Exhibit 99.2

Cortina Asset Management, LLC

Balance Sheets

 

 

As of June 30, 2019 and 2018

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

1,281,785

 

 

$

342,681

 

Advisory fees receivable

 

 

 

 

1,604,350

 

 

 

2,072,382

 

Affiliated companies receivable

 

 

 

 

20,250

 

 

 

 

Prepaid expenses

 

 

 

 

185,560

 

 

 

244,292

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

 

 

3,091,945

 

 

 

2,659,355

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

 

 

 

 

 

Furniture and office equipment

 

 

 

182,780

 

 

189,362

 

Computer equipment and software

 

 

 

 

311,417

 

 

 

322,693

 

 

 

 

 

 

 

 

 

 

 

 

Total property and equipment

 

 

 

494,197

 

 

512,055

 

Less: Accumulated depreciation

 

 

 

 

(464,335

)

 

 

(459,837

)

 

 

 

 

 

 

 

 

 

 

 

Net property and equipment

 

 

 

29,862

 

 

52,218

 

 

 

 

 

 

 

 

 

 

 

 

Security deposit related to lease

 

 

 

33,705

 

 

33,705

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

 

$

3,155,512

 

 

$

2,745,278

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Members' Equity:

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

 

$

 

 

$

4,505

 

Accrued expenses and other

 

 

 

 

900,640

 

 

 

128,506

 

Equity appreciation rights liability

 

 

 

 

195,453

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

 

1,096,093

 

 

133,011

 

 

 

 

 

 

 

 

 

 

 

 

Members' equity

 

 

 

2,059,419

 

 

2,612,267

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS' EQUITY

 

 

 

$

3,155,512

 

 

$

2,745,278

 

 

See accompanying notes to financial statements.

1


 

Cortina Asset Management, LLC

Statements of Income and Members' Equity

 

 

Six Month Periods Ended June 30, 2019 and 2018

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

Advisory fees

 

$

6,323,687

 

 

$

8,006,800

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

3,767,810

 

 

 

2,954,731

 

 

 

 

 

 

 

 

 

 

Income from operations

 

2,555,877

 

 

 

5,052,069

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

3,726

 

 

 

 

Loss on disposal of property and equipment

 

(3,110)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other income

 

616

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

2,556,493

 

 

 

5,052,069

 

 

 

 

 

 

 

 

 

 

Members' equity, January 1st

 

 

465,022

 

 

 

1,650,424

 

Purchase of member's units

 

 

 

 

 

(400,000

)

Distributions to members

 

(962,096)

 

 

 

(3,690,226

)

 

 

 

 

 

 

 

 

 

Members' equity, ending

 

$

2,059,419

 

 

$

2,612,267

 

 

See accompanying notes to financial statements.

2


 

Cortina Asset Management, LLC

Statements of Cash Flows

 

 

Six Month Periods Ended June 30, 2019 and 2018

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents:

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

2,556,493

 

 

$

5,052,069

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

8,249

 

 

 

18,333

 

Gain on disposal of equipment

 

3,110

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Advisory fees receivable

 

(150,471)

 

 

 

553,625

 

Prepaid expenses

 

(25,886)

 

 

 

(60,781

)

Security deposit

 

 

 

 

 

33,705

 

Accounts payable

 

(11,336)

 

 

 

(9,866

)

Accrued expenses and other

 

(2,516,950)

 

 

 

(2,103,119

)

 

 

 

 

 

 

 

 

 

Net cash from operating activities

 

(136,791)

 

 

 

3,483,966

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

(1,603)

 

 

 

(1,670

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Purchase of member's units

 

 

 

 

 

(400,000

)

Members distributions

 

(962,096)

 

 

 

(3,690,226

)

 

 

 

 

 

 

 

 

 

Net cash from financing activities

 

(962,096)

 

 

 

(4,090,226

)

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(1,100,490)

 

 

 

(607,930

)

Cash and cash equivalents at beginning of year

 

 

2,382,275

 

 

 

950,611

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

$

1,281,785

 

 

$

342,681

 

 

See accompanying notes to financial statements.

