UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Exchange Act.
Title of each class |
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Name of exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 11, 2024 the registrant had
CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, in addition to historical information. All statements, other than statements of historical facts, included in this Report that address activities, events, or developments with respect to our financial condition, results of operations, or economic performance that we expect, believe, or anticipate will or may occur in the future, or that address plans and objectives of management for future operations, are forward-looking statements. You can typically identify forward-looking statements by the use of words, such as “will,” “may,” “could,” “should,” “assume,” “project,” “believe,” “anticipate,” “expect,” “intend,” “estimate,” “potential,” “plan,” “target,” “is likely,” and other similar words. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The forward-looking statements contained in this Report are based on management’s current expectations and are subject to uncertainty and changes in circumstances. We cannot assure you that future developments affecting us will be those that we have anticipated. Forward-looking statements and our performance inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to:
We caution you that forward-looking statements are not guarantees of future performance and that actual results or performance may be materially different from those expressed or implied in the forward-looking statements. The forward-looking statements in this Report speak as of the filing date of this Report. Although we may from time to time voluntarily update our prior forward-looking statements, we undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this Report.
1
TABLE OF CONTENTS
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Item 1. |
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3 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1A. |
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Item 6. |
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2
PART I
ITEM 1. FINANCIAL STATEMENTS.
HORIZON KINETICS HOLDING CORPORATION
Condensed Consolidated Statements of Financial Condition
(in thousands)
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September 30, |
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December 31, |
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2024 |
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2023 |
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(Unaudited) |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Fees receivable |
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Investments, at fair value |
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Investments in proprietary funds |
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Operating lease right-of-use assets |
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Property and equipment, net |
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Prepaid expenses and other assets |
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Digital assets |
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Intangible assets, net |
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Goodwill |
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Total Assets |
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$ |
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$ |
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Liabilities and Shareholders’ Equity |
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Liabilities: |
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Accounts payable, accrued expenses and other |
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$ |
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$ |
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Accrued third party distribution expenses |
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Deferred revenue |
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Deferred tax liability, net |
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Operating lease liability |
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Total Liabilities |
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Shareholders' Equity |
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Preferred stock, |
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Common stock; $ |
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Additional paid-in capital |
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- |
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Retained earnings |
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Total Shareholders’ Equity |
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Total Liabilities and Shareholders’ Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements
3
HORIZON KINETICS HOLDING CORPORATION
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue: |
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Management and advisory fees |
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$ |
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$ |
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$ |
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$ |
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Other income and fees |
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Total revenue |
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Operating expenses: |
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Compensation, related employee benefits, and cost of goods sold |
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Sales, distribution and marketing |
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Depreciation and amortization |
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General and administrative expenses |
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Total operating expenses |
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Operating income |
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Other income (expense): |
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Equity in earnings of proprietary funds, net |
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Interest and dividends |
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Other income (expense) |
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Unrealized (loss) gain on digital assets, net |
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- |
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- |
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Realized gain on investments, net |
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Unrealized gain (loss) on investments net |
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Total other income (expense), net |
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Income (loss) before provision for income taxes |
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Income tax (expense) benefit |
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( |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
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Basic and diluted net income (loss) per common shares: |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic and diluted |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements
4
HORIZON KINETICS HOLDING CORPORATION
Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
(in thousands)
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Common Stock |
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Shares |
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Amount |
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Capital in Excess of Par |
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Retained Earnings |
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Total |
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Balance at December 31, 2023 |
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$ |
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$ |
- |
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$ |
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$ |
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Cumulative effect of the adoption of , net of income taxes |
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- |
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- |
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- |
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Distributions |
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- |
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- |
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- |
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( |
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Net income |
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- |
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- |
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- |
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Balance at March 31, 2024 |
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$ |
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$ |
- |
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$ |
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$ |
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Distributions |
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- |
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- |
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- |
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( |
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Net income |
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- |
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- |
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- |
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Balance at June 30, 2024 |
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$ |
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$ |
- |
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$ |
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$ |
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Contributions of investment securities, net |
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- |
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- |
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- |
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Shares issued for acquisition, net |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
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$ |
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Balance at December 31, 2022 |
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$ |
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$ |
- |
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$ |
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$ |
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Distributions |
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- |
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- |
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- |
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( |
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Net loss |
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- |
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- |
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- |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
- |
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$ |
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$ |
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Distributions |
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- |
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- |
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- |
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( |
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Net loss |
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- |
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- |
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- |
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( |
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Balance at June 30, 2023 |
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$ |
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$ |
- |
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$ |
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$ |
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Distributions |
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- |
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- |
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- |
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( |
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Net income |
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- |
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- |
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- |
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Balance at September 30, 2023 |
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$ |
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$ |
- |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements
5
HORIZON KINETICS HOLDING CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
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Nine Months Ended September 30, |
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2024 |
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2023 |
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Operating activities: |
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Net cash provided by operating activities |
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$ |
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$ |
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Investing activities: |
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Proceeds from sale of investments |
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Purchases of property and equipment |
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( |
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Purchases of investments |
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( |
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Cash acquired from acquisition |
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- |
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Net cash provided by investing activities |
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Financing activities: |
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Distributions paid |
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Cash contributions from affiliates |
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- |
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Net cash used in financing activities |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents, beginning of year |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental disclosure of non-cash investing activities: |
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Net assets acquired in acquisition |
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$ |
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$ |
- |
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Supplemental disclosure of non-cash financing activities: |
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Net contributions of investment securities from affiliates |
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$ |
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$ |
- |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements
6
HORIZON KINETICS HOLDING CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except per share data)
Note 1. General
The accompanying unaudited interim Condensed Consolidated Financial Statements of Horizon Kinetics Holding Corporation, a Delaware Company (along with its wholly-owned subsidiaries, collectively referred to as the “Company”, “HKHC” or in the first-person notations of “we”, “us” and “our”) were prepared in accordance with accounting principles generally accepted in the United States of America and the interim financial statement rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Condensed Consolidated Financial Statements. The interim operating results are not necessarily indicative of the results for a full year or for any interim period. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. The accompanying Condensed Consolidated Statement of Financial Condition as of December 31, 2023 has been derived from the Company's annual financial statements for the year ended December 31, 2023. The Condensed Consolidated Financial Statements included herein should be read in conjunction with the audited consolidated financial statements and accompanying notes of Horizon Kinetics, LLC and Subsidiaries included in our Form DEF 14A filed with the SEC on May 13, 2024.
The Condensed Consolidated Financial Statements include the accounts of HKHC and all of its wholly-owned subsidiaries (Horizon Kinetics Asset Management LLC, Kinetics Funds Distributor LLC, KBD Securities LLC and SLG Chemicals, Inc.). All intercompany balances and transactions have been eliminated in consolidation.
