of Delaware or the federal district courts of the United States of America, as applicable, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

Our Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (“Court of Chancery”) will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of our Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim governed by the internal affairs doctrine as that doctrine exists under the law of the State of Delaware.

Our Certificate of Incorporation further provides that, to the fullest extent permitted by law, the federal district courts of the United States of America is the exclusive forum for the resolution of any complaint asserting a cause of action arising under the federal securities laws of the United States, including the Securities Act or the Exchange Act, in each case, the applicable rules and regulations promulgated thereunder. There is uncertainty as to whether a court would enforce such provision in connection with suits to enforce a duty or liability created by the Securities Act or the Exchange Act if brought derivatively on our behalf, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

Any person or entity purchasing or otherwise acquiring any interest in shares of our Company will be deemed to have notice of, and consented to, the provisions of our Certificate of Incorporation. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes with us or our directors, officers, or other employees and may result in increased costs to our stockholders, which may discourage such lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of operations.

Our Certificate of Incorporation, our Amended and Restated Bylaws, and Delaware law may have anti-takeover effects that could discourage, delay or prevent a change in control, which may cause our stock price to decline.

Our Certificate of Incorporation, our Amended and Restated Bylaws, and Delaware law could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are authorized to issue up to 2,000,000 shares of preferred stock, none of which are outstanding as of March 22, 2023. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.

Provisions of our Certificate of Incorporation, our Amended and Restated Bylaws and Delaware law also could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, our Certificate of Incorporation, our Amended and Restated Bylaws and Delaware law, as applicable, among other things:

ITEM 1B.     UNRESOLVED STAFF COMMENTS

None.

ITEM 2.     PROPERTIES

The Company’s principal office is located at 2400 Old Brick Road, Suite 115, Glen Allen, Virginia 23060. The Company leases its office space for $1,050 per month pursuant to a membership agreement. The membership agreement terminates on August 14, 2023, unless terminated earlier or otherwise extended pursuant to the terms thereof. The principal office of our CrossingBridge operations segment is located at 427 Bedford Road, Suite 220, Pleasantville, New York 10570. The Company currently leases such office space for $5,498 per month, subject to adjustment, pursuant to a license agreement which terminates on August 10, 2023; provided, however, the term of such agreement will automatically renew for subsequent one year terms unless otherwise earlier terminated pursuant to the terms thereof. In addition to the foregoing, the Company also owns interests in two undeveloped lots located in Roanoke, Virginia. The Company believes that its existing facilities are suitable and adequate to meet its current needs. The Company may add new facilities or expand existing facilities as it adds employees, and it believes that suitable additional or substitute space will be available as needed to accommodate any such expansion of its operations.

ITEM 3.     LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. Except as set forth below, we are not currently aware of any other legal proceedings to which the Company is party.

Enterprise Diversified, Inc. (f/k/a Sitestar Corporation) v. Frank Erhartic, Jr.

On April 12, 2016, Enterprise Diversified filed a civil action complaint against Frank Erhartic, Jr. (the “Former CEO”), Enterprise Diversified’s former CEO and director (prior to December 14, 2015) and an owner of record of Enterprise Diversified’s common stock, alleging, among other things, that the Former CEO engaged in, and caused Enterprise Diversified to engage in, to its detriment, a series of unauthorized and wrongful related party transactions, including: causing Enterprise Diversified to borrow certain amounts from the Former CEO’s mother unnecessarily and at a commercially unreasonable rate of interest; converting certain funds of Enterprise Diversified for personal rent payments to the Former CEO; commingling in land trusts certain real properties owned by Enterprise Diversified and real properties owned by the Former CEO; causing Enterprise Diversified to pay certain amounts to the Former CEO for lease payments under an unauthorized lease as to a storage facility owned by the Former CEO; causing Enterprise Diversified to pay rent on its corporate headquarters owned by the Former CEO’s ex-wife in amounts commercially unreasonable and excessive, and making real estate tax payments thereon for the personal benefit of the Former CEO; converting to the Former CEO and/or absconding with five motor vehicles owned by Enterprise Diversified; causing Enterprise Diversified to pay real property and personal property taxes on numerous properties owned personally by the Former CEO; causing Enterprise Diversified to pay personal credit card debt of the Former CEO; causing Enterprise Diversified to significantly overpay the Former CEO’s health and dental insurance for the benefit of the Former CEO; and causing Enterprise Diversified to pay the Former CEO’s personal automobile insurance. Enterprise Diversified is seeking, among other relief available, monetary damages in excess of $350,000. This litigation matter is currently pending in the Circuit Court for the City of Lynchburg (Lynchburg, Virginia), and is set and scheduled for trial on September 14, 2023. During and subsequent to the year ended December 31, 2022, the parties engaged in settlement discussions with respect to the case; however, the parties have thus far been unsuccessful in reaching an agreement. Enterprise Diversified intends to move forward with a trial of the case to conclusion should the parties fail to reach a settlement agreement.

ITEM 4.     MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our Class A Common Stock is quoted on the OTCQB tier of the OTC Markets Group, Inc. under the symbol “ENDI.” Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Our Class B Common Stock is not listed on any stock exchange nor traded on any public market.

Stockholders

As of March 22, 2023, we had approximately 125 stockholders of record of our Class A Common Stock. The actual number of holders of our Class A Common Stock is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers or held by other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities. As of March 22, 2023, we had one stockholder of record of our Class B Common Stock.

Dividends

To date, we have not paid any cash dividends on our capital stock. We intend to periodically review our policy for issuing dividends as a potential method for returning value to our stockholders. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors that our board of directors deems relevant.

Recent Sales of Unregistered Securities

None.

ITEM 6.     [RESERVED]

ITEM 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section is intended to provide readers of our financial statements information regarding our financial condition, results of operations, and items that management views as important. The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related footnotes as of and for the year ended December 31, 2022 appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K. The discussion of results, causes, and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future. Additionally, it should be noted that a uniform comparative analysis cannot be performed for all segments, as a segment’s limited financial history or restructuring results in less comparable financial performance. As a result of the Business Combination that was consummated on August 11, 2022, and the determination that the Business Combination would be accounted for as a reverse business combination, all historic activity for the year ended December 31, 2021 represents only the financial activity of CrossingBridge Advisors, LLC. Activity presented for the year ended December 31, 2022, includes CrossingBridge financial activity, which has been consolidated with the activity of Enterprise Diversified, Inc. and its subsidiaries as of August 11, 2022 through the year ended December 31, 2022. All amounts are in U.S. dollars, unless otherwise noted.

Overview

During the year ended December 31, 2022, ENDI Corp. operated through the following four reportable segments:

The management of the Company also continually reviews various business opportunities for the Company, including those in other lines of business.

Summary of Financial Performance

Stockholders’ equity increased from $591,909 at December 31, 2021 to $20,382,693 at December 31, 2022. This change was primarily attributed to transactions that occurred as part of the Business Combination, which represented an increase of additional paid in capital of $20,217,472. This change was also attributable to $3,288,940 of net income in the CrossingBridge operations segment for the year ended December 31, 2022, $96,324 of net income in the internet operations segment, a net loss of $112,058 in the Willow Oak operations segment, and a net loss of $890,621 in other segments for the Post-Merger period from August 12, 2022 through December 31, 2022. Corporate expenses for the Post-Merger period from August 12, 2022 through December 31, 2022 included in the net loss from other operations totaled $2,131,102. Total comprehensive net income for all segments for the year ended December 31, 2022 was $2,382,585. Additionally, prior to the Closing Date, CBA issued $2,809,578 of distributions to its historical sole member, Cohanzick.

