EX-99.3 7 dex993.txt CARNES CAPITAL CORP. FINANCIAL STMTS AND SCHEDULES Exhibit 99.3 CARNES CAPITAL CORPORATION Financial Statements December 31, 2000 (With Independent Auditors' Report Thereon) Independent Auditors' Report Board of Directors Carnes Capital Corporation: We have audited the accompanying statement of financial condition of Carnes Capital Corporation as of December 31, 2000, and the related statements of income, stockholder's equity, and cash flows for the year ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Carnes Capital Corporation as of December 31, 2000, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Tampa, Florida February 16, 2001 CARNES CAPITAL CORPORATION Statement of Financial Condition December 31, 2000
Assets Cash and cash equivalents $ 1,878,758 Receivable from clearing broker 385,081 Furniture, fixtures and equipment, and leasehold improvements, at cost, less accumulated depreciation and amortization of $382,467 316,597 Receivable from subscription agent 1,526,081 Other assets 163,987 ---------------- Total assets $ 4,270,504 ================ Liabilities and Stockholder's Equity Liabilities: Payable to affiliate $ 81,567 Accounts payable and accrued expenses 589,600 ---------------- Total liabilities 671,167 ---------------- Stockholder's equity: Common stock, $1 par value, 200,000 shares authorized, 105,600 shares issued and outstanding 105,600 Additional paid-in capital 932,933 Retained earnings 2,560,804 ---------------- Total stockholder's equity 3,599,337 Commitments (note 5) ---------------- Total liabilities and stockholder's equity $ 4,270,504 ================
See accompanying notes to financial statements. -1- CARNES CAPITAL CORPORATION Statement of Income Year ended December 31, 2000
Revenue: Commissions $ 6,954,152 Interest and dividends 636,363 ---------------- Total revenue 7,590,515 ---------------- Expenses: Compensation and related expenses 2,740,367 Floor brokerage and clearance fees 1,029,423 Professional and consulting fees 600,543 Travel and entertainment 287,625 Communications 253,309 Depreciation and amortization 149,551 Other expenses 720,688 ---------------- Total expenses 5,781,506 ---------------- Net income $ 1,809,009 ================
See accompanying notes to financial statements. -2- CARNES CAPITAL CORPORATION Statement of Changes in Stockholder's Equity For the year ended December 31, 2000
Additional Total Common paid-in Retained stockholder's stock capital earnings equity --------------- ---------------- ---------------- ------------------ Balance at December 31, 1999 $ 105,600 932,933 1,351,795 2,390,328 Net income -- -- 1,809,009 1,809,009 Distributions to stockholder -- -- (600,000) (600,000) --------------- ---------------- ---------------- ------------------ Balance at December 31, 2000 $ 105,600 932,933 2,560,804 3,599,337 =============== ================ ================ ==================
See accompanying notes to financial statements. -3- CARNES CAPITAL CORPORATION Statement of Cash Flows Year ended December 31, 2000 Cash flows from operating activities: Net income $ 1,809,009 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 149,551 (Increase) decrease in operating assets: Decrease in receivable from clearing broker 200,235 Increase in receivable from subscription agent (1,526,081) Increase in other assets (81,614) Increase (decrease) in operating liabilities: Decrease in securities sold, not yet purchased, at market value (281,800) Increase in payable to affiliate 14,719 Increase in accounts payable and accrued expenses 496,468 ----------------- Net cash provided by operating activities 780,487 ----------------- Cash flows from investing activities: Purchase of property and equipment (108,565) ----------------- Net cash used in investing activities (108,565) ----------------- Cash flows from financing activities: Distributions to stockholder (600,000) ----------------- Net cash used in financing activities (600,000) ----------------- Increase in cash and cash equivalents 71,922 Cash and cash equivalents at beginning of year 1,806,836 ----------------- Cash and cash equivalents at end of year $ 1,878,758 ================= Supplemental cash flows disclosures: Interest payments $ 3,423 =================
See accompanying notes to financial statements. -4- CARNES CAPITAL CORPORATION Notes to Financial Statements December 31, 2000 (1) Organization and Summary of Significant Accounting Policies Carnes Capital Corporation (the "Company") is a broker-dealer registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. The Company is 100 percent owned by an individual. The Company generates its revenue principally by providing securities trading and brokerage services to clients of an affiliated entity for which its revenue is transaction based. The following is a summary of significant accounting policies: (a) Clearing Arrangements Pursuant to agreements between the Company and its correspondent clearing broker, securities transactions effected by the Company are cleared on a fully disclosed basis through the correspondent broker. (b) Commissions Securities transaction revenue and related expenses are recorded on a settlement date basis and transactions are reviewed on a trade date basis for significant changes. Adjustments are made if pending transactions have a material effect on the financial statements. At December 31, 2000, no such adjustments were necessary. (c) Furniture, Fixtures and Equipment and Leasehold Improvements Depreciation is provided on a straight-line basis using an estimated useful life of three to five years for equipment and five to seven years for furniture and fixtures. Leasehold improvements are amortized on a straight-line basis over