On August 1, 2024, the Company, formerly known as “Scott’s Liquid Gold-Inc.,” completed its previously announced merger in accordance with the terms and conditions of the Agreement and Plan of Merger, dated December 19, 2023, as amended (collectively, the “Merger Agreement”), by and among Scott’s Liquid Gold-Inc., a Colorado corporation (“SLGD”), Horizon Kinetics, LLC, a Delaware limited liability company (“Horizon Kinetics”), and HKNY One, LLC, a Delaware limited liability company and wholly owned subsidiary of SLGD (“Merger Sub”). In accordance with the Merger Agreement, Merger Sub merged with and into Horizon Kinetics, with Horizon Kinetics surviving the merger as a wholly-owned subsidiary of the Company (the “Merger”).
In the Merger, all of the ownership interests in Horizon Kinetics were converted into an aggregate of
The Company accounted for the Merger as a reverse acquisition. As such, Horizon Kinetics is considered the accounting acquirer. Therefore, Horizon Kinetics’ historical financial statements are the historical financial statements following the completion of the Merger, and the results of operations of the post-merger company are included in our financial statements for all periods subsequent to August 1, 2024. For additional information related to the Merger, see Note 3 – Acquisitions.
7
Note 2. Summary of Significant Accounting Policies
(a) Consolidation
In addition to its wholly-owned subsidiaries, generally accepted accounting principles in the United States of America (“GAAP”) requires that the assets, liabilities and results of operations of a variable interest entity (“VIE”) be consolidated into the financial statements of the enterprise that has a controlling interest in the VIE. The determination as to whether an entity qualifies as a VIE depends on the facts and circumstances surrounding each entity, and therefore certain of the investment vehicles managed by the Company may qualify as VIEs under the variable interest model, whereas others may qualify as voting interest entities
(“VOEs”) under the voting interest model. The granting of substantive kick-out rights is a key consideration in determining whether a limited partnership or similar entity is a VIE and whether or not that entity should be consolidated. The Company first evaluates whether it holds a variable interest in an entity. Fees that are customary and commensurate with the level of services provided, and where the Company does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, would not be considered a variable interest. The Company factors in all economic interests including proportionate interests through related parties, to determine if such interests are considered a variable interest. As the Company’s interests in many of these entities are solely associated with market rate fees and/or insignificant indirect interests through related parties, the Company is not considered to have a variable interest in many of these entities. For entities where the Company has determined that it does hold a variable interest, the Company performs an assessment to determine whether each of those entities qualify as a VIE.
(b) Use of estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
(c) Liquidity
The Company believes that its cash and cash equivalents will be sufficient to fund operations past one year from the issuance of these condensed consolidated financial statements.
(d) Digital assets
Through December 31, 2023, the Company accounted for digital assets in accordance with the AICPA’s practice aid “Accounting for and auditing of digital assets.” In accordance with this practice aid, digital assets are accounted for as an indefinite-lived intangible asset and are initially valued based on the current price of the digital asset at the time the digital asset was received. During 2023, the Company evaluated digital assets for impairment on a daily basis or when events or changes indicate the carrying value may not be recoverable by using the daily low price. The Company has evaluated its digital assets for impairment and did not record any impairments for the three and nine months ended September 30, 2023.
Effective January 1, 2024, the Company measures digital assets at fair value with changes recognized in earnings in each reporting period. The Company tracks its cost basis of digital assets in accordance with first-in-first-out method of accounting.
The Company’s digital assets are all Level 1 within the fair value hierarchy, except for certain other assets with a fair value of $
8
The following tables present additional information about the Company’s digital assets as of September 30, 2024 and December 31, 2023, respectively:
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September 30, 2024 |
|
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December 31, 2023 |
|
||||||||||||||||||
|
|
Units Held |
|
|
Cost Basis |
|
|
Fair Value |
|
|
Units Held |
|
|
Cost Basis |
|
|
Fair Value |
|
||||||
Bitcoin |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
||||||
Litecoin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Ethereum |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Bitcoin Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
All others |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
||||||
(e) Investments, at fair value
(f) Investments in proprietary funds
For investments in entities over which the Company exercises significant influence, but which do not meet the requirements for consolidation and for which the Company has not elected the fair value option, the Company uses the equity method of accounting, whereby the Company records its share of the underlying income or loss of such entities. The Company’s share of the underlying net income or loss of such entities is recorded in equity in earnings of affiliated investments on the condensed consolidated statement of operations. As the underlying entities that the Company manages and invests in are, for U.S. GAAP purposes, primarily investment companies accounted for under Accounting Standards Codification (“ASC”) Topic 946 which reflect their investments at fair value, the carrying value of the Company’s equity method investments in such entities approximates fair value.
(g) Other investments
We account for other investments that are not accounted for under the equity method that do not have a readily determinable fair value under the fair value measurement alternative. Under the fair value measurement alternative, these investments are based on our original cost less impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar interests of the same issuer. Under this method, our share of the income or losses of such companies is not included in our Consolidated Statements of Operations, however, the result of observable price changes, if any, are reflected in Other income (loss), net. We include the carrying value of these investments in Investments in proprietary funds on the Condensed Consolidated Balance sheets.
(h) Fair value measurements:
The Company values certain of its financial assets and liabilities based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance emphasizes that fair value is a market-based measurement that should be determined based on the assumptions market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, accounting guidance establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) the reporting entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). Valuation techniques used to measure fair value shall maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:
Level 1 Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments are not applied to Level 1 investments. Since
9
valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these investments does not entail a significant degree of judgment.
Level 2 Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The fair value hierarchy guidance gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
(i) Revenue Recognition
The Company recognizes revenue under Financial Accounting Standards Board's (FASB) Accounting Standards Update (ASU) 2014-09, Revenue From Contracts With Customers (Topic 606). The Company recognizes revenue when the performance obligation is satisfied, which is the point at which control of the promised goods or services are transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services.
Management fees, which are generally calculated as a percentage of assets under management, are recognized when earned and collection is probable. Certain contracts for management services also provide for performance-based fees (“Incentive Fees”), which are generally earned when a predefined minimum investment return (“Return Threshold”) for the managed funds are earned. When applicable, Incentive Fees are recognized in the statements of operations based on the contractual conditions set forth in the agreements governing the managed funds as if the managed funds were terminated and liquidated at the reporting date and the managed funds’ investments were realized at the then estimated fair values.