 

3


 

Cortina Asset Management, LLC

Notes to Financial Statements

 

Note 1: Summary of Significant Accounting Policies

 

Principal Business Activity

 

Cortina Asset Management, LLC (the "Company") is an investment advisor registered with the Securities and Exchange Commission pursuant to the Investment Advisers Act of 1940 and is subject to regulations promulgated by the states in which the Company does business. The Company provides discretionary asset management services to mutual funds, corporations, pension and profit-sharing plans, foundations, trusts, individuals and other separate accounts.

 

Acquisition and Subsequent Event

 

On April 12, 2019, Silvercrest Asset Management Group Inc. entered into an Asset Purchase Agreement (the “Purchase Agreement”) with the Company to acquire, directly or through a designated affiliate, substantially all of the assets of the Company. On July 1, 2019, the acquisition was completed pursuant to the Purchase Agreement.

 

Cash and Cash Equivalents

 

Cash equivalents are defined as short-term, highly liquid investments, which are readily convertible to cash and have remaining maturities of three months or less at the date of acquisition.

 

Advisory Fees Receivable

 

Revenue results primarily from investment advisory fees, which generally are billed on a quarterly basis. Certain clients are billed in advance on the first day of the quarter and other clients are billed at the end of each quarter. Amounts related to advance billings are deferred and recognized over the related advisory service periods using the straight-line method.

 

4


Cortina Asset Management, LLC

Notes to Financial Statements

 

 

Note 1: Summary of Significant Accounting Policies (Continued)

 

Revenue Recognition

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASC 606 (ASU No. 2014-09), “Revenue from Contracts with Customers”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The Company adopted the requirement of the new standard on January 1, 2019 using the full retrospective transition method.  The  Company has evaluated the impact of ASC 606 on the Financial Statements. The impact of adopting ASC 606 (ASU No. 2014-09) is de minimis to the Company’s financial statements and recognition of revenue when compared to ASC 605. The new revenue standard requires more comprehensive revenue recognition disclosure in the Company’s notes to the financial statements.

 

The Company generates revenue from management and advisory fees. Management and advisory fees are generated by managing assets on behalf of separate accounts and acting as investment advisor for various client investment funds. The fee income is recognized throughout the course of the period in which these services are provided.  There is no performance-based fees.

 

Use of Estimates in Preparation of Financial Statements

 

The preparation of accompanying financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses.  Actual results may differ from these estimates and are subject to change in the near term.

 

Property and Equipment

 

Property and equipment are recorded at cost. Gains or losses on disposition of property and equipment are reflected in income. Depreciation on assets is computed using the straight-line method for financial reporting purposes (3 to 15 years).

 

Maintenance and repair costs are charged to expense as incurred and improvements are added to property and equipment accounts.

 

Income Taxes

 

Pursuant to the operating agreement, Cortina Asset Management, LLC's taxable income is included in the individual tax returns of its members for federal and, when allowable, state income tax purposes.

 

Subsequent Events

 

The Company has evaluated subsequent events through August 21, 2019, which is the date the financial statements were available to be issued.

 

 

5


Cortina Asset Management, LLC

Notes to Financial Statements

 

 

Note 2: Equity Appreciation Rights Plan

 

The Company's equity appreciation rights plan ("EAR") provides incentive equity appreciation rights to its full- time employees who have been designated to participate. The EAR represents the right to receive, in cash, the increase in value of the Company's equity from the time of issuance to the payout date and vest ratably over a 2- year period. The Company has total discretion and authority to determine eligible participants, awarding of rights, method of payment of benefits, etc. as outlined in the EAR. The Company recognizes compensation expense over the vesting period of the rights. The Company estimates that the value of the Company has changed from the point in time when the rights were issued through June 30, 2019.  Therefore, a liability of $195,453 has been recorded at June 30, 2019. As of June 30, 2018, management estimated that the liability was not material and no liability was recorded.

