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Liquid Holdings Group: Item 1. Financial Statements; And

The following excerpt is from the company's SEC filing.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As previously reported, the Audit Committee (the “Audit Committee”) of the Company’s Board of Directors (the “Board”), with the assistance of outside legal counsel, has conducted an investigation (the “Investigation”) into certain issues raised by counsel to one of the Company’s stockholders, including allegations about the Company’s former senior management. Based on the Investigation’s findings and upon the recommendation of the Company’s executive officers, on September 10, 2015, the Audit Committee and the Boa rd concluded that the Company’s previously issued unaudited condensed consolidated financial statements as of September 30, 2014 and for the three and nine months ended September 30, 2014 (the “Restatement Periods”) should no longer be relied upon and should be restated (the “Restatement”) due to certain accounting errors. The accounting errors involve the premature recognition of revenue from QuantX Management, LLP (together with its affiliates, “QuantX”) and from other customers of the Company that had received allocations of capital from QuantX (“QuantX-related Customers”) during the quarter ended September 30, 2014, before collectability was reasonably assured, given the significance of the uncertainty of collections from QuantX and QuantX-related Customers that became known to certain former members of management during June 2014. QuantX had been the Company’s largest customer throughout 2014 as well as a related party as a result of certain past or present relationships with Brian Ferdinand, Robert Keller and Richard Schaeffer (the founders of the Company) and/or Douglas J. Von Allmen, a beneficial owner of more than 10% of the Company’s common stock.

The expected impact of the adjustments to the applicable line items in the Company’s unaudited condensed consolidated financial statements for the Restatement Periods is set forth in Note 1A, “Restatement of Condensed Consolidated Financial Statements,” included in Item 1 of this Ex 99.1.

Cautionary Statement Regarding the Following Information

The Company cautions not to place undue reliance upon the information contained in this Ex. 99.1, which is limited in scope and does not include all information required to be disclosed in periodic reports pursuant to the SEC rules and regulations. The information was not audited or reviewed, as applicable, by an independent registered public accounting firm and may be subject to future adjustments and revisions. The information should not be viewed as indicative of future results.

Item 1. Financial Statements

LIQUID HOLDINGS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(As Restated)

ASSETS

Current assets:

Cash and cash equivalents

30,054,109

8,473,847

Notes receivable from related parties

244,930

Accounts receivable, net of allowance for doubtful accounts of $20,986 and $5,814

242,016

425,196

Prepaid expenses and other current assets

289,233

388,612

Total current assets

30,830,288

9,287,655

Property and equipment, net

1,322,738

867,758

Other assets:

414,015

Due from related parties

80,000

659,030

Deposits

631,595

540,653

Other intangible assets, net of amortization of $15,139,060 and $9,976,790

6,326,583

11,505,853

Goodwill

13,182,256

13,182,936

Total other assets

20,634,449

25,888,472

TOTAL ASSETS

52,787,475

36,043,885

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

1,412,319

3,503,590

Deferred income

Total current liabilities

3,507,940

Long-term liabilities:

Deferred rent

267,344

20,536

Total liabilities

1,679,663

3,528,476

Commitments and contingencies (Note 6)

Stockholders’ equity:

Preferred stock, $0.0001 par value, 10,000,000 shares authorized; none issued or outstanding

Common stock, $0.0001 par value, 200,000,000 shares authorized; 60,275,619 and 24,486,388 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively

Additional paid-in capital

160,741,011

118,510,671

Accumulated deficit

(108,623,599

(84,857,911

Treasury stock, at cost, 121,674 shares at September 30, 2014 and December 31, 2013

(1,029,078

Accumulated other comprehensive income (loss)

13,451

(110,721

Total stockholders’ equity

51,107,812

32,515,409

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Three Months Ended

Nine Months Ended

September 30, 2014

September 30, 2013

Revenues:

Software services

213,742

732,388

3,037,611

2,016,159

Brokerage activities

1,872,647

3,888,806

Cost of revenues (exclusive of items shown separately below):

729,620

398,121

1,932,083

993,697

1,248,192

2,241,889

Gross profit (loss)

(515,878

334,267

1,105,528

1,646,917

Operating expenses:

Compensation

3,427,804

6,065,772

9,353,828

14,928,963

Consulting fees

288,607

221,333

959,816

12,182,417

Depreciation and amortization

1,804,994

1,823,084

5,375,979

5,472,329

Professional fees

768,754

1,259,884

2,024,456

2,262,022

430,049

319,390

1,296,266

926,711

Computer related and software development

1,384,270

608,175

3,822,565

1,639,335

553,753

497,240

1,894,027

1,621,821

Total operating expenses

8,658,231

10,794,878

24,726,937

39,033,598

Loss from operations

(9,174,109

(10,460,611

(23,621,409

(37,386,681

Non-operating income (expense):

Unrealized gain on contingent consideration payable

44,129

Loss on settlement of contingent consideration payable

(649,688

Interest and other, net

(144,520

126,909

(144,279

136,398

Total non-operating income (expense)

(478,650

(513,290

Loss before income taxes

(9,318,629

(10,939,261

(23,765,688

(37,899,971

Income tax expense

1,309,903

1,125,697

Net loss

(12,249,164

(39,025,668

Other comprehensive income (loss):

Foreign currency translation

51,383

(88,312

124,172

(71,394

Total comprehensive loss

(9,267,246

(12,337,476

(23,641,516

(39,097,062

Basic and diluted loss per share

Weighted average number of common shares outstanding during the period - basic and diluted

60,087,464

23,533,756

42,540,998

21,470,866

Supplemental Information to the Condensed Consolidated Statements of Operations and Comprehensive Loss

Software services revenues from related parties

604,682

1,502,959

1,690,735

Software services cost of revenues to related parties

18,593

87,268

248,808

Share-based compensation included in compensation

1,059,878

1,902,154

2,761,167

7,430,087

Share-based compensation included in consulting fees

11,649,693

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Common Stock

Paid-in

Shares

Amount

Capital

Deficit

Income (Loss)

Balance at December 31, 2013

118,510,671

(1,029,078

Issuance of common shares upon public offering, net of underwriting discount

34,945,000

40,620,068

40,623,562

Direct costs of public offering

(1,150,810

Issuance of common shares upon vesting of restricted stock units

844,231

Balance at September 30, 2014 (Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30, 2013

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash used in operating activities:

Loss on settlement of contingent consideration payable

Depreciation and amortization expense

Share-based payments for consulting services

339,493

47,740

Deferred taxes

Changes in operating assets and liabilities:

108,175

(184,664

Deferred offering costs

3,476,427

Prepaid expense and other current assets

99,379

138,145

(79,915

(300,000

(90,942

(129,724

(2,091,271

264,478

Due to related parties

(17,943

Other current liabilities

(4,350

NET CASH USED IN OPERATING ACTIVITIES

(17,347,973

(9,404,081

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment

(649,232

(189,042

Repayment of note from related party - QuantX Management, LLP

2,250,000

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

2,060,958

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from public offering of common stock, net of underwriting discount

26,017,625

(8,729,737

Proceeds from revolving promissory note

1,000,000

Repayment of revolving promissory note

(1,000,000

Purchase of treasury stock

Proceeds from sales of common shares, net of offering costs

3,300,000

Proceeds from loans from related parties

750,000

Repayment of loans from related parties

(750,000

NET CASH PROVIDED BY FINANCING ACTIVITIES

39,472,752

19,558,810

Effect of exchange rate changes on cash and cash equivalents

104,715

(58,750

NET INCREASE IN CASH AND CASH EQUIVALENTS

21,580,262

12,156,937

CASH AND CASH EQUIVALENTS - Beginning of period

1,380,078

CASH AND CASH EQUIVALENTS - End of period

13,537,015

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest paid

14,331

Income taxes paid

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Settlement of contingent consideration on Fundsolve acquisition

2,210,688

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Organization

Liquid Holdings Group, Inc. (the “Company”) is a SaaS provider of investment management solutions to the buy side. The Company was originally formed on January 17, 2012 as a Delaware limited liability company under the name Liquid Holdings Group, LLC with the intention of being the holding company to acquire and own a group of companies and ultimately pursue an initial public offering (“IPO”) in the United States. The Company commenced operations on April 24, 2012, the date the founders signed the Company’s operating agreement and agreed to contribute certain entities owned or controlled by them to the Company. On July 24, 2013, the Company reorganized as a Delaware corporation and changed its name to Liquid Holdings Group, Inc. On July 26, 2013, the Company’s common stock began trading on the NASDAQ Global Market under the ticker symbol “LIQD.”