Incentive Fee revenue is recorded when earned by the fund managers of those managed funds to the extent that Return Thresholds have been met and it is probable that a significant reversal of revenue will not occur. Management and advisory fees are comprised of base management fees, advisory and other fees and are accounted for as contracts with customers. The Company earns base management fees from its customers at a fixed percentage of a calculation base which is typically invested capital or net asset value. The Company identifies its customers on a fund-by-fund basis in accordance with the terms and circumstances of the individual fund. Generally, the customer is identified as the investor in its managed funds and investment vehicles, but for certain widely held funds or vehicles, the fund or vehicle itself may be identified as the customer. These customer contracts require the Company to provide investment management services over a period of time, which represents a performance obligation that the Company satisfies over time. Management fees are a form of variable consideration because the fees that the Company is entitled to vary based on fluctuations in the basis for the management fee. The amount recorded as revenue is generally determined at the end of the period because these management fees are payable on a regular basis (typically monthly) and are not subject to claw back once paid. Transaction, advisory and other fees are principally fees charged to the investors of funds indirectly through the managed funds. These fees are based on a fixed percentage of enterprise value or equity value of pooled capital raised and are earned which generally coincides with when the capital is called. These fees are not tied to performance or ongoing investment management services, are not subject to claw back and are recorded in the period in which the related transaction closes. Accrued but unpaid management and advisory fees as of the reporting date are included in fees receivable.
The following table disaggregates our management services revenue by type:
|
|
Three months ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Mutual fund management fees |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
ETF management fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Separately managed account management fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Proprietary fund management fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
10
The following table presents balances of management fees receivable by type:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Mutual fund management fees |
|
$ |
|
|
$ |
|
||
ETF management fees |
|
|
|
|
|
|
||
Separately managed account management fees |
|
|
|
|
|
|
||
Proprietary fund management fees |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
(j) Other revenue
The Company produces investment research reports for individual and institutional research clients. In addition, the Company retains a third-party marketing firm to market and distribute its research reports. Clients subscribe at a monthly, annual or multi-annual level. Income is accrued monthly based on current subscription base.
The Company also generates revenue from sales of consumer products. Consumer product revenue contracts are identified when purchase orders are received and accepted from customers and represent a single performance obligation to sell our products to a customer, and are recorded net of expected customer allowances and promotional programs. Net revenues are recorded at the time that control of the products is transferred to customers.
(k) Third party distribution
The Company has agreements in place with several third-party distribution firms and individual marketers (“Marketers”). Generally, each party to the agreement may terminate the agreement in a short notice period. Third party distribution expenses are earned by the Marketers based on revenue earned from some of the Company’s investment products generated by the respective Marketers. Accrued third party distribution expenses represent expenses that have been accrued but not paid. In the event that related fees receivable are deemed uncollectible, both related fees receivable and accrued third party distribution expenses will be written off.
(l) Income taxes
Income taxes reflect the tax effects of transactions reported in the Condensed Consolidated Financial Statements and consist of taxes currently payable plus deferred income taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. A valuation allowance is established when it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which related temporary differences become deductible. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Taxes are reported based on tax positions that meet a more-likely-than-not standard and that are measured at the amount that is more-likely-than-not to be realized. Differences between financial and tax reporting which do not meet this threshold are required to be recorded as unrecognized tax benefits or expense. We classify penalty and interest expense related to income tax liabilities as an income tax expense. There are no significant interest and penalties recognized in the Consolidated Statements of Operations or accrued on the Consolidated Balance Sheets.
11
(m) Recently adopted accounting pronouncements
In December 2023, the FASB issued ASU No. 2023-08, Intangibles - Goodwill and Other - Crypto Assets (Topic 350-60). ASU No. 2023-08 requires that an entity measure crypto assets at fair value with changes recognized in net income at each reporting period and present crypto assets separately from other intangible assets in the balance sheet and changes from the remeasurement of crypto assets separately from changes in the carrying amounts of other intangible assets in the income statement. ASU No. 2023-08 is effective for annual periods beginning after December 15, 2024 and interim periods within annual periods beginning after December 15, 2024. The Company
(n) Recently issued accounting pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU No. 2023-07 requires disclosures about significant segment expenses and additional interim disclosure requirements. This standard also requires a single reportable segment to provide all disclosures required by Accounting Standards Codification Topic 280. This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively for all prior periods presented in the consolidated financial statements. We intend to adopt this standard in our Annual Report on Form 10-K for the year ending December 31, 2024. We are currently evaluating the potential impact of adopting this standard on our disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU No. 2023-09 establishes incremental disaggregation of income tax disclosures pertaining to the effective tax rate reconciliation and income taxes paid. This standard is effective for fiscal years beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively. We intend to adopt this standard in our Annual Report on Form 10-K for the year ending December 31, 2025. We are currently evaluating the potential impact of adopting this standard on our disclosures.
Note 3. Acquisitions
On August 1, 2024, the Company completed its previously announced merger in accordance with the terms and conditions of the Merger Agreement, by and among SLGD, Horizon Kinetics, and Merger Sub.
In the Merger, all of the ownership interests in Horizon Kinetics were converted into an aggregate of
The Company accounted for the Merger as a reverse acquisition. As such, Horizon Kinetics is considered the accounting acquirer. Therefore, Horizon Kinetics’ historical financial statements replace SLGD’s historical financial statements following the completion of the Merger, and the results of operations of both companies will be included in our financial statements for all periods subsequent to August 1, 2024.
12
Because the Merger is considered a reverse acquisition for accounting purposes, the fair value of the purchase consideration is calculated based on the Company’s stock price as it is considered to be a more reliable determination than the fair value of Horizon Kinetics’ private stock. Consideration is estimated based on the Company’s closing stock price on August 1, 2024.
Shares of Scott's Liquid Gold-Inc. |
|
|
|
|
Share price on August 1, 2024 |
|
$ |
|
|
Fair value of consideration |
|
$ |
|
The preliminary purchase price as shown in the table above is allocated to the tangible and intangible assets acquired and liabilities assumed by the Company based on their preliminary estimated fair values.
Description |
|
Amount |
|
|
Cash and cash equivalents |
|
$ |
|
|
Other current assets |
|
|
|
|
Other non-current assets |
|
|
|
|
Intangible assets, net |
|
|
|
|
Goodwill |
|
|
|
|
Deferred tax asset |
|
|
|
|
Current liabilities |
|
|
( |
) |
Non-current liabilities |
|
|
( |
) |
Preliminary purchase price |
|
$ |
|
|
The following table presents the unaudited pro forma information assuming the Merger occurred on January 1, 2023.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic and diluted earnings (loss) per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Basic and diluted weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
These calculations reflect the increased amortization expense of intangible assets and the consequential income tax effects that would have resulted had the Merger closed on January 1, 2023.