Balance Sheet Analysis

This section provides an overview of changes in our assets, liabilities, and equity and should be read together with our accompanying consolidated financial statements, including the accompanying notes to the financial statements included elsewhere in this Annual Report on Form 10-K. The table below provides a balance sheet summary for the periods presented and is designed to provide an overview of the balance sheet changes from quarter to quarter. Ending balances for Enterprise Diversified and its subsidiaries have been consolidated as of the quarterly period ended September 30, 2022, the period in which the Mergers occurred.

As of the year ended December 31, 2022, the Company reported an increase in cash and cash equivalents of approximately $9.4 million, an increase in investments in securities at fair value of approximately $3.6 million, a combined increase in net intangible assets and goodwill of approximately $2.0 million, and an increase in net deferred tax assets of approximately $1.4 million when compared to the year ended December 31, 2021. As of December 31, 2022, the Company also reported a decrease of approximately $3.4 million in its due to affiliate balance and an increase of approximately $0.6 million in its liability associated with the issuance of the Class W-1 Warrant and Class B Common Stock when compared to the year ended December 31, 2021. These period-over-period changes are largely due to the purchase accounting of the Business Combination and the consolidation of the assets and liabilities of Enterprise Diversified.

Results of Operations

CrossingBridge Operations

Revenue attributed to the CrossingBridge operations segment for the year ended December 31, 2022 was $7,271,332, representing an increase of $2,984,247 compared to the year ended December 31, 2021. This increase was primarily due to a corresponding increase in the AUM of CrossingBridge’s advised funds year over year as well as the current year revenue attributed to its service agreement with Cohanzick. The increase in revenue was offset by an increase of $1,205,781 in operating expenses, which totaled $3,998,003 for the year ended December 31, 2022. The increase in operating expenses for the year ended December 31, 2022, compared to the year ended December 31, 2021, was primarily associated with an increase in employee compensation expenses and mutual fund expenses. Net profit margin increased from 35% for the year ended December 31, 2021 to 45% for the year ended December 31, 2022. This was largely due to the increase in AUM of advised funds and corresponding increase in revenue.

Compensation and related costs are typically comprised of salaries, bonuses, and benefits. Salary compensation and bonuses are generally the largest expenses for the CBA segment. Bonuses are subjective and based on individual performance, the underlying funds’ performance, and profitability of the firm, as well as the consideration of future outlook. Compensation and related costs increased by $1,076,288 for the year ended December 31, 2022 compared to the year ended December 31, 2021. This increase was due to an increase in allocated compensation expenses from Cohanzick due to the relative increase in the CBA funds’ AUM for current year monthly periods compared to monthly periods for the prior year as well as expenses for a full year for three employees that were hired during 2021. Compensation expense can fluctuate period over period as management evaluates investment performance, individual performance, Company performance, and other factors.

Mutual fund expenses increased by $161,144 for the year ended December 31, 2022 compared to the year ended December 31, 2021. This increase was due to the relative increase of AUM in CBA’s advised mutual funds year over year. Travel and entertainment expenses increased by $71,046 for the year ended December 31, 2022 compared to the year ended December 31, 2021. This increase was substantially due to increased travel opportunities in the year ended December 31, 2022 as in-person meetings started returning to pre-pandemic levels.

CBA expects that its net margin will fluctuate from period to period based on various factors, including: revenues, investment results, and the development of investment strategies, products, and/or channels.

The table below provides a summary of income statement amounts over time. These figures are specific to the CrossingBridge operations segment and are presented for the annual and quarterly periods designated below.

Assets Under Management

CBA derives its revenue from its investment advisory fees. Investment advisory fees paid to CBA are based on the value of the investment portfolios it manages and fluctuate with changes in the total value of its AUM.

CBA’s revenues are highly dependent on both the value and composition of AUM. The following is a summary of CBA’s AUM by product and investment strategy, as of December 31, 2022 and December 31, 2021.

CrossingBridge Low Duration High Yield Fund (in dollars)

CrossingBridge Ultra-Short Duration Fund (in dollars)

CrossingBridge Responsible Credit Fund (in dollars)

CrossingBridge Pre-Merger SPAC ETF (in dollars)

Destinations Low Duration Fixed Income Fund (in dollars)

Destinations Global Fixed Income Opportunities Fund (in dollars)

In the tables above, gross inflows include reinvested dividends and gross outflows include dividends paid/withdrawn from the funds.

Total CBA AUM decreased by approximately $91 million from December 31, 2021 compared to December 31, 2022, however, this decrease was exclusively in CBA’s sub-advised mutual funds, which earn a proportionally lower fee rate than its advised funds. This net AUM decrease consisted of approximately $89 million of net outflows and $2 million of net losses and capital losses, which were retained within the funds.

Performance

Although performance is a key metric to measure an advisor’s success, there are other metrics that CBA believes are more meaningful to its investors, including downside protection during difficult environments, sensitivity to rising interest rates, upside/downside capture, and the risk-adjusted return. Although CBA does not manage to benchmarks, CBA does provide benchmarks to investors as a frame of reference, which are set forth below:

With respect to both Destinations Low Duration Fixed Income Fund and Destinations Global Fixed Income Opportunities Fund (collectively, the “Destination Funds”), CBA serves as one sub-adviser as part of a manager of managers strategy. As one of many sub-advisers, CBA does not select the benchmarks, and does not have a license to use, the benchmark performance information for the Destination Funds. CBA believes that the benchmark performance information is not material in this context because CBA’s advisory services with respect to the Destination Funds involves only a portion of the assets of the Destination Funds while the benchmarks are selected as an appropriate comparison based on the entire portfolio of the Destination Funds across all of the relevant sub-advisers.

Willow Oak Operations

Beginning Post-Merger, the Company operates its Willow Oak operations business through its wholly owned subsidiaries, Willow Oak Asset Management, LLC, Willow Oak Capital Management, LLC, Willow Oak Asset Management Affiliate Management Services, LLC, and Willow Oak Asset Management Fund Management Services, LLC. Willow Oak generates its revenue through various fee share agreements with private investment firms and partnerships in exchange for providing its fund management services. Willow Oak does not manage, direct, or invest any capital itself, but rather earns fee shares based on the AUM and periodic performance of the investment firms and partnerships with which it partners. Fee shares earned on AUM, management fee shares, and fund management services revenue are recognized and recorded on a monthly or quarterly basis in alignment with the underlying terms of each investment partnership. Revenue fee shares earned on performance are recognized and recorded only when the underlying investment partnership’s performance crystalizes, which is typically on an annual, calendar-year basis. As performance fee shares are based on investments returns, these fee shares have the potential to be highly variable.

During the Post-Merger period from August 12, 2022 through December 31, 2022, the Willow Oak operations segment generated $61,499 of revenue. Operating expenses totaled $172,865 and other expenses were $692. Willow Oak’s net loss for the Post-Merger period from August 12, 2022 through December 31, 2022 totaled $112,058. Compensation and related costs represent Willow Oak’s most significant operating expense during the Post-Merger period.

The table below provides a summary of income statement amounts for Willow Oak, which are included in the consolidated statements of operations for the Post-Merger period from August 12, 2022 through December 31, 2022.

(a) Activity for the quarterly period includes only activity Post-Merger through the end of the quarterly period.