On May 20, 2014, the Company completed a follow-on public offering in which 32,000,000 shares of its common stock were sold at a public offering price of $1.25 per share. On May 27, 2014, the underwriters for this offering purchased an additional 2,945,000 shares of the Company’s common stock at $1.25 per share pursuant to a partial exercise of their over-allotment option. The Company received net proceeds from this offering of approximately $39.5 million after deducting underwriting discounts and commissions of approximately $3.1 million and offering related expenses of approximately $1.1 million.

The Company’s consolidated subsidiaries are:

Liquid Futures, LLC (“Futures”) – until February 12, 2014

Liquid Trading Institutional LLP (“Institutional”)

Liquid Partners, LLC – formerly known as Centurion Capital Group, LLC and Centurion Trading Partners, LLC (“Partners”)

Fundsolve Ltd. (“Fundsolve”)

LHG Technology Services Ltd.

Liquid Prime Holdings, LLC (“LPH”) – under which Liquid Prime Services, Inc. (“LPS”) is consolidated

Liquid Technology Services, LLC (“LTS”) – formerly known as Green Mountain Analytics, LLC (“GMA”)

LTI, LLC (“LTI”)

On February 6, 2014, LPS and Futures entered into an Agreement and Plan of Merger to consolidate LPS and Futures into a single entity, with LPS remaining as the surviving entity. Regulatory approval was granted and the merger was effective February 12, 2014. The Company is exploring alternatives for LPS that may include the sale or closure of this entity as it is no longer needed to carry out the Company’s business plans.

The Company has taken steps to place both Fundsolve and Institutional into liquidation as they are no longer needed to carry out the Company’s business. Effective October 24, 2014, the Financial Conduct Authority (“FCA”) granted Institutional’s request to withdraw its status as an authorized entity with the FCA.

(1A) Restatement of Condensed Consolidated Financial Statements

The Company is providing this Ex. 99.1 in order to make publicly available the information that will be used to amend and restate the Company’s Original Form 10-Q.

As previously reported, the Audit Committee (the “Audit Committee”) of the Company’s Board of Directors (the “Board”), with the assistance of outside legal counsel, has conducted an investigation (the “Investigation”) into certain issues raised by counsel to one of the Company’s stockholders, including allegations about the Company’s former senior management. Based on the Investigation’s findings and upon the recommendation of the Company’s executive officers, on September 10, 2015, the Audit Committee and the Board concluded that the Company’s previously issued unaudited condensed consolidated financial statements as of September 30, 2014 and for the three and nine months ended September 30, 2014 (the “Restatement Periods”) should no longer be relied upon and should be restated (the “Restatement”) due to certain accounting errors. The accounting errors involve the premature recognition of revenue from QuantX Management, LLP (together with its affiliates, “QuantX”) and from other customers of the Company that had received allocations of capital from QuantX (“QuantX-related Customers”) during the quarter ended September 30, 2014, before collectability was reasonably assured, given the significance of the uncertainty of collections from QuantX and QuantX-related Customers that became known to certain former members of management during June 2014. QuantX had been the Company’s largest customer throughout 2014 as well as a related party as a result of certain past or present relationships with Brian Ferdinand, Robert Keller and Richard Schaeffer (the founders of our Company) and/or Douglas J. Von Allmen, a beneficial owner of more than 10% of the Company’s common stock.

The impact of the adjustments to the applicable line items in the Company’s unaudited condensed consolidated financial statements for the periods subject to the Restatement is as follows:

Condensed Consolidated Balance Sheet (Unaudited)

September 30, 2014

As Previously

Reported

As Restated

1,492,630

(1,250,614

32,080,902

Total assets

54,038,089

(107,372,985

52,358,426

Total liabilities and stockholders’ equity

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

Three Months Ended September 30, 2014

Nine Months Ended September 30, 2014

1,485,007

(1,271,265

4,308,876

755,387

2,376,793

Other expenses

574,404

(20,651

1,914,678

8,678,882

24,747,588

(7,923,495

(22,370,795

(8,068,015

(22,515,074

(8,016,632

(22,390,902

Condensed Consolidated Statements of Cash Flows (Unaudited)

