Quarterly report pursuant to Section 13 or 15(d)

Investments and Fair Value of Financial Instruments

Investments and Fair Value of Financial Instruments
6 Months Ended
Jun. 30, 2016
Fair Value Disclosures [Abstract]  
Investments and Fair Value of Financial Instruments



Fair value is 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. In determining fair value, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or developed by the Company. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:


Level 1 - Valued based on quoted prices at the measurement date for identical assets or liabilities trading in active markets. Financial instruments in this category generally include actively traded equity securities.


Level 2 - Valued based on (a) quoted prices for similar assets or liabilities in active markets; (b) quoted prices for identical or similar assets or liabilities in markets that are not active; (c) inputs other than quoted prices that are observable for the asset or liability; or (d) from market corroborated inputs. Financial instruments in this category include certain corporate equities that are not actively traded or are otherwise restricted.


Level 3 - Valued based on valuation techniques in which one or more significant inputs is not readily observable. Included in this category are certain corporate debt instruments, certain private equity investments, and certain commitments and guarantees. 


The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:


Investments – Related Parties at Fair Value


As of June 30, 2016   Level 1     Level 2     Level 3     Total  
Warrants- Affiliates   $ -     $ -     $ 87,248     $ 87,248  


As of December 31, 2015     Level 1        Level 2         Level 3        Total  
Warrants- Affiliates   $ -     $ -     $ 127,202     $ 127,202  


A reconciliation of Level 3 assets is as follows:


Balance - December 31, 2015   $ 127,202  
Received     25,119  
Allocated to employees as compensation     (17,584 )
Unrealized loss     (47,489 )
Balance - June 30, 2016   $ 87,248  



    June 30, 2016      December 31, 2015  
Accumulated unrealized (losses) gains related to investments at fair value   $ (66,171 )   $ (33,058 )


It is the Company’s policy to distribute part or all of the warrants CAP earns through serving as placement agent on various private placement offerings for a related but independent entity under common management, to registered representatives or other employees who provided investment banking services. The Company recorded $3,015 and $17,584 of compensation expense (fair value) related to these distributed warrants for the three and six months ended June 30, 2016, respectively. There was no compensation recorded related to distributed warrants for the three and six months ended June 30, 2015. Warrants retained by the Company’s broker-dealer subsidiary are marked to market at each reporting date using the Black-Scholes option pricing model. Unrealized losses on affiliate warrants of $23,391 and $47,489 recorded during the three and six months ended June 30, 2016 and $117,443 and $133,759 for the three and six months ended June 30, 2015, respectively, are included in revenues on the accompanying condensed consolidated statements of operations.


The fair value of the warrants was determined based on the Black-Scholes option pricing model, which requires the input of highly subjective assumptions, including the expected share price volatility. Given that such shares were not publicly-traded, the Company developed an expected volatility figure based on a review of the historical volatilities, over a period of time, of similarly positioned public companies within the industry.


The Company’s short term financial instruments include cash, accounts receivable, advances and loans to registered representatives, accounts payable, accrued expenses, deferred revenue, other liabilities, loans payable and debt obligations. The carrying value of these instruments approximate fair value, as they bear terms and conditions comparable to market, for obligations with similar terms and maturities.