No comparable activity is available or included for the Willow Oak operations segment for periods presented prior to August 12, 2022 because the Willow Oak operations were not part of CBA pre-merger. See Note 4 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.

Internet Operations

Revenue attributed to the internet operations segment during the Post-Merger period from August 12, 2022 through December 31, 2022 totaled $305,680 and cost of revenue totaled $103,843. Operating expenses for the segment totaled $105,115 for the Post-Merger period from August 12, 2022 through December 31, 2022 and other expenses totaled $398. Total net income for the internet operations segment was $96,324 for the Post-Merger period from August 12, 2022 through December 31, 2022.

As of December 31, 2022, the internet operations segment has a total of 5,723 customer accounts across the U.S. and Canada. As of December 31, 2022, approximately 92% of our customer accounts are U.S.-based, while 8% are Canada-based. During the Post-Merger period from August 12, 2022 through December 31, 2022, approximately 52% of our revenue was driven by internet access services, with the remaining 48% being earned though web hosting, email, and other web-based services.

Revenue generated by our U.S. customers totaled $291,472, and revenue generated by our Canadian customers totaled $14,208 during the Post-Merger period from August 12, 2022 through December 31, 2022.

The table below provides a summary of income statement amounts for the internet operations segment, which are included in the consolidated statements of operations for the Post-Merger period from August 12, 2022 through December 31, 2022.

(a) Activity for the quarterly period includes only activity Post-Merger through the end of the quarterly period.

No comparable activity is available or included for the internet operations segment for periods presented prior to August 12, 2022 because internet operations were not part of CBA pre-merger. See Note 4 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.

Other Operations

During the Post-Merger period from August 12, 2022 through December 31, 2022, the Company’s other operations segment did not produce any revenue or cost of sales. Operating expenses totaled $2,153,767 and other income totaled $1,263,146. Corporate operating expenses accounted for $2,131,102 of reported operating expenses for our other operations segment. Included in corporate operating expenses reported for the period are $881,755 of non-cash stock compensation expenses incurred in conjunction with the Business Combination. These expenses were associated with the issuance of Class A Common Stock and the Class W-2 Warrant to purchase shares of the Company’s Class A Common Stock (“Class W-2 Warrant” or “W-2 Warrant”). During the Post-Merger period from August 12, 2022 through December 31, 2022, the other operations segment also reported transaction expenses incurred as part of the Business Combination totaling $470,329. These transaction expenses were offset by $900,000 of other income reported as part of the Company’s periodic revaluation of its liability associated with the Class W-1 Warrant and Class B Common Stock. This resulted in a net loss of $890,621 for the other operations segment for the Post-Merger period from August 12, 2022 through December 31, 2022.

Included in corporate operating expenses for the Post-Merger period from August 12, 2022 through December 31, 2022 were $439,472 of professional expenses related to legal, accounting, and consulting services, as well as $237,638 of compensation related expenses.

During the Post-Merger period from August 12, 2022 through December 31, 2022, the Company reported $191,678 of income tax benefit related to the current year change in the Company’s net deferred tax assets. As noted above, due to CBA’s disregarded status for periods prior to the Closing Date, no comparable income tax expenses existed for the year ended December 31, 2021.

The table below provides a summary of income statement amounts for the other operations segment, which are included in the consolidated statements of operations for the Post-Merger period from August 12, 2022 through December 31, 2022.

(a) Activity for the quarterly period includes only activity Post-Merger through the end of the quarterly period.

No comparable activity is available or included for the other operations segment for periods presented prior to August 12, 2022 because other operations were not part of CBA pre-merger. See Note 4 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.

Liquidity and Capital Resources

During the year ended December 31, 2022, the Company carried out its business strategy in four operating segments: CrossingBridge operations, Willow Oak operations, internet operations, and other operations. As a result of the Merger that occurred on August 11, 2022 and the determination that the Merger would be accounted for as a reverse business combination, activity presented for the year ended December 31, 2022 includes CrossingBridge financial activity for the full 12-month period and Enterprise Diversified activity as of the Closing Date of the Merger through December 31, 2022.

Our primary focus is on generating cash flow so that we have the flexibility to pursue opportunities as they present themselves. We intend to only invest cash in a segment if we believe that the return on the invested capital is appropriate for the risk associated with the investment. This consideration is measured against all investment opportunities available to us and is not limited to these particular segments nor the Company’s historical operations.

A significant amount of the Company’s assets are comprised of cash and cash equivalents, investments in securities, and accounts receivable. The Company’s main source of liquidity is cash flows from operating activities, which are primarily generated from investment advisory fees generated through CrossingBridge operations. Cash and cash equivalents, investments in securities, and accounts receivable represented approximately $10.7 million, $5.9 million and $0.7 million of total assets as of December 31, 2022, respectively, and approximately $1.3 million, $2.3 million and $0.5 million of total assets as of December 31, 2021, respectively. The Company believes that these sources of liquidity, as well as its continuing cash flows from operating activities will be sufficient to meet its current and future operating needs for at least the next 12 months.

In line with the Company’s objectives, it anticipates that its main uses of cash will be for operating expenses and seed capital to fund new and existing investment strategies through its CrossingBridge operations segment. The Company’s management regularly reviews various factors to determine whether it has capital in excess of that required for its business, and the appropriate uses of any such excess capital. 

The aging of accounts receivable as of December 31, 2022 and December 31, 2021 is as follows:

We have no material capital expenditure requirements.

Cash Flow Analysis

Cash Flows Provided By Operating Activities

The Company reported $1,725,722 of net cash provided by operating activities for the year ended December 31, 2022. Other income recognized from the W-1 Warrant revaluation and expenses related to the issuance of the W-2 Warrant and additional share purchases represented significant adjusting items to cash flows generated through operations. During the year ended December 31, 2021, the Company reported $1,201,415 of net cash provided by operating activities, which was primarily attributed to net income generated for the year.

Cash Flows (Used In) Provided By Investing Activities

The Company reported $11,827,999 of net cash provided by investing activities for the year ended December 31, 2022. This was primarily related to the consolidation of Enterprise Diversified’s assets and liabilities pursuant to the Business Combination. During the year ended December 31, 2021, the Company reported $2,265,086 of net cash used in investing activities, which was primarily attributed to an increase in investments.

Cash Flows (Used In) Provided By Financing Activities

The Company reported $4,136,247 of net cash flows used in financing activities for the year ended December 31, 2022. Prior to the Closing Date, the Company repaid the balance of its due to affiliate amount and made distributions to CrossingBridge’s historical sole member. These outflows were offset by the issuance of Class A Common Stock pursuant to the Business Combination. During the year ended December 31, 2021, the Company reported $77,925 of net cash provided by financing activities, which was primarily attributed to distributions paid and an offsetting increase in the due to affiliate amount.

Summary Discussion of Critical Accounting Estimates

The financial statements were prepared in accordance with U.S. generally accepted accounting principles, which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions affect various matters, including our reported amounts of assets and liabilities in our consolidated balance sheets at the dates of the financial statements; our disclosure of contingent assets and liabilities at the dates of the financial statements; and our reported amounts of revenues and expenses in our pre-merger carve-out statements of operations during the reporting periods. These estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could materially differ from these estimates.

The SEC defines critical accounting estimates as those that are both most important to the portrayal of a company’s financial condition and results of operations and require management’s most difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. We base our estimates on historical experience and on various other assumptions we believe to be reasonable according to current facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In Note 2 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we discuss our significant accounting policies, including those that do not require management to make difficult, subjective, or complex judgments or estimates. The most significant areas involving management’s judgments and estimates are described below.