Note 3: Revenue Recognition

 

Revenues are earned over time based on assets under management ("AUM") using the fair value methods. Market appreciation/depreciation of the AUM has a significant impact on revenue. The Company has presented AUM using the GAAP framework for measuring fair value. That framework provides a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs based on company assumptions (Level 3). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows:

 

Level 1—includes quoted prices (unadjusted) in active markets for identical instruments at the measurement date. The types of financial instruments included in Level 1 include unrestricted securities, including equities listed in active markets.

 

Level 2—includes inputs other than quoted prices that are observable for the instruments, including quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or inputs other than quoted prices that are observable for the instruments. The type of financial instruments in this category include less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and managed funds whose net asset value is based on observable inputs.

 

Level 3—includes one or more significant unobservable inputs. Financial instruments that are included in this category include assets under management primarily comprised of investments in privately held entities, limited partnerships, and other instruments where the fair value is based on unobservable inputs.

 

The table below summarizes the approximate amount of assets under management for the periods indicated for which fair value is measured based on Level 1, Level 2 and Level 3 inputs.

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

June 30, 2019 AUM

 

$

1,644,295,000

 

 

$

 

 

$

 

 

$

1,644,295,000

 

June 30, 2018 AUM

 

$

2,175,045,000

 

 

$

 

 

$

 

 

$

2,175,045,000

 

 

All of the assets under management are valued by independent pricing services based upon observable market prices or inputs, the Company believes market risk is the most significant risk underlying valuation of assets under management.

 

6


Cortina Asset Management, LLC

Notes to Financial Statements

 

 

 

Note 4: Operating Agreement

 

The Company and its members are party to an Operating Agreement (“Agreement”) which governs the operations and management of the Company. The Agreement specifies the methods to be used to allocate annual profits, losses, and distributions to its members.

 

In the event of a member death, disability, or retirement, the Company shall purchase the departing member’s interest. The purchase price will be determined based on the fair market value of the Company. However, under certain circumstances the departing member shall have the option to retain their interest. The Company’s purchase price shall be based on the departing member’s pro rata share of the Company’s fair market value. The Agreement also contains provisions related to the transfer of member interests under defined circumstances.

 

Note 5: Guaranteed Payments

 

Guaranteed payments are payments made to the members for services rendered to the Company. The payments are determined without regard to the Company's income for the period or their respective ownership percentages. Health and life insurance payments made by the Company on behalf of the members are also included in guaranteed payments. These amounts are recorded as operating expenses on the statements of income and members' equity.

 

Note 6: Lease Commitments

 

The Company leases an office facility pursuant to an operating lease agreement that requires monthly payments of $11,600. The Company leased a second office facility pursuant to an operating lease agreement that required monthly payments of $18,800 that ended April 2019. The Company is responsible for certain operating costs of both facilities above the monthly base lease payments.

 

Lease expense for the office facilities is recognized on a straight-line basis over the non-cancelable term. Lease expense was lower than rental payments by $4,737 and $2,648 during the six-month periods ended June 30, 2019 and 2018, respectively. Deferred lease expense totaled $5,056 and $16,270 as of June 30, 2019 and 2018, respectively, and is included in accrued expenses and other on the balance sheet.

 

The Company leases office equipment which expires at various times through November 2021 with monthly payments ranging from $329 to $1,456.

 

Lease expense totaled approximately $144,368 and $179,378 for the six-month periods ended 2019 and 2018, respectively.

 

 

Note 7: Defined Contribution Retirement Plan

 

The Company sponsors a defined contribution plan in which substantially all employees are participants. The Company's discretionary contribution expense was $94,139 and $4,938 for the six-month periods ended June 30, 2019 and 2018, respectively.