Note 4. Investments, at Fair Value
As of September 30, 2024 the Company owned investments in marketable securities with a fair value of $
13
The following summarizes the Company’s investments accounted for at fair value at September 30, 2024 using the fair value hierarchy:
|
|
September 30, 2024 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Texas Pacific Land Corporation |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
||
Kinetics Market Opportunities Fund |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Kinetics Mutual Funds and ETFs |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Kinetics Spin-Off and Corporate Restructuring Fund-Institutional Class |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
All other market traded equity securities |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
CBOE Global Markets |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
FRMO Corporation |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Grayscale Bitcoin Trust |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Totals |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Market traded equity securities - sold short |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
Total Liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|||
The following summarizes the Company’s investments accounted for at fair value at December 31, 2023 using the fair value hierarchy:
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Texas Pacific Land Corporation |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
||
Kinetics Spin-Off and Corporate Restructuring Fund-Institutional Class |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
All other market traded equity securities |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
FRMO Corporation |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Horizon Kinetics SPAC Active ETF |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Grayscale Bitcoin Trust |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Kinetics Mutual Funds and ETFs |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Totals |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Market traded equity securities - sold short |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
Total Liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|||
As of September 30, 2024 and December 31, 2023, there are
14
Note 5. Investments in Proprietary Funds
At September 30, 2024 and December 31, 2023, investments in proprietary funds, which are recorded using the equity method of accounting, consist of the following:
|
|
September 30, 2024 |
|
|||||||||||||||||
|
|
Equity Held |
|
|
Ownership |
|
|
Management |
|
|
Performance |
|
|
Receivable at September 30, 2024 |
|
|||||
Polestar Fund LP (Class A and S) |
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Kinetics Institutional Partners LP |
|
|
|
|
|
% |
|
|
|
|
|
- |
|
|
|
|
||||
Horizon Multi-Strategy Fund, LP |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|||||
Horizon Kinetics Equity Opportunities Fund (All classes) |
|
|
|
|
|
% |
|
|
- |
|
|
|
|
|
|
|
||||
Horizon Multi-Disciplinary Fund, LP |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|||||
Kinetics Partners LP |
|
|
|
|
|
% |
|
|
|
|
|
- |
|
|
|
|
||||
Horizon Kinetics Hard Assets, LLC |
|
|
|
|
|
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
||
All others |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
December 31, 2023 |
|
|||||||||||||||||
|
|
Equity Held |
|
|
Ownership |
|
|
Management |
|
|
Performance |
|
|
Receivable at December 31, 2023 |
|
|||||
Polestar Fund LP (Class A and S) |
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Kinetics Institutional Partners LP |
|
|
|
|
|
% |
|
|
|
|
|
- |
|
|
|
|
||||
Horizon Multi-Strategy Fund, LP |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|||||
Horizon Kinetics Equity Opportunities Fund (All classes) |
|
|
|
|
|
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
||
Horizon Multi-Disciplinary Fund, LP |
|
|
|
|
|
% |
|
|
|
|
|
- |
|
|
|
|
||||
Kinetics Partners LP |
|
|
|
|
|
% |
|
|
|
|
|
- |
|
|
|
|
||||
Horizon Kinetics Hard Assets, LLC |
|
|
|
|
|
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
||
All others |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
The tables below present summarized financial information of the Company’s equity method investments at September 30, 2024:
|
|
Statement of Financial Condition |
|
|||||||||||||
|
|
Net Long |
|
|
Other Assets |
|
|
Liabilities |
|
|
Equity |
|
||||
Polestar Fund LP (Class A and S) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Kinetics Institutional Partners LP |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Horizon Multi-Strategy Fund, LP |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Horizon Kinetics Equity Opportunities Fund (All classes) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Horizon Multi-Disciplinary Fund, LP |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
Kinetics Partners LP |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Horizon Kinetics Hard Assets, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
||||
All others |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
15
|
|
Statement of Operations |
|
|||||||||||||
|
|
Revenue / |
|
|
(Expenses) |
|
|
Net Realized |
|
|
Net Income |
|
||||
Polestar Fund LP (Class A and S) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Kinetics Institutional Partners LP |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Horizon Multi-Strategy Fund, LP |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Horizon Kinetics Equity Opportunities Fund (All classes) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Horizon Multi-Disciplinary Fund, LP |
|
|
- |
|
|
|
( |
) |
|
|
|
|
|
|
||
Kinetics Partners LP |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Horizon Kinetics Hard Assets, LLC |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
All others |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
The tables below present summarized financial information of the Company’s equity method investments at December 31, 2023:
|
|
Statement of Financial Condition |
|
|||||||||||||
|
|
Net Long |
|
|
Other Assets |
|
|
Liabilities |
|
|
Equity |
|
||||
Polestar Fund LP (Class A and S) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Kinetics Institutional Partners LP |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Horizon Multi-Strategy Fund, LP |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Horizon Kinetics Equity Opportunities Fund (All classes) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Horizon Multi-Disciplinary Fund, LP |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|||
Kinetics Partners LP |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Horizon Kinetics Hard Assets, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
||||
All others |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Statement of Operations |
|
|||||||||||||
|
|
Revenue / |
|
|
(Expenses) |
|
|
Net Realized |
|
|
Net Income |
|
||||
Polestar Fund LP (Class A and S) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Kinetics Institutional Partners LP |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Horizon Multi-Strategy Fund, LP |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Horizon Kinetics Equity Opportunities Fund (All classes) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Horizon Multi-Disciplinary Fund, LP |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Kinetics Partners LP |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Horizon Kinetics Hard Assets, LLC |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
All others |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
The Company also maintains a variety of investments in private funds or partnerships that are recorded either on the fair value measurement alternative or equity method as applicable. As of September 30, 2024 and December 31, 2023, these amounts aggregated to $
16
Note 6. Related Party Transactions
As of September 30, 2024 and December 31, 2023, amounts due to or due from the Company to related party affiliates is summarized as follows:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Receivable |
|
|
Payable |
|
|
Receivable |
|
|
Payable |
|
||||
Horizon Common Inc. |
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Kinetics Common Inc. |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
Kinetics Holding Corporation |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
Proprietary funds |
|
|
|
|
|
- |
|
|
|
|
|
|
( |
) |
||
FRMO Corporation |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
HM Tech |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
Other affiliated entities |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
For the three and nine months ended September 30, 2024 and 2023, amounts recognized from related party affiliates is summarized as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||||||||||||||||||
|
|
Revenues |
|
|
Expenses |
|
|
Revenues |
|
|
Expenses |
|
|
Revenues |
|
|
Expenses |
|
|
Revenues |
|
|
Expenses |
|
||||||||
Proprietary funds |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
||||
FRMO Corporation |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||||
Consensus Mining & Seigniorage Corp |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||||
HM Tech |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Certain co-founders of HK LLC are also shareholders of FRMO Corporation (“FRMO”). FRMO has a right to a
The Company has waived, or provides discounted management and advisory fees, for assets under management in proprietary funds or separately managed accounts for Shareholders’ and their direct families, FRMO, Horizon Common Inc., Kinetics Holding Corporation and employees of the Company.