Fair-Value of Long-Term Assets

Assets Acquired Pursuant to the Business Combination

The excess of purchase consideration over the fair value of net tangible and intangible assets acquired was recorded as goodwill, which is primarily attributed to the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized including expected synergies and the assembled workforce in place. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received.

During and as of the three-month period ended December 31, 2022, the Company recorded three measurement period adjustments to the preliminary recorded fair values assigned to certain long-term Company assets acquired as of the Closing Date. The fair value assigned to the Company’s note receivable was reduced from $300,000 to $50,000, the fair value assigned to the Company’s domain names was reduced from $235,000 to $175,000, and the fair value assigned to the Company’s net deferred tax assets was increased from $0 to $1,249,556. The net changes in fair value, totaling an increase of $939,556, proportionally decreased the balance of residual goodwill from $1,677,425 to $737,869 as of December 31, 2022. These adjustments are the product of an expanded valuation analysis performed by management during December 2022. The Company expects to finalize the fair values of assets acquired as soon as practicable, but not later than one year from the Closing Date. See Note 4 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.

Goodwill

The Company tests its goodwill annually as of December 31, or more often if events and circumstances indicate that those assets might not be recoverable. Impairment testing of goodwill is required at the reporting-unit level (operating segment or one level below operating segment). The impairment test involves calculating the impairment of goodwill based solely on the excess of the carrying value of the reporting unit over the fair value of the reporting unit. Prior to performing the impairment test, the Company may make a qualitative assessment of the likelihood of goodwill impairment to determine whether a detailed quantitative analysis is required. This qualitative assessment and the ongoing evaluation of events and circumstances represent critical accounting estimates. Management considers a variety of factors when making these estimates, which include, but are not limited to, internal changes in the segment’s operations, external changes that affect the segment’s industry, and overall financial condition of the segment and Company.

Management did not identify any events or circumstances during the year ended December 31, 2022 that would indicate potential goodwill impairment, nor did management’s qualitative assessment performed on December 31, 2022 indicate a potential goodwill impairment. Total goodwill reported on the consolidated balance sheets was $737,869 as of the year ended December 31, 2022.

Long-Term Investments

When investment inputs or publicly available information are limited or unavailable, management estimates the value of certain long-term investments using the limited information it has available, which can include the Company’s cost basis. This process, which was used to measure the value of the Company’s investment in the private company made through eBuild, represents a critical accounting estimate. Management utilizes the available inputs to perform an initial valuation estimate and subsequently updates that valuation when additional inputs become available.

Management did not identify any events or circumstances during the year ended December 31, 2022 that would indicate potential impairment of the Company’s investment in the private company. This investment is reported on the consolidated balance sheet at $450,000 as of the year ended December 31, 2022.

Other Intangible Assets

When management determines that material intangible assets are acquired in conjunction with the purchase of a business, the Company determines the fair values of the identifiable intangible assets by taking into account internal and external appraisals. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. These initial appraisals, as well as the subsequent evaluation of events and circumstances that may indicate impairment, represent critical accounting estimates. 

Management did not identify any events or circumstances during the year ended December 31, 2022 that would indicate potential impairment of the Company’s customer lists, trade names, or domain names. The total value of the Company’s customer lists, trade names, and domain names, net of amortization, reported under long-term assets on the consolidated balance sheet is $1,223,926 as of the year ended December 31, 2022.

Deferred Tax Assets and Liabilities

Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in the consolidated financial statements. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management’s analysis of the amount of deferred tax assets that will ultimately be realized represents a critical accounting estimate.

As of December 31, 2022, the Company had federal and state net operating loss carryforwards of approximately $6.8 million. A portion of these carryforwards will expire in various amounts beginning in 2035; however the majority of these carryforwards will not expire as they were generated after December 31, 2017. The Company expects it will be able to use its carryforwards subject to expiration in full prior to 2035. Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”), limits the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a company. Net operating losses that arose prior to that ownership change will have limited availability to offset taxable income arising in periods following the ownership change. During the year ended December 31, 2022, the Company performed an analysis to determine if a change of control occurred as a product of the Business Combination, and has determined that a change of control is more likely than not to have occurred on August 11, 2022. Under Section 382, net operating loss carryforwards that arose prior to the ownership change will have limited availability to offset taxable income arising in future periods following the ownership change. Section 382 imposes multiple separate and distinct limits on the utilization of pre-change of control net operating losses based on the fair market value of the Company immediately prior to the change of control, as well as certain activities that may or may not occur during the 60 months immediately following the change of control. While the majority of the Company’s historic net operating losses will be limited to an annual threshold, the majority of historic net operating losses also will not be subject to future expiration. As of the year ended December 31, 2022, the Company has not provided a valuation allowance against its net operating losses as the Company expects to be able to use its net operating losses in full to offset future taxable income generated by the Company. See Note 10 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.

As described further in Note 4 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K, during the three-month period ended December 31, 2022, the Company recorded a measurement period adjustment to the preliminary recorded fair value assigned to the Company’s acquired net deferred tax assets on the Closing Date. The fair value of acquired net deferred tax assets was increased from $0 to $1,249,556, with the corresponding decrease allocated to the Company’s residual amount of goodwill as of December 31, 2022. This adjustment was the product of the Section 382 analysis described above.

Contingencies, Commitments, and Litigation

Liabilities are recognized when management determines that contingencies, commitments, and/or litigation represent events that are more likely than not to result in a measurable obligation to the Company. Management’s analysis of these events represents a critical accounting estimate.

W-1 Warrant and Class B Common Shares

Pursuant to the Merger Agreement, during the year ended December 31, 2022, the Company issued a Class W-1 Warrant to purchase 1,800,000 of the Company’s Class A Common Stock. The liability associated with the issuance of the such warrant, and the embedded shares of Class B Common Stock, is based on an independent third-party valuation, which includes a Black-Scholes pricing model. As of the year ended December 31, 2022, the long-term liability reported on the Company’s consolidated balance sheet for the W-1 Warrant and shares of Class B Common Stock totals $576,000. See Note 5 to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.

RiverPark Advisors, LLC

On November 18, 2022, CBA, whose President is David Sherman, our Chief Executive Officer and director, entered into the RiverPark Agreement with RiverPark and Cohanzick, a RIA established by David Sherman, pursuant to which RiverPark intends to sell to CBA certain assets and CBA intends to assume certain liabilities, including certain rights and responsibilities under the RiverPark Advisory Agreement and the RiverPark Expense Limitation Agreement relating to the provision of investment advisory services for the RiverPark Fund, subject to certain terms and conditions set forth in the RiverPark Agreement.

Pursuant to the RiverPark Agreement, there is no consideration to be paid upon Closing; however, if the Closing occurs, CBA shall pay an amount approximately equal to 50% of the RiverPark Fund’s management fees (as set forth in the RiverPark Fund’s prospectus) to RiverPark (the RiverPark Fund’s current adviser) and Cohanzick (the RiverPark Fund’s current sub-adviser) for a period of three years after Closing, and pay an amount approximately equal to 20% of the RiverPark Fund’s management fees in the fourth and fifth years after Closing as set forth in the RiverPark Agreement. Notwithstanding the foregoing, certain of the amounts payable based on the RiverPark Fund’s management fees pursuant to the RiverPark Agreement during the first three years after the Closing shall be capped such that they are less than $1.3 million in the aggregate.