 

 

7


Cortina Asset Management, LLC

Notes to Financial Statements

 

 

Note 8: Major Clients

 

Information regarding the Company's major client is as follows for the six-month periods ended June 30:

 

 

 

2019

 

 

2018

 

 

 

Advisory

Fees

Receivable

 

 

Advisory

Fees

 

 

Percent of

Total Advisory

Fees

 

 

Advisory

Fees

Receivable

 

 

Advisory

Fees

 

 

Percent of

Total Advisory

Fees

 

Customer A

 

$

276,000

 

 

$

548,000

 

 

 

8.67

%

 

$

455,000

 

 

$

924,000

 

 

 

11.54

%

Customer B

 

$

337,000

 

 

$

674,000

 

 

 

10.66

%

 

$

375,000

 

 

$

953,000

 

 

 

11.90

%

 

 

8


 

Independent Auditor's Report

 

Members

Cortina Asset Management, LLC Milwaukee, Wisconsin

 

Report on the Financial Statements

We have audited the accompanying financial statements of Cortina Asset Management, LLC (the "Company"), which comprise the balance sheets as of December 31, 2018 and 2017, and the related statements of income and members' equity, and cash flows for the years then ended and the related notes to the financial statements.

 

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.  The procedures selected depend on the auditor’s judgment, including the assessment of  the risks of material misstatement of the financial statements whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not  for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.  An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cortina Asset Management, LLC as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States.

 

 

Wipfli LLP

April 2, 2019

Milwaukee, Wisconsin

9


 

Cortina Asset Management, LLC

Balance Sheets

 

 

As of December 31, 2018 and 2017

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

2,382,275

 

 

$

950,611

 

Advisory fees receivable

 

 

 

 

1,474,129

 

 

 

2,626,007

 

Prepaid expenses

 

 

 

 

159,674

 

 

 

183,511

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

 

 

4,016,078

 

 

 

3,760,129

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

 

 

 

 

 

Furniture and office equipment

 

 

 

 

189,362

 

 

 

189,362

 

Computer equipment and software

 

 

 

 

324,150

 

 

 

321,023

 

 

 

 

 

 

 

 

 

 

 

 

Total property and equipment

 

 

 

 

513,512

 

 

 

510,385

 

Less: Accumulated depreciation

 

 

 

 

(473,894

)

 

 

(441,504

)

 

 

 

 

 

 

 

 

 

 

 

Net property and equipment

 

 

 

 

39,618

 

 

 

68,881

 

 

 

 

 

 

 

 

 

 

 

 

Security deposit related to lease

 

 

 

 

33,705

 

 

 

67,410

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

 

$

4,089,401

 

 

$

3,896,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Members' Equity:

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

 

$

11,336

 

 

$

14,371

 

Accrued expenses and other

 

 

 

 

3,433,743

 

 

 

2,231,625

 

Equity appreciation rights liability

 

 

 

 

179,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

 

 

3,624,379

 

 

 

2,245,996

 

 

 

 

 

 

 

 

 

 

 

 

Members' equity

 

 

 

465,022

 

 

1,650,424

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND0MEMBERS' EQUITY

 

 

 

$

4,089,401

 

 

$

3,896,420

 

 

See accompanying notes to financial statements.

10


 

Cortina Asset Management, LLC

Statements of Income and Members' Equity

 

 

Years Ended December 31, 2018 and 2017

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

Advisory fees

 

$

15,672,626

 

 

$

18,192,296

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

9,126,083

 

 

 

8,243,837

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

6,546,543

 

 

 

9,948,459

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

2,346

 

 

 

217

 

Loss on disposal of property and equipment

 

 

 

 

 

(22,838

)

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

2,346

 

 

 

(22,621

)

 

 

 

 

 

 

 

 

 

Net income

 

 

6,548,889

 

 

 

9,925,838

 

 

 

 

 

 

 

 

 

 

Members' equity, beginning

 

 

1,650,424

 

 

 

1,587,054

 

Purchase of member's units

 

 

(400,000

)

 

 

 

Distributions to members

 

 

(7,334,291

)

 

 

(9,862,468

)

 

 

 

 

 

 

 

 

 

Members' equity, ending

 

$

465,022

 

 

$

1,650,424

 

 

See accompanying notes to financial statements.