The Company owns an equity interest and has advanced funds in exchange for notes receivable to HM Tech, a service provider for digital asset mining operations. The Company has also recently agreed to guarantee a $
Note 7. Stock-Based Compensation and Shareholders’ Equity
Prior to the Merger, as defined in the Horizon Kinetics amended limited liability agreement dated as of May 1, 2011, each of two class memberships (Class A-1 and Class A-2) had certain voting rights, and profits, losses, and distributions were allocated to members as determined by the board of managers in accordance with the amended limited liability agreement. Horizon Kinetics made distributions to members on a quarterly basis, based on their ownership percentage of the respective units outstanding. Horizon Kinetics also authorized the issuance of Class B membership units, but none were issued prior to the Merger.
17
On July 1, 2024, the Company issued
Note 8. Earnings per Share
Per share data is determined by using the weighted average number of common shares outstanding. Common equivalent shares are considered only for diluted earnings per share, unless considered anti-dilutive. Common equivalent shares, determined using the treasury stock method, result from stock options with exercise prices that are below the average market price of the common stock.
Basic earnings per share include no dilution and are computed by dividing income available to common shareholders by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflect the potential of securities that could share in our earnings.
Common stock equivalents that have been excluded from the calculation of earnings per share because they would have been anti-dilutive are de minimis for the three and nine months ended September 30, 2024 and 2023, respectively, and have
Note 9. Segment Information
We operate in
The following provides information on our segments for the three and nine months ended September 30:
|
|
Three Months Ended September 30, 2024 |
|
|
Three Months Ended September 30, 2023 |
|
||||||||||||||||||
|
|
Asset Management |
|
|
Consumer Products |
|
|
Total |
|
|
Asset Management |
|
|
Consumer Products |
|
|
Total |
|
||||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||||
Income (loss) before provision for income taxes |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||||
Identifiable assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||||
|
|
Nine Months Ended September 30, 2024 |
|
|
Nine Months Ended September 30, 2023 |
|
||||||||||||||||||
|
|
Asset Management |
|
|
Consumer Products |
|
|
Total |
|
|
Asset Management |
|
|
Consumer Products |
|
|
Total |
|
||||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||||
Income (loss) before provision for income taxes |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||||
Identifiable assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||||
As of September 30, 2024 and December 31, 2023, all of the Company’s assets were located in the United States of America.
Note 10. Income Taxes
Prior to July 1, 2024, the Company was not subject to federal or state income taxes as its income and losses are includable in the tax returns of its members. The Company was required to file returns and pay tax in various state and local jurisdictions as a result
18
of its operations or residency. Accordingly, the Company was subject to New York City unincorporated business income tax (“UBT”) and annual limited liability company fees in New York and Delaware. For the nine months ended September 30, 2023, the provision (benefit) for income taxes was $(
On July 1, 2024, the Company filed to convert from an LLC to a C-Corp for federal and state income taxes. As a result, the Company recognized a deferred income tax expense of $
|
|
Nine Months Ended September 30, 2024 |
|
|
Current provision: |
|
|
|
|
Federal |
|
$ |
|
|
State |
|
|
|
|
Total current provision |
|
|
|
|
Deferred provision: |
|
|
|
|
Federal |
|
|
|
|
State |
|
|
|
|
Total deferred provision |
|
|
|
|
Provision: |
|
|
|
|
Federal |
|
|
|
|
State |
|
|
|
|
Total provision |
|
$ |
|
|
Income tax expense at the statutory tax rate is reconciled to the overall income tax expense for the nine months ended September 30, 2024 as follows:
|
|
Nine Months Ended September 30, 2024 |
|
|
Federal income tax from continuing operations at statutory rates |
|
|
% |
|
State income taxes, net of federal tax effect |
|
|
% |
|
Permanent differences |
|
|
% |
|
Conversion to C-Corporation status |
|
|
% |
|
Other |
|
|
( |
)% |
Provision for income taxes |
|
|
% |
|
The net deferred tax assets and liabilities as of September 30, 2024 are comprised of the following:
|
|
September 30, 2024 |
|
|
Deferred tax assets: |
|
|
|
|
Net operating loss carryforwards |
|
$ |
|
|
Operating lease liabilities |
|
|
|
|
Other |
|
|
|
|
Total deferred tax assets |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
Digital assets |
|
|
|
|
Operating lease right-of-use assets |
|
|
|
|
Investments, at fair value |
|
|
|
|
Investments in proprietary funds |
|
|
|
|
Intangible assets and goodwill |
|
|
|
|
Total deferred tax liabilities |
|
|
|
|
|
|
|
|
|
Deferred tax liability, net |
|
$ |
|
|
19
The net deferred tax liability of $
Note 11. Lease Liabilities
The Company leases office space in primarily four locations, principally the company’s corporate headquarters. As part of the Merger, the Company acquired an operating lease and sublease agreement with third parties. The Company’s operating leases have remaining lease terms of to
The Company’s expected future minimum annual lease payments are as follows:
2024 (remainder) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total minimum lease payments |
|
$ |
|
|
Less: imputed interest |
|
|
( |
) |
|
|
|
|
|
Total operating lease liability |
|
$ |
|
|
The discount rates used to calculate the Company’s initial lease liability ranged from
The Company recognized amortization expense related to all their operating leases in the condensed consolidated statements of operations for the periods ending September 30, 2024 and 2023. This expense represents the amortization of the right-of-use asset associated with the operating leases.
Note 12. Commitments and Contingencies
Mutual and proprietary fund expense reimbursement
The Company has voluntarily agreed to certain expense reimbursement agreements in place with Kinetics Mutual Funds Inc. (“Kinetics Funds”) that are renewed annually by the Investment Adviser at its discretion. Each Kinetics Fund has an agreed upon expense percentage cap (“Cap”) with the Company. When the overall expenses of the Kinetics Funds for the month reach an agreed upon level, any expenses incurred above the Cap are reimbursed by the Company to the Kinetics Funds. In accordance with the private placement memorandums of certain hedge funds the Company manages (the “Funds”), the Investment Adviser has agreed to reimburse any expenses incurred above a predetermined Cap to the Funds. For the three months ended September 30, 2024 and 2023, the Company reimbursed to the Kinetics Funds $
Contingencies
The Company and the companies in which it holds ownership interests may be involved in various claims and legal actions in the ordinary course of business. Currently there are no material pending claims or legal actions against the Company or the companies in which it holds ownership interests. The Company records the costs associated with legal fees as such services are rendered.
20
Note 13. Subsequent events
On
The Company has evaluated subsequent events through November 11, 2024, which is the date the condensed consolidated financial statements were available to be issued.
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the historical consolidated financial statements of HKHC and the related notes included elsewhere in this current report. The historical consolidated financial data discussed below reflect its historical results of operations and financial position. The following discussion and analysis contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included in the section entitled “Risk Factors” contained elsewhere in this current report describing key risks associated with the business, operations and industry of HKHC. Amounts and percentages presented throughout this section may reflect rounding adjustments and consequently totals may not appear to sum. The items discussed below have had significant effects on many items within HKHC’s consolidated financial statements and affect the comparison of the current period’s activity with those of prior periods.