Pursuant to the RiverPark Agreement, CBA will endeavor to procure the RiverPark Stockholder Approval by the board of trustees of the RiverPark Fund and by a vote of a majority of the outstanding voting securities of RiverPark Fund for CBA to assume (i) the advisory services role under the RiverPark Advisory Agreement pursuant to which RiverPark provides investment advisory services to the RiverPark Fund or under an equivalent agreement with a successor to the RiverPark Fund and (ii) the RiverPark Expense Limitation Agreement or pursuant to an equivalent agreement with a successor to the RiverPark Fund. Furthermore, pursuant to the terms of the RiverPark Agreement, if a Closing occurs, the parties to the RiverPark Advisory Agreement and that certain Sub-Advisory Agreement dated as of August 1, 2012 by and among RiverPark, Cohanzick and the RiverPark Trust, on behalf of the RiverPark Fund, have agreed to terminate such agreements upon such Closing, and to make CBA a party to the RiverPark Expense Limitation Agreement or an equivalent agreement with a successor to the RiverPark Fund. Pursuant to the RiverPark Agreement, if the Closing does not occur prior to the RiverPark Termination Date, the RiverPark Agreement shall terminate, unless otherwise mutually agreed upon by the parties.

The RiverPark Agreement contains customary representations, warranties and agreements by the parties thereto and customary conditions to closing, including receipt of the RiverPark Stockholder Approval.

In connection with the RiverPark Agreement, Cohanzick and CBA intend to enter into an agreement which shall prohibit Cohanzick from competing with a substantially similar strategic income strategy as an adviser or sub- adviser to a fund registered under the Investment Company Act or any Undertakings for the Collective Investment in Transferable Securities products.

Discussion Regarding COVID-19 Potential Impacts

Due to the continuing uncertainty surrounding the COVID-19 pandemic, management has continued to regularly monitor and assess all Company operations for potential impacts of the COVID-19 pandemic. As of the year ended December 31, 2022, the Company has not been required to make significant operational changes as a result of the pandemic. Management does not anticipate additional challenges in meeting existing obligations, nor does it expect significant customer or vendor interruptions. However, the extent to which the continuing COVID-19 pandemic ultimately may impact the Company’s business, financial condition, liquidity, and results of operations likely will continue to depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the direct and indirect impact of the pandemic on the Company’s employees, customers, and service providers, as well as the U.S. economy and the actions taken by governmental authorities and other third parties in response to the pandemic.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.

ITEM 8.     FINANCIAL STATEMENTS

The information required by this Item 8 may be found immediately after the signature pages to this Annual Report on Form 10-K and is incorporated herein by reference.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.     CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of our principal executive officer and principal financial officer, have evaluated the effectiveness of the design and operation of our “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of December 31, 2022. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act 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, to allow timely decisions regarding required disclosures. Based upon this evaluation, and based upon material weaknesses in our internal control over financial reporting identified as of the date of our most recent evaluation of internal controls over financial reporting, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2022.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our consolidated financial statements. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on this evaluation, our management concluded that, as of December 31, 2022, our internal control over financial reporting was not effective based on such criteria. We have reviewed the results of management’s assessment with our board of directors. In addition, we will evaluate any changes to our internal control on a quarterly basis to determine if a material change occurred.

Material Weaknesses in Internal Controls

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis.

As a result of our evaluations, we identified the following material weaknesses in our internal control over financial reporting as of December 31, 2022:

Segregation of Duties: We lack segregation of duties. Specifically:

Financial Close and Reporting: We do not have effective internal controls over all parts of the financial close and reporting process in that one individual is responsible for reconciling significant accounts, preparing the most significant journal entries, evaluating complex transactions and reporting requirements, and also is responsible for the financial statement close, consolidation, and reporting process.

During the year ended December 31, 2022, as a result of the closing of the Merger, we were afforded additional personnel resources that can now be integrated into our internal control processes. We are actively working to restructure our historical internal controls over financial reporting to leverage these resources accordingly. We continue to make efforts to reinforce our internal control environment by utilizing an external accounting firm during our financial closing process, engaging third-party consultants to review the accounting and related disclosures for transactions that management and the board of directors determine to be particularly complex, and maintaining strict document retention policies and procedures that allow for full visibility of all financial statements and schedules by all of our managers and officers.

In response to the identified material weaknesses, we are developing a phased approach that is intended to increase the effectiveness of the design and operation of our financial reporting controls and processes. In the first phase, we expect to work with a third-party professional consultant to prepare formal documentation for our internal controls over financial reporting, which may include an entity level controls assessment, an IT general controls assessment, and process area flowcharts where necessary. In the second phase, we expect to use our control documentation to identify ineffectively designed and/or control gaps and work to remediate them. Finally, in phase three, we expect to design a systematic monitoring plan to sufficiently test our new key controls over the course of future reporting periods. We aim to complete this project before the end of the next fiscal year occurring on December 31, 2023. Notwithstanding the foregoing, there is no guarantee that we will be successful in completing this multi-phased approach and remediating the material weaknesses.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the year ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

ITEM 9B.     OTHER INFORMATION

On December 28, 2022, RiverPark, CBA and Cohanzick entered into an amendment to the RiverPark Agreement pursuant to which the termination date of such agreement was extended to the RiverPark Termination Date.

ITEM 9C.     DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

PART III

ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information required by this item is incorporated herein by reference to our Proxy Statement for the 2023 Annual Meeting to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2022.

ITEM 11.     EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to our Proxy Statement for the 2023 Annual Meeting to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2022.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to our Proxy Statement for the 2023 Annual Meeting to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2022.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to our Proxy Statement for the 2023 Annual Meeting to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2022.

ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference to our Proxy Statement for the 2023 Annual Meeting to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2022.

Exhibits

* Filed herewith.

** Furnished herewith.

+ Indicates a management contract or any compensatory plan, contract or arrangement.

ITEM 16.     FORM 10-K SUMMARY

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, 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.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders ENDI Corp.

Richmond, Virginia

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of ENDI Corp. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, changes in stockholder’s equity, and cash flows for each of the years in the two year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our 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 financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Business Combination

Description of the Matter

As described in Notes 1 and 4 to the consolidated financial statements, the Company completed its merger pursuant to the terms of the Agreement and Plan of Merger (“Merger Agreement”) in which CrossingBridge Advisors, LLC merged with Enterprise Diversified, Inc. The transaction was accounted for as a reverse merger, with CrossingBridge Advisors, LLC being the accounting acquirer. This resulted in goodwill of approximately $0.7 million being recognized. Management determined that the acquisition qualified as a business combination and accordingly, all identifiable assets acquired and liabilities assumed were recorded at fair value. The identification and valuation of the acquired assets and assumed liabilities requires management to exercise significant judgment and consider the use of outside valuation specialists to estimate the fair value allocations.

Critical Audit Matters (Continued)

Business Combination (Continued)

How We Addressed the Matter in Our Audit

We identified the evaluation of the Company’s business combination as a critical audit matter because of its material impact on the Company’s balance sheet, complexity of purchase accounting, and the subjectivity involved in management’s judgments with respect to the fair value adjustments of assets acquired and liabilities assumed, including intangible assets.

The primary procedures we performed to address this critical audit matter included performing substantive testing, including evaluating management’s judgments and assumptions for applying the acquisition method of accounting and fair valuing assets and liabilities acquired, which consisted of the following:

/s/ Brown, Edwards & Company, L.L.P.