11


 

Cortina Asset Management, LLC

Statements of Cash Flows

 

 

Years Ended December 31, 2018 and 2017

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents:

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

6,548,889

 

 

$

9,925,838

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

32,390

 

 

 

41,990

 

Loss on disposal of equipment

 

 

 

 

 

22,838

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Advisory fees receivable

 

1,151,878

 

 

(143,811)

 

Prepaid expenses

 

 

23,837

 

 

 

(980

)

Security deposit

 

 

33,705

 

 

 

 

Accounts payable

 

 

(3,035

)

 

 

(17,727

)

Accrued expenses and other

 

 

1,381,418

 

 

 

(235,727

)

 

 

 

 

 

 

 

 

 

Net cash from operating activities

 

9,169,082

 

 

9,592,421

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

(3,127)

 

 

(8,098)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Purchase of member's units

 

(400,000)

 

 

 

 

Members distributions

 

 

(7,334,291

)

 

 

(9,862,468

)

 

 

 

 

 

 

 

 

 

Net cash from financing activities

 

(7,734,291)

 

 

(9,862,468)

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

1,431,664

 

 

(278,145)

 

Cash and cash equivalents at beginning of year

 

 

950,611

 

 

 

1,228,756

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

$

2,382,275

 

 

$

950,611

 

 

See accompanying notes to financial statements.

12


 

Cortina Asset Management, LLC

Notes to Financial Statements

 

Note 1: Summary of Significant Accounting Policies

 

Principal Business Activity

 

Cortina Asset Management, LLC (the "Company") is an investment advisor registered with the Securities and Exchange Commission pursuant to the Investment Advisers Act of 1940 and is subject to regulations promulgated by the states in which the Company does business. The Company provides discretionary asset management services to mutual funds, corporations, pension and profit-sharing plans, foundations, trusts, individuals and other separate accounts.

 

Cash and Cash Equivalents

 

Cash equivalents are defined as short-term, highly liquid investments, which are readily convertible to cash and have remaining maturities of three months or less at the date of acquisition.

 

Advisory Fees Receivable and Revenue Recognition

 

Revenue results primarily from investment advisory fees, which generally are billed on a quarterly basis. Investment advisory fees are based upon a percentage of assets that the Company manages. Certain clients are billed in advance on the first day of the quarter and other clients are billed at the end of each quarter based on assets under management. Amounts related to advance billings are deferred and recognized over the related advisory service periods using the straight-line method. The Company does not have an allowance for uncollectible accounts, management will write off any account deemed uncollectible at the time.

 

New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU, as amended, provides comprehensive guidance on the recognition of revenue from customers arising from the transfer of goods and services, guidance on accounting for certain contract costs, and new disclosures. The new standard supersedes current revenue recognition requirements in FASB Accounting Standards Codification (ASC) Topic 605, Revenue Recognition, and most industry-specific guidance. When adopted, the amendments in the ASU must be applied using one of two retrospective methods. ASU No. 2014-09 is effective for nonpublic companies for annual periods beginning after December 15, 2018.  The Company is currently evaluating the impact of the provisions of ASC 606.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. ASU No. 2016-02 is effective for nonpublic companies for annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of the provisions of this pronouncement.

 

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Cortina Asset Management, LLC

Notes to Financial Statements

 

 

Note 1: Summary of Significant Accounting Policies (Continued)

 

Use of Estimates in Preparation of Financial Statements

 

The preparation of accompanying financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. The most significant estimate relates to the Equity Appreciation Rights Plan (Note 2).  Actual results may differ from these estimates and are subject to change in the near term.

 

Property and Equipment

 

Property and equipment are recorded at cost. Gains or losses on disposition of property and equipment are reflected in income. Depreciation on assets is computed using the straight-line method for financial reporting purposes (3 to 15 years).

 

Maintenance and repair costs are charged to expense as incurred and improvements are added to property and equipment accounts.

 

Income Taxes

 

Pursuant to the operating agreement, Cortina Asset Management, LLC's taxable income is included in the individual tax returns of its members for federal and, when allowable, state income tax purposes.