the lesser of the useful life of the improvement or the term of the lease. During 2000, the estimated useful life of certain leasehold improvements and fixtures have been shortened to reflect the Company's planned move in 2001. The effect of this change in the estimated useful life was the recognition of approximately $66,000 of additional depreciation expense during 2000. (d) Income Taxes The Company is recognized as an S corporation for Federal income tax purposes. Thus, no provision has been made for Federal income taxes. (e) Cash Equivalents The Company considers money market instruments with maturities of 90 days or less to be cash equivalents. (Continued) -5- CARNES CAPITAL CORPORATION Notes to Financial Statements December 31, 2000 (f) Receivable From Clearing Broker Receivable from clearing broker represents commissions and interest receivable from the Company's clearing broker. Such amounts are not collateralized and are expected to be fully collectible. (g) Receivable from Subscription Agent Receivable from subscription agent represents funds on deposit at the subscription agent for delivery of Nasdaq common stock that was offered through a private placement offering. (h) Management's Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (i) Securities Owned and Securities Sold, But Not Yet Purchased Securities owned and securities sold, but not yet purchased are valued at quoted market value and represent U.S. equity securities. As of December 31, 2000 the Company had no securities owned or securities sold, but not yet purchased. (2) Furniture, Fixtures and Equipment and Leasehold Improvements The balances of furniture, fixtures and equipment and leasehold improvements at December 31, 2000 are: Furniture and fixtures $ 144,917 Equipment 329,971 Leasehold improvements 224,176 Accumulated depreciation and amortization (382,467) ---------------- $ 316,597 ================
(Continued) -6- CARNES CAPITAL CORPORATION Notes to Financial Statements December 31, 2000 (3) Net Capital Requirements As a registered broker-dealer under the Securities Exchange Act of 1934 (the "Act"), the Company is subject to the Securities and Exchange Commission's Uniform Net Capital Rule pursuant to Rule 15c3-1 of the Act, which requires the maintenance of minimum net capital. At December 31, 2000, the Company had net capital of $1,547,655, which was $1,447,655 in excess of required net capital of $100,000. The Company's percentage of aggregate indebtedness to net capital was 43.4 percent. (4) Pension and 401(k) Plans The Company's employees participate in a pension plan administered by an affiliate of the sole stockholder. The Company contributed 6 percent of participant's eligible compensation to the plan for the year ended December 31, 2000. Pension plan expenses were $71,198 in the year ended December 31, 2000. The Company's employees participate in a 401(k) salary deferral plan administered by an affiliate of the sole stockholder. Employees are permitted, within limitations imposed by tax law, to make pre-tax contributions to the 401(k) plan pursuant to salary reduction agreements. The Company matches the employees' contributions up to a maximum of 4 percent. Plan expenses were $51,079 in the year ended December 31, 2000. (5) Commitments Under operating leases, with remaining noncancelable terms in excess of one year at December 31, 2000, minimum aggregate annual rentals for office space are as follows:
Year ending December 31, ----------------------------------- 2001 $ 323,478 2002 389,398 2003 387,833 2004 285,843 2005 295,889 2006 and thereafter 703,024 ---------------- $ 2,385,465 ================
(Continued) -7- CARNES CAPITAL CORPORATION Notes to the Financial Statements December 31, 2000 The Company leases its current office space in an office complex owned by an affiliate under an agreement expiring August 2008. Another affiliate with 100 percent common ownership shares the office space and paid 50 percent of the total rent expense for the year ended December 31, 2000. The Company's rent expense, including related charges, was $96,976 for the year ended December 31, 2000. The Company plans to move its operations to a new location in 2001. As such the Company has entered into an agreement to lease office space in an office complex at the new location. The Company plans to terminate or assign its lease at the current location. The above schedule includes scheduled lease payments for its current office space up to the date the lease may be cancelled and it includes all contractual termination fees. The Company does not enter into significant transactions in financial instruments with off-balance-sheet risk. (6) Related Party Transactions Commission revenue for the year ended December 31, 2000 includes $6,570,176 from clients of the Company that are also clients of an affiliate of the sole stockholder, which serves as investment advisor to the clients. Other expenses and various assets are shared with the affiliated entity and the allocation of these expenses and assets is estimated by management. Other entities affiliated with the sole stockholder also provide certain supporting administrative services to the Company and certain expenses of the Company are paid for by, and reimbursable to, an affiliated entity. (7) Fair Value of Financial Instruments Financial Accounting Standards Board Statement No. 107, Disclosures About Fair Value of Financial Instruments requires that all entities disclose the fair value of financial instruments, as defined, for both assets and liabilities recognized and not recognized in the statement of financial condition. The Company's financial instruments, as defined, are carried at, or approximate, fair value. -8-