We have served as the Company’s auditor since 2019.

Lynchburg, Virginia

March 30, 2023

ENDI CORP.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

ENDI CORP.

and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial statements.

ENDI CORP.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part of these consolidated financial statements.

ENDI CORP.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2022 and 2021

The accompanying notes are an integral part of these consolidated financial statements.

ENDI CORP.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Lines of Business

ENDI Corp. (“ENDI”) was incorporated in Delaware on December 23, 2021. On August 11, 2022 (the “Closing Date”), the Company (as defined herein) completed its mergers (the “Mergers”) pursuant to that certain Agreement and Plan of Merger dated December 29, 2021 (as amended, the “Merger Agreement”) by and among ENDI, Enterprise Diversified, Inc. (“Enterprise Diversified”), Zelda Merger Sub 1, Inc., Zelda Merger Sub 2, LLC, CrossingBridge Advisors, LLC (“CrossingBridge” or “CBA”) and Cohanzick Management, LLC (“Cohanzick”). As a result of the Mergers, Enterprise Diversified and CrossingBridge merged with wholly owned subsidiaries of ENDI and now operate as wholly owned subsidiaries of the Company. The Company is the successor registrant to Enterprise Diversified’s Securities and Exchange Commission (“SEC”) registration effective as of the Closing Date of the Mergers.

The reporting period covered by the Annual Report on Form 10-K for the year ended December 31, 2022, reflects the standalone business of CrossingBridge prior to the Closing Date of the Mergers and reflects the consolidated business of the Company, including CrossingBridge and Enterprise Diversified for the post-Merger period from August 12, 2022, through December 31, 2022.

On the Closing Date, Enterprise Diversified and CrossingBridge became wholly owned subsidiaries of ENDI as a result of the Mergers (collectively with the other transactions described in the Merger Agreement, the “Business Combination”). The Business Combination is accounted for as a reverse merger business combination using the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations, with CrossingBridge representing the accounting acquiror.

Prior to the Closing Date, the Company operated through a single reportable segment, CrossingBridge operations. Beginning on the Closing Date and continuing through the year ended December 31, 2022, the post-Merger period, the Company operated through four reportable segments: CrossingBridge operations, Willow Oak operations, internet operations, and other operations. The management of the Company also continually reviews various business opportunities for the Company, including those in other lines of business.

Unless the context otherwise requires, and when used herein, the “Company,” “ENDI,” “ENDI Corp.,” “we,” “our,” or “us” refers to ENDI Corp. individually, or as the context requires, collectively with its subsidiaries as of and after the Closing Date, and to CrossingBridge for the periods up to the Closing Date, due to the determination that CrossingBridge represents the accounting acquiror.

CrossingBridge Operations

CBA was formed as a limited liability company on December 23, 2016, under the laws of the State of Delaware. CBA derives its revenue and net income from investment advisory services. CBA is a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”), and it provides investment advisory services to investment companies (including mutual funds and exchange-traded funds (“ETFs”)) registered under the Investment Company Act of 1940, as amended (“1940 Act”), both as an adviser and as a sub-adviser.

As of December 31, 2022, CBA serves as an advisor to its four proprietary products and sub-advisor to two additional products. As of December 31, 2022, the assets under management (“AUM”) for CBA, including advised and sub-advised funds, were in excess of $1.2 billion. The investment strategies for CBA include: ultra-short duration, low duration high yield, responsible credit, and special purpose acquisition companies (“SPACs”). These strategies primarily employ high yield and investment grade corporate debt, as well as credit opportunities in event-driven securities, post reorganization investments, and stressed and distressed debt.

Willow Oak Operations

Beginning on August 12, 2022, the start of the post-Merger period (“Post-Merger”), the Company operates its Willow Oak operations business through its wholly owned subsidiaries, Willow Oak Asset Management, LLC (“Willow Oak”), Willow Oak Capital Management, LLC, Willow Oak Asset Management Affiliate Management Services, LLC (“Willow Oak AMS”) and Willow Oak Asset Management Fund Management Services, LLC (“Willow Oak FMS”).

Willow Oak is an asset management platform focused on partnering with independent asset managers throughout various phases of their firm’s lifecycle to provide comprehensive operational services that support the growth of their businesses. Through minority ownership stakes and bespoke service based contracts, Willow Oak offers affiliated managers strategic consulting, operational support, and growth opportunities. Services to date include consulting, fund launching, investor relations and marketing, accounting and bookkeeping, compliance program monitoring, fund management, and business development support. The Company intends to actively expand its Willow Oak platform with additional offerings that enhance the value of the Willow Oak platform to independent managers across the investing community.

Internet Operations

Beginning Post-Merger, the Company operates its internet operations segment through Sitestar.net, its wholly owned subsidiary. Sitestar.net is an internet service provider that offers consumer and business-grade internet access, e-mail hosting and storage, wholesale managed modem services, web hosting, third-party software as a reseller, and various ancillary services. Sitestar.net provides services to customers in the United States and Canada. In addition, the Company owns a portfolio of domain names.

Other Operations

Beginning Post-Merger, the Company operates its other operations segment which includes nonrecurring or one-time strategic funding or similar activity and other corporate operations that are not considered to be one of the Company’s primary lines of business. Below are the primary activities comprising other operations. Additional investment activity that is not specifically mentioned below is included in the accompanying consolidated financial statements.

eBuild Ventures, LLC

Pursuant to the Merger Agreement, the Company was transferred interests of eBuild Ventures, LLC (“eBuild”) on the Closing Date. eBuild acquires, or provides growth equity to, consumer product businesses in the digital or brick and mortar marketplaces.

Through eBuild, the Company also operates SPACinformer.com (“SPACinformer”), an electronic newsletter service focusing primarily on the aggregation and distribution of publicly-available SPAC data, news, and analytics. During the year ended December 31, 2022, SPACinformer did not contribute material revenue or expenses to eBuild under the other operations segment.

On September 8, 2022, through eBuild, the Company made a capital contribution of $450,000, representing approximately a 10% ownership stake, in a start-up phase private company that operates in the consumer beverage product space. This investment is carried at its cost basis of $450,000 as of December 31, 2022.

Financing Arrangement - Triad Guaranty, Inc.

In August 2017, Enterprise Diversified entered into an agreement with several independent third parties to provide debtor-in-possession financing to an unaffiliated third party, Triad Guaranty, Inc., through Triad DIP Investors, LLC. Triad Guaranty, Inc. exited bankruptcy in April 2018, and Enterprise Diversified was subsequently issued an amended and restated promissory note. As of December 31, 2022, Enterprise Diversified reported $50,000 of promissory notes receivable, measured at fair value, from Triad DIP Investors, LLC, and 847,847 aggregate shares of Triad Guaranty, Inc. common stock. As of December 31, 2022, the Company attributed no value to its shares of Triad Guaranty, Inc. common stock held due to the stocks’ general lack of marketability. See Note 5 for more information.

Subsequent to December 31, 2022, Enterprise Diversified was issued a second amended and restated promissory note by Triad DIP Investors, LLC. Amended terms to the promissory note include an increase in the interest rate from 12% to 18% per annum, with unpaid historical accrued interest and future monthly accrued and unpaid interest to be capitalized and added to the then-outstanding principal balance on the last business day of each month. Further, the maturity date of the note was extended from December 31, 2022 to April 30, 2023, with early payoff permitted.