360,144

(1,163,090

(2) Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). All material intercompany accounts and transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to Rule 10-01 of Regulation S-X. Management believes that the accompanying unaudited condensed consolidated financial statements include all normal and recurring adjustments considered necessary for the fair presentation of the results of the interim periods presented. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for any subsequent period.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission (“SEC”) on March 31, 2014 (the “2013 Form 10-K”).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets, liabilities, revenues and expenses. These significant estimates and assumptions include estimates of fair value of goodwill and intangibles with indefinite lives for purposes of impairment testing, estimates of useful lives of assets, estimates of impairment of long-lived assets, estimates of fair values of share-based payment arrangements and estimates of valuation allowances related to deferred tax assets. Due to the inherent uncertainty involved with estimates, actual results may differ.

Revenue Recognition

Software Revenues

The Company derives revenue from providing software as a service for an online trading platform. There is no downloadable software, distribution or technology delivered to customers. Software is provided under a hosting arrangement on a subscription basis. Revenue is accounted for as software as a service arrangement since the customer does not have the contractual right to take possession of the software at any time during the hosting period. The Company recognizes revenue for these software subscriptions ratably over the contracted term of the subscription agreement when the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery of the product has occurred; (3) the fee is fixed or determinable; and (4) collection is probable.

During the second quarter of 2014, certain former members of management may have become aware that

QuantX may have been experiencing significant liquidity issues

, which created uncertainty thereafter as to QuantX’s ability to meet its financial obligations, despite the fact that as of June 30, 2014 QuantX was not in arrears for any previously purchased software services. As a result, the Company began recognizing revenue from QuantX and QuantX-related Customers on a cash basis, effective July 1, 2014, due to the uncertainty of collections from QuantX and QuantX-related Customers.

Recently Issued Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08,

Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

, which changes the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The new guidance is effective for annual and interim periods beginning after December 15, 2014. The impact on the Company of adopting the new guidance will depend on the nature, terms and size of business disposals completed after the effective date.

On May 28, 2014, the FASB issued 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 ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In August 2014, the FASB issued ASU 2014-15,

Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

, to reduce diversity in the timing and content of going concern disclosures. This ASU clarifies management’s responsibility to evaluate and provide related disclosures if there are any conditions or events, as a whole, that raise substantial doubt about the entity’s ability to continue as a going concern for one year after the date the financial statements are issued. The amendments will become effective for the Company’s annual and interim reporting periods beginning January 1, 2017. The Company is evaluating the impact on its consolidated financial statements, however, the Company does not expect that the adoption of this standard will have a material impact on its consolidated financial statements.

(3) Fair Value Measurements

Fair Value Hierarchy

The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs:

Unadjusted quoted prices for identical assets or liabilities in active markets accessible to the Company at the measurement date.

Level 2 Inputs:

Other than quoted prices included in Level 1, inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs:

Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The fair value measurement level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period.

Determination of Fair Value

The categorization of an asset or liability within the fair value hierarchy is based on the inputs described above and does not necessarily correspond to the Company’s management’s perceived risk of that asset or liability. Moreover, the methods used by management may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments and nonfinancial assets and liabilities could result in a different fair value measurement at the reporting date. Descriptions of the valuation methodologies, including the valuation techniques and the key input(s) used in the fair measurements for assets and liabilities on a recurring and nonrecurring basis are itemized below.

Intangible Assets

Intangible assets and long-lived assets held and used are measured at fair value in accordance with ASC Subtopic 360-10,

Property, Plant, and Equipment—Overall

, if a step 2 test is required. To estimate the fair value of long-lived assets held and used, the income, market, and cost approaches to value are considered. The selected approach(es) is (are) based on the specific attributes of the long-lived asset. Property, plant, and equipment is typically valued using a cost approach, while intangible assets are usually valued with an income approach. Although Level 1 and 2 inputs may be available for certain inputs to the valuation approach, reliance on Level 3 inputs is generally required and the fair value measurements are, therefore, considered Level 3 measurements. Unobservable inputs usually consist of discount rates, customer attrition rates, growth rates, royalty rates, contributory asset charges and profitability assumptions.