Overview
HKHC is a research driven, fundamentals-oriented asset manager serving institutions, individuals and financial professionals. It provides investment management services through its wholly-owned subsidiary and registered investment adviser, Horizon Kinetics Asset Management LLC. Through this subsidiary, it manages a number of strategies, most of which are focused on publicly-traded equity securities, but also private investments and digital assets. To accommodate different investing preferences, HKHC’s offerings can be accessed in a variety of ways, including through mutual funds, ETFs, a closed end fund, separately managed accounts that can be customized to the unique investment objectives and risk tolerances of individual clients, and, for qualified investors, via private proprietary partnerships typically known as alternative investments. HKHC raises capital for and manages these strategies, and it earns a management fee that varies among products. In certain instances, the fee it earns is tied to the performance of the account. HKHC also produces a number of research reports and compendia that are sold mainly to institutions, as it believes that the discipline required to produce written research encourages thorough qualitative and quantitative analysis. As of September 30, 2024, the Company had regulatory assets under management ("AUM") of $8.3 billion.
HKHC also manages a portfolio of investment securities for its own benefit, which has historically impacted and is expected to impact future results of operations, often significantly so. As of September 30, 2024, we held investment securities (at fair value) of $74.9 million, which represented 20.5% of total assets. In addition, we have devoted capital to a variety of the proprietary alternative investment funds it manages. As of September 30, 2024, HKHC’s investments in these proprietary funds are $177.9 million, which represented 48.7% of total assets.
In addition to investment management and research activities, HKHC operates two wholly-owned, limited purpose broker-dealers, KBD Securities LLC and Kinetics Funds Distributor LLC, both of which are only used for the marketing and promotion of its investment products. We pay a portion of the fee it earns to these and other third-party firms who assist it in marketing.
Along with investing on behalf of clients, HKHC also uses its own capital to invest along with its clients in many of its proprietary products and makes direct investments in public and private instruments including digital assets. Certain employees do, from time to time, serve as management or as a member of the board of directors of the companies in which we invest.
Primary Sources of Revenue
Management or advisory fees are our primary source of revenue.
The management fees for separately managed accounts are generally calculated on the basis of a percentage of the value of each client’s assets (assets under management) and are charged using either an average daily balance or monthly or quarterly ending balance, and either in arrears or advance.
The Company also earns management fees in its proprietary funds (mutual funds, ETFs, closed-end funds and proprietary partnerships) as compensation for internal fund management and advisory services. The management fees for the proprietary funds vary by fund and investment strategy and are typically approximately between 0.25% and 2.00% of the net asset value of the funds’ underlying investments.
22
Some clients of HKHC in certain separately managed accounts may pay performance fees in addition to or in lieu of management fees, if their portfolio achieves positive investment returns, in certain cases, in excess of an agreed benchmark or hurdle rate. Typically, such fees are paid annually upon crystallization or when a client closes their investment and are not accrued prior to being earned. Unearned performance fees resulting from the performance of the Company’s proprietary funds for the nine months ended September 30, 2024 are approximately $23.3 million. These unearned performance fees are subject to change based on market prices and generally expected to be resolved during the fourth quarter of 2024 once it is probable that a significant reversal of revenue will not occur.
The Company is also entitled to receive incentive fees on proprietary partnerships if certain performance returns have been achieved as stipulated in the governing documents of the applicable fund. The incentive fees are typically calculated as a percentage of the gains experienced by each partner in the respective fund. Typically, such fees are paid annually upon crystallization or when a client closes their investment and are not accrued prior to being earned. HKHC recognizes its incentive fees when it is no longer probable that a significant reversal of revenue will occur. The Company’s incentive fees are not subject to clawback provisions. As a result of the Merger, the Company also earned revenues from sales of consumer products.
Business Highlights in the third quarter of 2024
Total revenue
Assets under management
Investment performance
Results of Operations for the three months ended September 30, 2024
Revenues
Management and advisory fees
The Company’s total management and advisory fees increased approximately $2.2 million, or 17%, for the three months ended September 30, 2024 compared to the prior year. The increase is due to higher management fees in proprietary funds and separately managed accounts due to higher AUM during the quarter. However, there was a decline of $0.3 million related to the INFL ETF as the AUM declined from approximately $1.2 billion in 2023 to $1.0 billion at September 30, 2024. These declines were partially offset by a $0.6 million increase in management fees related to incentive fees that were crystallized as part of investor redemptions from various proprietary funds during the quarter.
Other income and fees
23
Other income and fees during the three months ended September 30, 2024 includes primarily revenue from product sales resulting from the acquisition of Scott’s Liquid Gold. The quarter included two months of revenue from these product sales, which accounted for all of the quarterly revenue increase. Other income and fees also includes revenues resulting from the Company’s research services and digital asset mining activities.
Operating Expenses
Compensation, employee benefits, and cost of goods sold
The Company’s operating expenses include employee compensation for investment professionals and other management personnel as well as cost of goods sold for consumer products acquired in the Merger with SLGD. HKHC’s compensation costs for the three months ended September 30, 2024 increased by approximately $1.1 million, or 16%, compared to the prior year, due to higher internal commissions, additional personnel, and $0.4 million of cost of products sold in the current quarter.
Sales, distribution and marketing expenses
For the three months ended September 30, 2024, sales, distribution and marketing expenses increased $0.6 million, or 25%, compared to the prior quarter, as the result of higher amounts of $0.1 million due to FRMO pursuant to its revenue sharing agreement with HKHC, higher platform fees, incentive fee commissions and other management fee commissions earned due to generally increasing AUM and management fees during the quarter, and fulfillment costs associated with sales of consumer products.
Depreciation and amortization
Depreciation and amortization increased slightly for the three months ended September 30, 2024 as compared to the prior year due to additional amortization expense of intangible assets from the Merger with SLGD.
General and administrative expenses
For the three months ended September 30, 2024, general and administrative expenses increased by $1.2 million, or 74%, compared to the prior quarter. The Company continued to experience certain higher accounting, professional, and legal fees during the three months September 30, 2024 in preparation and as a result of the Merger with SLGD. The Company also began incurring Director fee costs and included a partial quarter of SLGD’s general and administrative expenses subsequent to the Merger date of $0.1 million.
Equity in income of proprietary funds, net
The Equity in income of proprietary funds increased by $6.5 million for the three months ended September 30, 2024 compared to the prior year. The increase was due to higher net asset values at proprietary funds whose underlying assets were dominated by holdings of TPL, which increased 21% during the quarter, including Kinetics Institutional Partners, Kinetics Partners, Horizon Multi-Disciplinary Fund and others. Those increases were partially offset by other proprietary funds whose primary holding included Grayscale Bitcoin Trust, which declined approximately 5% during the quarter.
