# LADENBURG THALMANN & CO. INC. X-17A-5 (2022-02-24) — Broker-dealer annual report - Company: LADENBURG THALMANN & CO. INC. - Form: X-17A-5 - Filed: 2022-02-24 - Period: 2021-12-31 - Accession: 0000057210-22-000003 - CIK: 57210 - File #: 8-17230 - Type: Broker-dealer - Material weakness: No - Auditor: Deloitte & Touche LLP - Auditor location: Phoenix, AZ - Contact: DIANE CHILLEMI - Phone: (631)270-1607 - Email: dchillemi@ladenburg.com - Website: ladenburg.com - Signed by: Diane Chillemi (Chief Financial Officer, SVP) Original filing: https://www.sec.gov/Archives/edgar/data/57210/000005721022000003/2021LTCO-Public-Finala.pdf --- {0}------------------------------------------------ | | PUBLIC | | | | | | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------|--------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|--|--|--| | | UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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hours per response: 12 | | | | | ANNUAL REPORTS | | | SEC FILE NUMBER | | | | | | FORM X-17A-5 | | 8-17230 | | | | | Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934
filing for the period beginning 01/01/21 | PART III - MARTICAL DE PERFECT
FACING PAGE Market Comment of Children | ਾ ਦਾ ਅਤੇ ਇਕ ਸਮੀਰ ਅਕ੍ਰਿਸ ਨੇ ਸ਼ੁਸ਼ਾਨਾ
PAT TO PARAL COM
AND ENDING 12/31/21 | | | | | | | MM/DD/YY | | MM/DD/YY | | | | | | A. REGISTRANT IDENTIFICATION | | | | | | | NAME OF FIRM: Ladenburg Thalmann & Co. Inc. | | | | | | | | TYPE OF REGISTRANT (check all applicable boxes):
= Broker-dealer
L Check here if respondent is also an OTC derivatives dealer | | | ‍ Major security-based swap participant | | | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.) | | | | | | | | 640 5th Avenue | | | | | | | | | (No. and Street) | | | | | | | New York | NY | | 10019 | | | | | (City) | (State) | | (Zip Code) | | | | | PERSON TO CONTACT WITH REGARD TO THIS FILING | | | | | | | | Diane Chillemi | 631-270-1607 | dchillemi@ladenburg.com | | | | | | (Name) | (Area Code - Telephone Number) | | (Email Address) | | | | | | B. ACCOUNTANT IDENTIFICATION | | | | | | | INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing*
Deloitte & Touche LLP | | | | | | | | | (Name - if individual, state last, first, and middle name) | | | | | | | 2901 N. Central Ave Suite 1200 Phoenix | | AZ | 85012 | | | | | (Address) | (City) | (State) | (Zip Code) | | | | | October 20, 2003 | | 34 | | | | | | (Date of Registration with PCAOB)(if applicable)
FOR OFFICIAL USE ONLY | | | (PCAOB Registration Number, if applicable) | | | | | | | | | | | | | * Claims for exemption from the requirement that the annual reports of an independent public
accountant must be supported by a statement of facts and circumstances relied on as the basis of the exemption. See 17 | | | | | | | CFR 240.17a-5(e)(1)(ii), if applicable. Persons who are to respond to the collection of information contained in this form are not required to respond uniess the form displays a currently valid OMB control number. {1}------------------------------------------------ #### OATH OR AFFIRMATION | Diane Chillemi | | swear (or affirm) that, to the best of my knowledge and belief, the | | |------------------------|---------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------|-------| | | tinancial report pertaining to the firm of Ladenburg Thalmann & Co. Inc. | | as of | | December 31 | | 2 021 | | | | | partner, officer, director, or equivalent person, as the case may proprietary interest in any account classified solely | | | as that of a customer. | CANDICE ELIZABETH HERREL
Notary Public, State of New York
No. 01HE6221078
Qualified in Nassau County
Commission Evnices MDRD072 | Signature: | | Title: Chief Financial Officer, SVP Notary Public #### This filing\*\* contains (check all applicable boxes): - (a) Statement of financial condition. - = (b) Notes to consolidated statement of financial condition. - [] {c) Statement of income (loss) or, if there is other comprehensive in the period(s) presented, a statement of comprehensive income (as defined in § 210.1-02 of Regulation S~X). - 0 (d) Statement of cash flows. - [] {e) Statement of changes in stockholders' or partners' or sole proprietor's equity. - [] (f) Statement of changes in liabilities subordinated to claims of creditors. - O (g) Notes to consolidated financial statements. - [] (h) Computation of net capital under 17 CFR 240.15c3-1 or 17 CFR 240.18a-1, as applicable. - (i) Computation of tangible net worth under 17 CFR 240.18a-2. - □ (j) Computation for determination of customer requirements pursuant to Exhibit A to 17 CFR 240.15c3-3. - □ (k) Computation for determination of security-based swap reserve requirements pursuant to Exhibit B to 17 CFR 240.15c3-3 or Exhibit A to 17 CFR 240.18a-4, as applicable. - [ (I) Computation for Determination of PAB Requirements under Exhibit A to § 240.15c3-3. - [] (m) Information relating to possession or control requirements for customers under 17 CFR 240.15c3-3. - [] (n) Information relating to possession or control requirements for security-based swap customers under 17 CFR 240.15c3-3(p)(2) or 17 CFR 240.18a-4, as applicable. - [] {o} Reconciliations, including appropriate explanations, of the FOCUS Report with computation of net capital or tangible net worth under 17 CFR 240.15c3-1, 17 CFR 240.18a-2, as applicable, and the reserve requirements under 17 CFR 240.15c3-3 or 17 CFR 240.18a-4, as applicable, if material differences exist, or a statement that no material differences exist. - □ (p) Summary of financial data for subsidiaries not consolidated in the statement of financial