Goodwill is tested annually for impairment each July in accordance with ASC Topic 350

—Intangibles-Goodwill and Other

. Step 1 entails a comparison of the fair value of the recoverable amount of each reporting unit to its carrying amount. An income approach is used to derive the fair value of the Company’s reporting units. Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. Although Level 1 and 2 inputs may be available for certain inputs to the valuation approach, reliance on Level 3 inputs is generally required and the fair value measurements are, therefore, considered Level 3 measurements. Unobservable inputs include discount rates, growth rates and prospective financial information.

Recurring and Non-Recurring Fair Value Measurements

The Company had no recurring or non-recurring fair value measurements at September 30, 2014.

Transfers between Levels 1, 2 and 3

There were no transfers of financial assets or liabilities between Level 1 and Level 2, or between Level 2 and Level 3, during the nine months ended September 30, 2014 and year ended December 31, 2013.

Financial Assets and Financial Liabilities not Measured at Fair Value

The following table summarizes the carrying amount and estimated fair value of the Company’s financial assets that are not measured at fair value either on a recurring or nonrecurring basis:

Estimated Fair Value

Carrying Amount

658,945

384,918

The following is a description of the principal valuation methods used by the Company for those financial assets that are not measured at fair value either on a recurring or non-recurring basis:

Cash and Cash Equivalents

The carrying amount of cash and cash equivalents approximates fair value.

Note Receivable from Related Parties

In estimating the fair value of the notes receivable from related parties, the Company used a discounted cash flow model. Fair value is estimated by discounting the anticipated cash flows from the loans, assuming future prepayments and using market interest rates for new loans with comparable credit risk.

(4) Goodwill and Other Intangible Assets

Acquired Intangible Assets

December 31, 2013

Amortization

period

Carrying

Impairment

Loss

Amortization

Net Carrying

Amount

Amortizable Intangible Assets:

Software and trading platform

3 years

19,374,098

(13,582,338

5,791,760

(8,735,318

10,638,780

Customer relationships

1,261,000

(910,722

350,278

(595,472

665,528

Non-compete agreements

Life of agreement, 24 months

646,000

(646,000

21,281,098

(15,139,060

6,142,038

(9,976,790

11,304,308

Indefinite-Lived Intangible Assets:

Broker licenses

163,000

(17,000

146,000

Patents pending

36,545

Trade names

201,545

184,545

Total amortization expense for intangible assets was $1,724,624 and $5,181,236 for the three and nine months ended September 30, 2014, respectively, and $1,808,618 and $5,406,604 for the three and nine months ended September 30, 2013, respectively. In connection with the Company’s decision to liquidate Institutional, an impairment loss of $17,000 was recognized during the current quarter and is included in

Other operating expenses

in the accompanying condensed consolidated statements of operations and comprehensive loss.

As of September 30, 2014, the future estimated amortization expense related to amortizable intangible assets is expected to be as follows:

Remainder of 2014

1,716,563

4,425,475

The Company performs its annual goodwill impairment test each July 31, or whenever events or changes in circumstances exist that would more likely than not reduce the fair value of goodwill below its carrying value. The Company is currently in the process of performing this test for July 31, 2014 and based on certain factors, which includes the market capitalization of the Company’s stock at July 31, 2014 and its capital raise in a public offering in May 2014, its preliminary assessment indicates that there is no impairment of goodwill as of July 31, 2014.

During the period from July 31, 2014 through the date of this filing, the Company’s stock price continued to decline and it was determined that an interim evaluation of goodwill for impairment would be required. As such, the Company will also perform a goodwill impairment test during the fourth quarter of 2014 and when completed, a determination may be made that some or all of the carrying value of goodwill is impaired.