Interest and dividend income
Interest and dividend income increased by $0.7 million for the three months ended September 30, 2024 as compared to the prior year due to a special dividend received during the quarter from TPL.
Unrealized loss on digital assets, net
Unrealized loss on digital assets, net decreased by $0.1 million for the three months ended September 30, 2024, compared to the prior year, primarily due to decreases in multiple of our smaller digital asset holdings.
Unrealized gain (loss) on investments, net
For the three months ended September 30, 2024, unrealized gains (losses) on investments increased by $2.7 million compared to the prior year. This increase was due primarily to the $8.9 million unrealized gain on TPL stock during the three months ended September 30, 2024 resulting from its approximately 21% increase in its fair value.
24
Income tax benefit (expense)
On July 1, 2024, the Company filed to convert from an LLC to a C-Corp for federal and state income taxes. As a result, the Company recognized a deferred income tax expense of $59.7 million related to the tax basis differences for certain assets, principally unrealized gains in various investments, digital assets and indefinite lived intangible assets from the Company’s 2011 merger transaction. Due to primarily to additional unrealized gains of investment securities and proprietary funds during the quarter, the Company recorded an additional $8.9 million additional deferred tax expense.
Results of Operations for the nine months ended September 30, 2024
Revenues
Management and advisory fees
HKHC’s total revenues increased approximately $2.7 million, or increased, for the nine months ended September 30, 2024 compared to the prior year. The increase in AUM at certain funds managed by HKHC resulted in increases in the management fees from mutual funds, ETFs, proprietary funds and separately managed accounts. However, there was a decline of $2.3 million related to the INFL ETF as the AUM declined from approximately $1.2 billion in 2023 to $0.6 billion in 2024. Similarly, the Company experienced declines in the AUM at the Paradigm Fund and the Small Cap Opportunities Fund that result in lower management fees of $0.9 million as compared to the nine months ended September 30, 2023. These declines were partially offset by a $0.6 million increase in management fees related to incentive fees that were crystallized as part of investor redemptions from various proprietary funds during the nine months ended September 30, 2024.
Other income and fees
Other income and fees for the nine months ended September 30, 2024 includes primarily revenue from product sales resulting from the acquisition of Scott’s Liquid Gold. The quarter included two months of revenue from these product sales, which accounted for all of the quarterly revenue increase. Other income and fees also includes revenues resulting from the Company’s research services and digital asset mining activities.
Operating Expenses
Compensation, employee benefits, and cost of goods sold
The Company’s operating expenses include employee compensation for investment professionals and other management personnel as well as cost of goods sold for consumer products acquired in the Merger with SLGD. The Company’s compensation costs for the nine months ended September 30, 2024 decreased by approximately $0.5 million, or 3%, compared to the prior year, due to lower internal commissions and were partially offset by additional personnel and cost of products sold.
Sales, distribution and marketing expenses
For the nine months ended September 30, 2024, sales, distribution and marketing expenses increased $0.2 million, or 2%, compared to the prior year, principally the result of lower external commissions with respect to separately managed accounts. The Company also experienced higher mutual fund platform fees of $0.1 million during the period as the company changed certain funds to ETFs during 2023 and a lower residual commission expenses. These decreases were partially offset by increased sub-advisory and marketing expenses at various mutual funds and ETFs managed by HKHC and certain commissions payable for incentive fees earned during the period and fulfillment costs associated with sales of consumer products.
Depreciation and amortization
Depreciation and amortization increased slightly for the nine months ended September 30, 2024 as compared to the prior year due to additional amortization expense of intangible assets from the Merger with SLGD.
General and administrative expenses
For the nine months ended September 30, 2024, general and administrative expenses increased by $1.8 million, or 31%, compared to the prior year, as a result of legal and professional liability expenses associated with a lawsuit filed on November 23, 2022 by TPL against HKHC, Horizon Kinetics Asset Management, LLC and certain other parties to resolve a disagreement over a
25
voting commitment contained in a stockholders’ agreement between the parties. The Company continued to experience certain higher accounting, professional, and legal fees during the three months September 30, 2024 in preparation and as a result of the Merger with SLGD.
Equity in income of proprietary funds, net
The Equity in income of proprietary funds increased by $58.2 million for the nine months ended September 30, 2024 compared to the prior year. The increase was due to higher net asset values at proprietary funds whose underlying assets were dominated by holdings of Grayscale Bitcoin Trust, which increased approximately 46% during the nine months ended September 30, 2024, including Horizon Kinetics Equity Opportunities, Horizon Kinetics Hard Assets and Horizon Multi-Strategy Fund, as well proprietary funds whose underlying assets were dominated by holdings of Texas Pacific Land, which increased approximately 69% during the nine months ended September 30, 2024.
Interest and dividend income
Interest and dividend income increased by $0.8 for the nine months ended September 30, 2024 as compared to the prior year due to a special dividend received during the quarter from TPL.
Unrealized gain on digital assets, net
Unrealized gain on digital assets, net increased by $2.8 million for the nine months ended September 30, 2024, compared to the prior year, primarily due to the increase in the fair value of Bitcoin. In addition to the increase in the fair value of approximately 50% for the nine months ended September 30, 2024, the value of our digital assets also increased due to the adoption of ASU 2023-08, which resulted in certain expanded disclosures about cryptocurrencies and recording an increase to those digital assets and shareholders' equity of approximately $4.4 million.
Unrealized gain (loss) on investments, net
For the nine months ended September 30, 2024, unrealized gains (losses) on investments increased by $35.7 million compared to the prior year. This increase was due to the 69% unrealized gain on TPL stock during the nine months ended September 30, 2024 as compared to an unrealized loss for the nine months ended September 30, 2023 following TPL’s decrease in market value during the nine months ended September 30, 2023.
Income tax benefit (expense)
On July 1, 2024, the Company filed to convert from an LLC to a C-Corp for federal and state income taxes. As a result, the Company recognized a deferred income tax expense of $59.7 million related to deferred taxes associated with the basis differences for certain assets, principally unrealized gains in various investments, digital assets and indefinite lived intangible assets from the Company’s 2011 merger transaction. Due to primarily to additional unrealized gains of investment securities and proprietary funds during the quarter, the Company recorded an additional $8.9 million additional deferred tax expense. The provision for (benefit from) income taxes prior to the July 1, 2024 conversion to a C-Corp was not significant.
Regulated Subsidiaries
Many of our principal subsidiaries are subject to extensive regulation in the United States and elsewhere. Horizon Kinetics Asset Management LLC, a registered U.S. investment advisor, is regulated by the SEC. Kinetics Funds Distributors LLC and KBD Securities LLC, registered U.S. limited purpose broker dealers, are regulated by the Financial Industry Regulatory Authority. The Company may also be subject to regulation in other jurisdictions where it operates.