 

Subsequent Events

 

The Company has evaluated subsequent events through April 2, 2019, which is the date the financial statements were available to be issued.

 

Note 2: Equity Appreciation Rights Plan

 

The Company's equity appreciation rights plan ("EAR") provides incentive equity appreciation rights to its full- time employees who have been designated to participate. The EAR represents the right to receive, in cash, the increase in value of the Company's equity from the time of issuance to the payout date and vest ratably over a 2 year period. The Company has total discretion and authority to determine eligible participants, awarding of rights, method of payment of benefits, etc. as outlined in the EAR. The Company recognizes compensation expense over the vesting period of the rights. The Company estimates that the value of the Company has changed from the point in time when the rights were issued through December 31, 2018.  Therefore, a liability of $179,300 has been recorded at December 31, 2018. As of December 31, 2017, management estimated that the liability was not material and no liability was recorded.

 

 

14


Cortina Asset Management, LLC

Notes to Financial Statements

 

 

Note 3: Operating Agreement

 

The Company and its members are party to an Operating Agreement (“Agreement”) which governs the operations and management of the Company. The Agreement specifies the methods to be used to allocate annual profits, losses, and distributions to its members.

 

In the event of a member death, disability, or retirement, the Company shall purchase the departing member’s interest. The purchase price will be determined based on the fair market value of the Company. However, under certain circumstances the departing member shall have the option to retain their interest. The Company’s purchase price shall be based on the departing member’s pro rata share of the Company’s fair market value. The Agreement also contains provisions related to the transfer of member interests under defined circumstances.

 

Note 4: Guaranteed Payments

 

Guaranteed payments are payments made to the members for services rendered to the Company. The payments are determined without regard to the Company's income for the year or their respective ownership percentages. Health and life insurance payments made by the Company on behalf of the members are also included in guaranteed payments. These amounts are recorded as operating expenses on the statements of income and members' equity.

 

Note 5: Lease Commitments

 

The Company leases an office facility pursuant to an operating lease agreement that requires monthly payments of $11,600 through December 2020. The Company leases a second office facility pursuant to an operating lease agreement that requires monthly payments of $17,500 through April 2019. The Company is responsible for certain operating costs of both facilities above the monthly base lease payments.

 

Lease expense for the office facilities is recognized on a straight-line basis over the non-cancelable term. Lease expense was lower than rental payments by $9,124 and $5,524 during 2018 and 2017, respectively. Deferred lease expense totaled $9,793 and $18,918 as of December 31, 2018 and 2017, respectively, and is included in accrued expenses and other on the balance sheet.

 

The Company leases office equipment which expires at various times through May 2020 with monthly payments ranging from $322 to $1,342.

 

Lease expense totaled $359,927 for 2018 and $360,651 for 2017. Future minimum required lease payments are $236,490 for 2019, $161,089 for 2020 and $16,021 for 2021.

 

 

Note 6: Defined Contribution Retirement Plan

 

The Company sponsors a defined contribution plan in which substantially all employees are participants. The Company's discretionary contribution expense was $102,460 for 2018 and $114,702 for 2017.

 

 

15


Cortina Asset Management, LLC

Notes to Financial Statements

 

 

Note 7: Major Clients

 

Information regarding the Company's major clients, which are generally clients with over 10% of total advisory fees or total advisor fees receivable, is as follows for the years ended December 31:

 

 

 

2018

 

2017

 

 

 

Advisory

Fees

Receivable

 

 

Advisory

Fees

 

 

Percent of

Total Advisory

Fees

 

Advisory

Fees

Receivable

 

 

Advisory

Fees

 

 

Percent of

Total Advisory

Fees

 

Customer A

 

$

225,000

 

 

$

1,553,000

 

 

9.91 %

 

$

490,000

 

 

$

2,371,000

 

 

 

13.03

%

Customer B

 

$

278,000

 

 

$

1,586,000

 

 

10.12 %

 

$

629,000

 

 

$

1,882,000

 

 

 

10.35

%

 

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