Corporate Operations

Corporate operations include any revenue or expenses derived from the Company’s corporate office operations, as well as expenses related to public company reporting, the oversight of subsidiaries, and other items that affect the overall Company. Also included under corporate operations is investment activity earned through the reinvestment of corporate cash. Corporate investments are typically short-term, highly liquid investments, including vehicles such as mutual funds, ETFs, commercial paper, and corporate and municipal bonds. During the year ended December 31, 2022, through Enterprise Diversified under the other operations segment, the Company invested a total of $4,500,000 among three CrossingBridge mutual funds: the CrossingBridge Responsible Credit Fund, the CrossingBridge Ultra Short Duration Fund, and the CrossingBridge Low Duration High Yield Fund. The Company also routinely invests in the CrossingBridge Pre-Merger SPAC ETF as well, which as of December 31, 2022, totaled $300,025. There are no liquidity restrictions in connection with these investments and any intercompany revenue and expenses have been eliminated in consolidation.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and those entities in which it otherwise has a controlling financial interest as of and for the year ended December 31, 2022, including: CrossingBridge Advisors, LLC, and for the Post-Merger period beginning on August 12, 2022, Bonhoeffer Capital Management, LLC, eBuild Ventures, LLC, Enterprise Diversified, Inc., Sitestar.net, Inc., Willow Oak Asset Management, LLC, Willow Oak Asset Management Affiliate Management Services, LLC, Willow Oak Asset Management Fund Management Services, LLC, and Willow Oak Capital Management, LLC.

All intercompany accounts and transactions have been eliminated in consolidation.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Following Financial Accounting Standards Board guidance related to the accounting for reverse acquisitions, CrossingBridge’s historical carve-out financial statements replaced the Company’s (as the successor registrant to Enterprise Diversified) historical financial statements. Accordingly, the capital structure, and per share amounts presented in CrossingBridge’s historical carve-out financial statements for the periods prior to the Closing Date have been recast to reflect the capital activity in accordance with the Merger Agreement. CrossingBridge’s historical carve-out financial statements as of and for the year ended December 31, 2021, reflecting the recasting, are included as part of the consolidated financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The CrossingBridge Advisors, LLC carve-out for activity prior to the Closing Date, including the period from January 1, 2022 to August 11, 2022, and the year ended December 31, 2021, is part of the Cohanzick financial statements. Prior to the Closing Date of the Mergers, CrossingBridge Advisors, LLC was a wholly owned subsidiary of Cohanzick. The historical financial carve-out statements of CBA reflect the assets, liabilities, revenue, and expenses directly attributable to CBA, as well as allocations deemed reasonable by management, to present the financial position, statements of operations, statements of changes in stockholders’ equity, and statements of cash flows of CBA on a stand-alone basis and do not necessarily reflect the financial position, statements of operations, statements of changes in stockholders’ equity, and statements of cash flows of CBA in the future or what they would have been had CBA been a separate, stand-alone entity during the periods presented that include activity prior to the Closing Date.

Use of Estimates

In accordance with U.S. generally accepted accounting principles (“GAAP”), the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates and judgments, including, among other items, those related to fair value of investments, revenue recognition, accrued expenses, financing operations, fair value of goodwill, fixed asset lives and impairment, lease right-of-use assets and impairment, deferred tax assets, liabilities and valuation allowance, other assets, the present value of lease liabilities, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. These accounting policies are described at relevant sections in the notes to the consolidated financial statements.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash, cash equivalents, accounts receivable, and notes receivable. The Company places its cash with high-quality financial institutions and, at times, exceeds the FDIC and CDIC insurance limit. The Company extends credit based on an evaluation of customers’ financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid instruments purchased with a maturity and/or liquidation option of three months or less.

Investments

The Company holds various investments through its other operations segment. Investments are typically short-term, highly liquid investments, including vehicles such as: mutual funds, ETFs, commercial paper, and corporate and municipal bonds. Investments held at fair value are remeasured to fair value on a recurring basis. Certain assets held through the other operations segment do not have a readily determinable value as these investments are either not publicly traded, do not have published sales records, or do not routinely make current financial information available. Assets that do not have a readily determinable value are remeasured when additional valuation inputs become observable. See Note 5 for more information.

Accounts Receivable

The Company’s CrossingBridge operations segment records receivable amounts for management fee shares earned on a monthly basis. Management fee shares are calculated and collected on a monthly basis. The Company historically has had no collection issues with management fee shares and the overall possibility for non-collection is extremely low. For these reasons, management has determined that it is not necessary to record an allowance against these receivables.

The Company’s Willow Oak operations segment records receivable amounts for management fee shares and fund management services revenue earned on a monthly basis. Management fee shares and fund management services fees are calculated and collected on either a monthly or quarterly basis as dictated by the respective partnership agreement. The Company historically has had no collection issues with management fee shares and fund management receivables and the overall possibility for non-collection is extremely low. For these reasons, management has determined that it is not necessary to record an allowance against these receivables.

The Company’s Willow Oak operations segment also records receivable amounts for performance fee shares earned on an annual basis. Performance fee shares are dependent upon exceeding specified relative or absolute investment return thresholds, which vary by affiliate relationship, and typically include annual measurement periods. The Company historically has had no collection issues with performance fee shares and the overall possibility for non-collection is extremely low. For these reasons, management has determined that it is not necessary to record an allowance against these receivables.

The Company grants credit in the form of unsecured accounts receivable to its customers through its internet operations segment. The estimate of the allowance for doubtful accounts, which is the recorded allowance for doubtful accounts and bad debt expense, is based on management’s assessment of current economic conditions and historical collection experience with each customer. Specific customer receivables are considered past due when they are outstanding beyond their contractual terms and are written off from the allowance for doubtful accounts when an account or invoice is individually determined to be uncollectible. The internet operations segment attempts to reduce the risk of non-collection by including a late-payment fee and a manual-processing-payment fee to customer accounts. Receivables more than 90 days past due are no longer included in accounts receivable and are turned over to a collection agency. Accounts receivable more than 30 days are considered past due. 

As of December 31, 2022 and 2021, allowances offsetting gross accounts receivable on the accompanying consolidated balance sheets totaled $2,283 and $0, respectively. For the years ended December 31, 2022 and 2021, bad debt expenses totaled $8,841 and $0, respectively.

Notes Receivable

The Company does not routinely issue notes receivable in the ordinary course of business, but when a business opportunity arises, a subsidiary may issue a note if it appears to be favorable to the Company. Notes receivable are recorded at their principal amount and interest is accrued quarterly based on the applicable interest rate. The Company makes an assessment of the ultimate collectability of each note receivable on an annual basis based upon the financial condition of the borrower and adjusts the carrying value of the note receivable as deemed appropriate.

Property and Equipment

Property and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to operations as incurred, while renewals and betterments are capitalized. Gains and losses on disposals are included in the results of operations. Depreciation is computed using the straight-line method based on the estimated useful lives for each of the following asset classifications.

The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, then the Company uses estimated future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Property and equipment to be disposed are reported at the lower of carrying amount or fair value of the asset less cost to sell.

Goodwill and Other Intangible Assets

Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method of accounting. The Company tests its goodwill annually as of December 31, or more often if events and circumstances indicate that those assets might not be recoverable. As of the year ended December 31, 2022, the Company reported $737,869 of goodwill under the CrossingBridge operations segment.