Liquidity and Capital Resources
At September 30, 2024, the Company had $18.1 million of cash and cash equivalents. We believe that our cash and cash equivalents at September 30, 2024 will be sufficient to fund operations for at least one year from the date of this report.
The Company also had $74.9 million of investments, at fair value. These investments include $51 million held in a single security, approximately 57,696 shares of TPL. During the nine months ended September 30, 2024 the fair value of HKHC’s TPL holdings increased due to the capital contribution on July 1 that included shares of TPL and due to the approximately 68.8%
26
year-to-date increase in the fair value of TPL common shares. The Company may be limited in its ability to sell this security due to our status as an affiliate of TPL.
In the normal course of business, we may engage in off-balance sheet arrangements, including transactions in derivatives, guarantees, commitments, indemnifications, and potential contingent repayment obligations. We do not have any off-financial position arrangements that would require us to fund losses or guarantee target returns to clients.
The Company’s Board of Directors has determined an expected quarterly dividend policy that is based on the Company’s quarterly performance. The Board of Director’s may consider other relevant factors that are relevant to the final determination of a quarterly dividend, if any. On November 5 2024, the Company's Board of Directors declared a cash dividend of $0.053 per share, payable on December 16, 2024 to shareholders of record as of the close of business on November 25, 2024.
The following table and discussion summarize our Condensed Consolidated Statement of Cash Flows:
|
|
Nine Months Ended September 30, |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
Variance |
|
|||
|
|
(dollars in thousands) |
|
|||||||||
Net cash provided by operating activities |
|
$ |
6,425 |
|
|
$ |
11,357 |
|
|
$ |
(4,932 |
) |
Net cash provided by investing activities |
|
|
2,582 |
|
|
|
1,406 |
|
|
|
1,176 |
|
Net cash used in financing activities |
|
|
(1,413 |
) |
|
|
(9,620 |
) |
|
|
8,207 |
|
|
|
$ |
7,594 |
|
|
$ |
3,143 |
|
|
$ |
4,451 |
|
Operating cash flows
Net cash provided by operating activities decreased by $4.9 million for the nine months ended September 30, 2024 compared to the prior year. The decrease was primarily the result of earnings, net of and working capital changes during the period. The net income (loss) for each of the nine month periods were largely offset by non-cash adjustments related to deferred income tax expense related to the Company’s conversion from an LLC to a C-Corp, equity in earnings (losses) of affiliates, and net unrealized gains (losses) on investments or digital assets.
Investing cash flows
Net cash provided by investment activities increased by $1.2 million for the nine months ended September 30, 2024 as compared to the prior year. The increase was primarily the result of cash acquired from SLGD and offset by lower levels of investment purchases and lower proceeds from the sale of certain investments compared to the prior year.
Financing cash flows
The Company’s cash flows from financing activities were cash contributions from affiliates and were offset by distributions paid to members of Horizon Kinetics. The Company ceased payment of distributions subsequent to the closing of the Merger.
Contractual Cash Obligations and Other Commercial Commitments
The Company’s contractual cash obligations and other commercial commitments is limited to certain operating leases for office space as summarized below:
|
|
Payments Due by Period |
|
|||||||||||||||||
|
|
Total |
|
|
2024 (remainder) |
|
|
2025 and |
|
|
2027 and 2028 |
|
|
After 2028 |
|
|||||
|
|
(dollars in thousands) |
|
|||||||||||||||||
Contractual Cash Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating leases |
|
$ |
8,666 |
|
|
$ |
699 |
|
|
$ |
5,668 |
|
|
$ |
1,435 |
|
|
$ |
864 |
|
Total contractual obligations |
|
$ |
8,666 |
|
|
$ |
699 |
|
|
$ |
5,668 |
|
|
$ |
1,435 |
|
|
$ |
864 |
|
27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of September 30, 2024, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2024 due to the material weaknesses in our internal control over financial reporting described below.
Notwithstanding the material weaknesses, which still existed as of September 30, 2024, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the condensed consolidated financial statements included in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with accounting principles generally accepted in the United States.
Material Weaknesses
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 the registrant’s financial statements will not be prevented or detected on a timely basis. The material weakness that was previously reported at Scott’s Liquid Gold was identified as of June 30, 2023 related to our finance department lacking a sufficient number of trained professionals with technical accounting expertise to process and account for complex, non-routine transactions in accordance with GAAP. The material weakness was detailed in Item 4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023. Horizon Kinetics has previously identified material weaknesses related to (a) producing timely account reconciliations and valuations of certain significant accounts, including certain intercompany and related party accounts and related elimination entries, (b) a lack of segregation of duties in certain areas of the financial reporting process, including a lack of adequate supervisory review of technical accounting implementations, conclusions over critical accounting estimates, and review of the consolidated financial statements, and (c) insufficient supervisory review and approval of key controls over disbursements and accounts payable. These material weaknesses still existed as of September 30, 2024.
During 2024, the Company hired a Chief Financial Officer and other trained professionals to our finance department, who have technical accounting expertise to process and account for complex, non-routine transactions in accordance with GAAP. The process of remediating these material weaknesses will continue until these staff and others operate for a period of time, our controls are tested, and the Company is able to conclude that such internal controls are operating effectively. The Company cannot provide assurance that these procedures will be successful in identifying material errors that may exist in the financial statements. The Company cannot make assurances that it will not identify additional material weaknesses in its internal control over financial reporting in the future.
Changes in Internal Control over Financial Reporting
During 2024, the Company hired a Chief Financial Officer and other trained professionals to our finance department who have technical accounting expertise to process and account for complex, non-routine transactions in accordance with GAAP.
28
PART II
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Report, including the “Cautionary Note on Forward-Looking Information,” you should carefully consider the factors discussed in Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and subsequent quarterly reports on Form 10-Q.
In addition, you should carefully consider the factors discussed in the section “Risk Factors” in the Company’s Definitive Proxy Statement on Schedule 14A filed on May 13, 2024, which is incorporated herein by reference.
All of the factors referenced above could materially affect our, or the combined company’s, business, financial condition, or future results.
ITEM 6. EXHIBITS
Exhibit Number |
|
Document |
31.1 |
|
Rule 13a-14(a) Certification of the Chief Executive Officer. |
31.2 |
|
Rule 13a-14(a) Certification of the Chief Financial Officer. |
32.1* |
|
|
32.2* |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRLtags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
* Furnished, not filed.
29
SIGNATURES
Pursuant to the requirements 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.
|
|
|
HORIZON KINETICS HOLDING CORPORATION |
|
|
|
|
Date: |
November 12, 2024 |
By: |
/s/ Murray Stahl |
|
|
|
Murray Stahl |
|
|
|
|
Date: |
November 12, 2024 |
By: |
/s/ Mark A. Herndon |
|
|
|
Mark A. Herndon |
30