condition. - (q) Oath or affirmation in accordance with 17 CFR 240.17a-5, 17 CFR 240.18a-7, as applicable. - □ {r} Compliance report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - □ (s) Exemption report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - (t) Independent public accountant's report based on an examination of the statement of financial condition. - [] (u) Independent public accountant's report based on an examination of the financial statements under 17 CFR 240.17a-5, 17 CFR 240.18a-7, or 17 CFR 240.17a-12, as applicable. - [] {v] Independent public accountant's report based on an examination of certain statements in the compliance report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - [] {w} Independent public accountant's report based on a review of the exemption report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - | (x) Supplemental reports on applying agreed-upon procedures, in accordance with 17 CFR 240.17a-12, as applicable. - [] {y} Report describing any material inadequacies found to have existed since the date of the previous audit, or a statement that no material inadequacies exist, under 17 CFR 240.17a-12(k). - - \*\* To request confidential treatment of certain portions of this filing, see 17 CFR 240.18c-7(d)(2), as applicable. {2}------------------------------------------------ #### STATEMENT OF FINANCIAL CONDITION AND RELATED NOTES Ladenburg Thalmann & Co. Inc. (SEC File Number. 8-17230) (A wholly-owned subsidiary of Advisor Group Holdings, Inc.) December 31, 2021 With Report Of Independent Registered Public Accounting Firm {3}------------------------------------------------ # Ladenburg Thalmann & Co. Inc. (A wholly-owned subsidiary of Advisor Group Holdings, Inc.) Table of Contents December 31, 2021 #### Page | Report of Independent Registered Public Accounting Firm | | |---------------------------------------------------------|--| | Financial Statement | | | Statement of Financial Condition | | | Notes to Financial Statement | | {4}------------------------------------------------ Deloitte & Touche LLP 2901 North Central Avenue Suite 1200 Phoenix, AZ 85012-2799 USA Tel: +1 602 234 5100 Fax: +1 602 234 5186 www.deloitte.com ## REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholder and Board of Managers of Ladenburg Thalmann & Co. Inc.: ## Opinion on the Financial Statement We have audited the accompanying statement of financial condition of Ladenburg Thalmann & Co. Inc. (the "Company") as of December 31, 2021, and the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. ## Basis for Opinion The financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit of the financial statement provides a reasonable basis for our opinion. February 23, 2022 We have served as the Companys auditor since 2020. {5}------------------------------------------------ ### Ladenburg Thalmann & Co. Inc. (A wholly-owned subsidiary of Advisor Group Holdings, Inc.) Statement of Financial Condition (In Thousands, Except Share Amounts) December 31, 2021 | Cash and cash equivalents
Restricted cash
100
Receivables from broker-dealers and clearing organizations
2,217
Accounts and notes receivable
6,963
Receivables from affiliates
157
Securities owned, at fair value
3,225
Fixed assets, net of accumulated depreciation of \$830
536
Goodyill
54,523
Intangible assets, net of accumulated amortization of \$7,293
16,588
Operating lease right-of-use assets
899
Prepaid expenses
786
Other assets
176
Total assets
148,038
Liabilities and Stockholder's Equity
494
Commissions payable
Compensation payable
23,838
Accounts payable and accrued expenses
4,071
Payables to affiliates
4,996
Operating lease liabilities
939
Finance lease liabilities
13
Income tax payable
1,157
Deferred tax liabilities
2,915
Deferred income
632
39,055
Total liabilities
Commitment and contingencies (Note 11)
Stockholder's Equity
Common stock - \$0.01 par value; 1,000 shares authorized; 560 shares issued and outstanding
Additional paid-in capital
104,753
Retained earnings
4,230
Total stockholder's equity
108,983
Total liabilities and stockholder's equity | Assets | | |---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | See accompanying notes. {6}------------------------------------------------ #### 1. Organization and Description of the Company Ladenburg Thalmann & Co. Inc. (the "Company") is a wholly-owned subsidiary of Advisor Group Holdings, Inc. ("AGHI"). AGHI is a wholly-owned subsidiary of AG Parent Corp., which is a wholly-owned subsidiary of Ladenburg Thalmann Financial Services, Inc., ("Ladenburg"). The Company evaluated subsequent events through February 23, 2022, the date on which the Statement of Financial Condition was available to be issued. The Company is a full service broker which has been a member of the New York Stock Exchange since 1879 and is registered with the Financial Industry Regulatory ("FINRA"), the Municipal Securities Rulemaking Board and the Securities and Exchange Commission ("SEC") pursuant to the Securities Exchange Act of 1934. Broker-dealer activities include principal and agency trading. The Company provides its services principally for middle market and emerging growth companies and high net worth individuals through a coordinated effort among corporate finance, capital markets, brokerage and trading professionals. The Company executes its customs' transactions on a fully-disclosed basis, through unaffiliated clearing broker-dealers, which carry the accounts and securities of the Company's customers. #### 2. Significant Accounting Policies #### Basis of Presentation The financial statement was prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP"). #### Use of Estimates US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the Statement of Financial Condition. Actual results could differ from those estimates and assumptions. #### Reportable Segment The Company operates exclusively in the United States as one operating segment as it only reports financial information on an aggregate basis to its chief operating decision maker. #### Recently Issued Accounting Pronouncements ASU 2021-08 - In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Liabilities from Contracts with Customers. The amendments in this standard requirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with FASB Accounting Standards Codification ("ASC") 606 as if it had originated the contracts. ASU 2021-08 will be effective for the Company on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on the Company's financial statement. ASU 2019-12 - In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this standard simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The ASU was effective on January 1, 2022. The adoption of ASU 2019-12 did not have a material impact on the Company's financial statement. {7}------------------------------------------------ #### Cash Equivalents The Company has defined cash equivalents as highly liquid investments, with original maturities of less than ninety days that are not held for sale in the ordinary course of business. #### Restricted Cash Restricted cash consists of cash held by unaffiliated clearing broker-dealer firms as a deposit for maintaining minimum required cash balances that the Company has no intention of accessing as of the date of this report. #### Fixed Assets Fixed assets are recorded at cost less accumulated depreciation and amortization is recognized on a straightline basis over the useful lives of the assets, currently estimated to be 2 to 7 years. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets are considered to be impaired, the impairment to be recognized is measured by the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. #### Goodwill and Intangible Assets Goodwill is not amortized; however, the acquired intangible assets were deemed to have definite lives and are amortized on a straight-line basis over their useful lives which range from 1 to 10 years. Goodwill and intangible assets are tested annually for impairment, or more frequently, as events occur which may indicate that the carrying amounts may not be recoverable. In 2021, the Company elected to change its annual goodwill and intangible asset impairment testing date from October 1st to allow the Company additional time to complete the analysis prior to year-end. When testing goodwill for impairment, if a qualitative assessment is used and the Company determines that the fair value of a reporting unit is more likely than not (i.e. a likelihood of more than its carrying amount, a quantitative impairment test will be performed. If goodwill assessed for impairment, a two-step aproach is applied. First, the Company compares the estimated fair value of the reporting unit in which the asset resides to its carrying value. The second step, if necessary, measures the amount of such imparing the implied fair value of the asset to its carrying value. No impairment of goodwill was recognized during the year ended December 31, 2021. The Company tests amortizing intangible assess for recoverability annually, or whenever events or circumstances indicate that the carrying amount may not be recoverable. The Company monitors the operating and cash flow results related to its intangible assets to identify whether events and circumstances indicate the remaining useful lives of those assets should be adjusted, or if the carrying value may not be recoverable. When indicators of impairment are present, recoverability is measured by comparing the carrying amount to the estimated undiscounted future expected to be generated by the respective intangible asset. If the carrying amount exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the intangible asset exceeds the fair value. No impairment of intangible assets was recognized during the year ended December 31, 2021. #### Income Taxes In preparing the financial statement, the Company estimates income tax expense based on various jurisdictions where it conducts business. The Company then must assess the likelihood that the deferred tax assets will be realized. A valuation allowance is established to the extent that it is more-likely-than-not that such deferred tax assets will not be realized. When the Company establishes a valuation allowance or modifies the existing allowance in a certain reporting period, it generally records a corresponding increase or decrease to tax expense. Management makes significant judgments in determining the provision for income taxes, the deferred tax assets and liabilities, and any valuation allowances recorded against the deferred tax asset. Changes in the estimate of these taxes occur periodically due to changes in the {8}------------------------------------------------ business operations, implementation of tax planning strategies, resolution with taxing authorities of issues where the Company had previously taken certain tax positions, and newly enacted statutory, judicial, and regulatory guidance. These changes could have a material effect on the Company's Statement of Financial Condition in the periods in which they occur. The Company recognizes the tax effects of a position in the financial statement only if it is more-likely-than-not to be sustained