The changes in the carrying amount of goodwill are as follows:

Year Ended

Balances - beginning of period:

Gross goodwill

14,647,588

Accumulated impairment losses

(1,464,652

Net goodwill - beginning of period

Goodwill acquired during the period

Impairment loss

Balances - end of period:

(1,465,332

Net goodwill - end of period

In connection with the Company’s decision to liquidate Institutional, an impairment loss of $680 was recognized during the current quarter and is included in

(5) Certain Relationships and Related Party Transactions

Amounts recognized from transactions with related parties are disclosed below. Receivables from related parties included in the accompanying condensed consolidated balance sheets are presented in the following table:

Accounts receivable from QuantX

349,530

Note receivable from QuantX

236,665

Note receivable from Ferdinand Capital

112,962

Note receivable from stockholder

Interest receivable on above notes

Total notes receivable from related parties

Due from QuantX

243,030

Due from Ferdinand Capital

116,000

Due from stockholder

Total due from related parties

Total Related Party Receivables

738,945

1,008,560

Accounts Receivable from QuantX

Accounts receivable from QuantX, a related party, represented the balance due from QuantX for the sale of our software services. QuantX is the Company’s largest customer and the receivable due from it accounted for 82% of our total net accounts receivable at December 31, 2013. As a result of the Investigation’s findings, the the Company determined that the collection of any revenue billed to QuantX was not probable and, as such, began recording revenue from QuantX on a cash receipts basis, effective July 1, 2014, rather than when billed. Software services revenue earned from QuantX accounted for 0% and 48.7% of the Company’s total software services revenue during the three- and nine-months ended September 30, 2014, respectively.

Note Receivable from QuantX

During 2012, the Company provided payments to GMA on behalf of QuantX in relation to the development of LiquidView

, a software tool which forms a component of the Company’s technology platform. In addition, Partners received payments from QuantX to facilitate the payment of operating expenses. LTI also advanced funds to QuantX for various expenses prior to being acquired by the Company. These payments net to a total of $243,030, and are included in

Due from related parties

in the accompanying condensed consolidated balance sheets at December 31,

On March 15, 2014, this receivable was converted to a three-year term note with QuantX in the principal amount of $243,030. The note bears interest at the rate of 4% per annum, with monthly payments of principal and interest totaling $7,175. The note is payable in full on March 15, 2017. QuantX made its first scheduled payment of $7,175 in May 2014 and has not made any subsequent payments on this note.

Note Receivable from Ferdinand Capital

LTI advanced $116,000 to Ferdinand Capital during 2011. This amount is included in

in the accompanying condensed consolidated balance sheets at December 31, 2013. Ferdinand Capital is an entity owned by one of the founders of the Company.

On March 15, 2014, this receivable was converted to a one-year term note with Ferdinand Capital in the principal amount of $116,000. The note bore interest at the rate of 4% per annum, with monthly payments of principal and interest totaling $9,877 and was payable in full on March 15, 2015. On June 15, 2014, this note was amended and restated to a three-year term note that is payable in full on June 15, 2017. The note, at the same principal amount of $116,000 and interest rate per annum of 4%, has monthly payments of principal and interest totaling $3,425. The first payment, which was due on July 15, 2014, was paid along with $1,170 of interest that was accrued under the original terms of the note. Subsequent to the balance sheet date, an additional $4,000 was paid on this note.

Pursuant to an amended and restated consulting agreement between the Company and an entity controlled by Mr. Ferdinand, the Company has the right to offset the consulting payments as repayment on the Ferdinand Capital note (see Note 11).

Note Receivable from Stockholder

A security deposit for office space that was leased by one of the entities acquired by the Company was inadvertently refunded to a stockholder of the Company who was also a principal of the acquired entity. The security deposit should have been refunded to the Company and, as such, a receivable of $300,000 was recorded in

in the accompanying condensed consolidated balance sheets at December 31,

On March 27, 2014, this receivable was converted to a five-year term note, effective April 1, 2014, with the stockholder in the principal amount of $300,000. The note bears interest at the rate of 3% per annum, with monthly payments of principal and interest totaling $5,390. The note is payable in full on April 1, 2019. As of the balance sheet date, no payments have been made on this note.

In accordance with a legal settlement (see

Legal Matters

section of Note 6), QuantX was required to pay $130,000 as their part of the settlement. At September 30, 2014, QuantX did not make its scheduled payments and, as such, the Company, being jointly and severally liable, made these scheduled payments totaling $80,000 on QuantX’s behalf. This amount was recorded in

in the accompanying condensed consolidated balance sheets at September 30, 2014 and was repaid by QuantX on October 1, 2014.

Revolving Promissory Notes

On February 26, 2014, the Company executed a Revolving Promissory Note with each of its two then-largest...


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