Impairment testing of goodwill is required at the reporting-unit level (operating segment or one level below operating segment). The impairment test involves calculating the impairment of goodwill based solely on the excess of the carrying value of the reporting unit over the fair value of the reporting unit. Prior to performing the impairment test, the Company may make a qualitative assessment of the likelihood of goodwill impairment to determine whether a detailed quantitative analysis is required. The Company estimates the fair value of its reporting units using discounted expected future cash flows.

Intangible assets (other than goodwill) consist of customer relationships, trade names, and domain names held under the Willow Oak and internet operations segments. As of December 31, 2022, the Company owned 242 domain names. When management determines that material intangible assets are acquired in conjunction with the purchase of a business, the Company determines the fair values of the identifiable intangible assets by taking into account internal and external appraisals. Intangible assets determined to have definite lives are amortized over their estimated useful lives. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, then the Company uses estimated future undiscounted cash flows of the related intangible asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. As of the year ended December 31, 2022, the Company reported $534,195 and $689,731 of intangible assets, net of amortization, under the Willow Oak and internet operations segments, respectively.

As described in Note 4, during the three-month period ended December 31, 2022, the Company recorded a measurement period adjustment to the preliminary recorded fair value assigned to the value of the Company’s acquired intangible assets, specifically the domain names held under the internet operations segment, reducing the preliminarily assessed fair value from $235,000 to $175,000, with the decrease in value allocated to the Company’s residual amount of goodwill held as of December 31, 2022. This adjustment was the product of an expanded valuation analysis performed by management in December 2022. The fair values assigned to tangible and intangible assets acquired are based on management’s estimates and assumptions and may be subject to change as additional information is received. The Company expects to finalize the fair values of assets acquired and liabilities assumed as soon as practicable, but not later than one year from the Closing Date.

As a result of the Company’s impairment testing of goodwill and other intangible assets on December 31, 2022, the Company determined that there was no impairment adjustment necessary.

Amortization expenses on intangible assets during the years ended December 31, 2022 and 2021 totaled $31,074 and $0, respectively.

W-1 Warrant and Redeemable Class B Common Stock

Pursuant to the Merger Agreement, the Company issued 1,800,000 Class B common shares that are mandatorily redeemable upon exercise of the W-1 Warrant, which provides the holder the ability to purchase 1,800,000 Class A Common Shares at certain terms. Management has determined that the W-1 Warrant represents an embedded equity-linked feature within the Class B common shares, and therefore is valued in conjunction with the Class B common shares. The value of the W-1 Warrant and Class B common shares is determined using a Black-Scholes pricing model and is classified as a long-term liability on the consolidated balance sheet. The value is remeasured at each reporting date with the change in value flowing through the consolidated statements of operations for the relevant period. On the Closing Date, the liability associated with the W-1 Warrant and Class B common shares was valued at $1,476,000. Subsequently, as of the year ended December 31, 2022, the liability associated with the W-1 Warrant and Class B common shares was valued at $576,000. This change in value resulted in the Company recognizing $900,000 of other income related to the “mark-to-market” of the W-1 Warrant on the consolidated statements of operations for the year ended December 31, 2022. As the W-1 Warrant and Class B common shares were issued pursuant to the Merger Agreement, there is no comparable prior year activity for the year ended December 31, 2021. See Note 4 for additional terms of the W-1 Warrant and Class B common shares.

Accrued Compensation

Accrued compensation represents performance-based bonuses that have not yet been paid. Bonuses are subjective and are based on numerous factors including, but not limited to, individual performance, the underlying funds’ performance, and profitability of the firm, as well as the consideration of future outlook. Accrued bonus amounts can fluctuate due to a future perceived change in any one or more of these factors. Additionally, differences between historical, current, and future personnel allocations could significantly impact the comparability of bonus expenses period over period.

Other Accrued Expenses

Other accrued expenses represent incurred but not-yet-paid expenses from payroll accruals, professional fees, and other accrued taxes.

Leases

The Company records right-of-use assets and lease liabilities arising from both financing and operating leases that contain terms extending longer than one year. The Company does not recognize right-of-use assets or lease liabilities for short-term leases (those with original terms of 12 months or less). In making our determinations, the Company combines lease and non-lease elements of its leases.

Concentration of Revenue

CBA is the adviser to four registered investment companies under the CrossingBridge Family of Funds. The advised funds are the CrossingBridge Low Duration High Yield Fund, CrossingBridge Ultra-Short Duration Fund, CrossingBridge Responsible Credit Fund, and the CrossingBridge Pre-Merger SPAC ETF. The combined AUM for these advised funds was approximately $614 million and $514 million as of December 31, 2022 and 2021, respectively. CBA is also the sub-adviser to two 1940 Act registered mutual funds with AUM totaling approximately $664 million and $855 million as of December 31, 2022 and 2021, respectively. Finally, CBA also earns revenue through a service agreement with a related party. See Note 3 for more information on the terms of the service agreement.

CBA fee revenues earned from advised funds, sub-advised funds, and service agreements for the years ended December 31, 2022 and 2021 included in the accompanying consolidated statements of operations are detailed below.

If CBA were to lose a significant amount of AUM, the Company’s revenue would also decrease.

Revenue Recognition

CrossingBridge Operations Revenue

Management fee shares earned through the CrossingBridge operations segment are recorded on a monthly basis and are included in revenue on the accompanying consolidated statements of operations. The Company has performed an assessment of its revenue contracts under the CrossingBridge operations segment and has not identified any contract assets or liabilities.

Willow Oak Operations Revenue

Management fee shares and fund management services fees earned through the Willow Oak operations segment are recorded on a monthly basis and are included in revenue on the accompanying consolidated statements of operations. Performance fee shares are dependent upon exceeding specified relative or absolute investment return thresholds, which vary by affiliate relationship, and typically include annual measurement periods. Performance fee shares are recognized only when it is determined that there is no longer potential for significant reversal, such as when a fund’s performance exceeds a contractual threshold at the end of a specified measurement period. Consequently, a portion of the performance fee shares recognized may be partially or wholly related to services performed in prior periods. The Company has performed an assessment of its revenue contracts under the Willow Oak operations segment and has not identified any contract assets or liabilities.

A summary of revenue earned through Willow Oak operations during the Post-Merger period from August 12, 2022 through December 31, 2022 and included on the accompanying consolidated statements of operations for the years ended December 31, 2022 are detailed below: 

Internet Operations Revenue

The Company generates revenue through its internet operations segment from consumer and business-grade internet access, e-mail hosting and storage, wholesale managed modem services, e-mail and web hosting, third-party software as a reseller, and various ancillary services in the United States and Canada. Services include narrow-band (dial-up and ISDN) and broadband services (DSL, fiber-optic, and wireless), web hosting, and additional related services to consumers and businesses. Customers may also subscribe to web hosting plans to include email access and storage. Customer contracts through the internet operations segment can be structured as monthly or annual contracts. Under annual contracts, the subscriber pays a one-time annual fee, which is recognized as revenue ratably over the life of the contract. Under monthly contracts, the subscriber is billed monthly and revenue is recognized for the period to which the service relates. Domain name registration revenue is recognized at the point of registration. Sales of hardware are recognized as revenue upon delivery and acceptance of the product by the customer. Sales are adjusted for any returns or allowances. Management has concluded that the nature of the performance obligation is cyclical with a very low possibility for nonperformance. Contract liabilities (deferred revenue) are recognized in the amount of collections received in advance of services to be performed. No contract assets are recognized or incurred.