based solely on its technical merits; otherwise no benefits of the position are to be recognized. The more-likely than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. Moreover, each tax position meeting the recognition threshold is required as the largest amount that is greater than 50 percent likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. The Company is included in the consolidated federal income tax return of AGHI. In those states that have a unitary structure, AGHI also plans to file consolidated returns which include the Company. Federal income taxes and state income taxes under unitary structures are calculated as if the Company filed on a separate return basis, and the amount of current tax or benefit calculated is either remitted to or received from AGHI. The amount of current taxes payable or refundable is recognized as of the financial statement, utilizing currently enacted tax laws and rates. The Company uses the liability method to account for federal and state taxes in accordance with authoritative guidance under US GAAP on income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax benefits and consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using currently enacted tax rates for the years in which the temporary difference is expected to reverse. The Company calculates its current and deferred state income taxes using the actual apportionment and statutory rates for states in which the Company is required to file on a separate basis. #### Leases The Company determines if an arrangement is a lease at inception. The Company has operating leases for corporate offices and finance leases for equipment with remaining lease terms of 1 to 2 years, some of which include options to extend the lease. For leases with renewal options, the lease term is extended to reflect renewal options the Company is reasonably certain to exercise. Operating lease assets and operating lease liabilities are recognized based on the future lease payments over the lease term at the commencement date. As the Company's leases do not provide an implicit rate, the Company estimates its incremental borrowing rate based on information available at the commencement date in determining the present value of future payments. Lease expense for the net present value of payments is recognized on a straight-line basis over the lease term. #### Contingent Liabilities The Company recognizes liabilities for contingencies where that, when fully analyzed, indicates that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. If a loss is determined to be probable, the estimated range of the probable loss is based upon currently available information which is subject to significant judgment, a variety of assumptions, and uncertainties. When a range of possible loss can be estimated, the Company accrues the most likely amount within that range; if the most of possible loss within that range is not determinable, the Company accrues at the bottom of the range. No liability is recognized for those matters which, in management's judgment, the determination of a reasonable estimate of loss is not possible. The Company records liabilities related to legal and regulatory proceedings in Accounts payable and accrued expenses on the Statement of Financial Condition. The determination of these liability amounts requires significant judgment on the part of management. Management considers many factors including, but not limited to: the amount of the loss in the customer's account; the basis and viability of the claim; the possibility of wrongdoing on the part of one of our financial professionals; previous results in similar cases; available indemnifications; and legal precedents and case law. The actual costs of regulatory proceedings may be substantially higher {9}------------------------------------------------ or lower than the amounts of the liability recorded for such matters. The cost of defense related to legal and regulatory matters are expensed in the period they are incurred. ### 3. Accounts and Notes Receivable Accounts and notes receivable as of December 31, 2021 consist of the following (dollars in thousands): | Investment banking revenue receivable | | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----| | Clearing credit revenue receivable | 39 | | …………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………… | 121 | | Total accounts and notes receivable | | #### 4. Fixed Assets Fixed assets consist of the following as of December 31, 2021 (dollars in thousands): | | | Gross Carrying
Amount | | Accumulated
Depreciation | | Fixed Assets, Net | | |------------------------|--|--------------------------|---|-----------------------------|-----|-------------------|--| | Leasehold improvements | | 863 | S | (469) | ക്ക | 394 | | | Computer equipment | | 273 | | (177) | | 96 | | | Furniture and fixtures | | ો રેજે | | (121) | | 37 | | | Finance leases | | 67 | | (28) | | ் | | | Office equipment | | C | | | | | | | Total fixed assets | | 1,366 | | (830) | | 536 | | ### 5. Goodwill and Intangible Assets The following table summarizes the carrying amount of goodwill (dollars in thousands): | Balance as of December 31, 2020 | | |---------------------------------|--| | Changes during period | | | Balance as of December 31, 2021 | | Intangible assets consist of the following as of December 31, 2021 (dollars in thousands): | | | Gross Carrying
Amount | Accumulated
Amortization | | | Net Carrying
Amount | | | |------------------------------|--|--------------------------|-----------------------------|------------|---|------------------------|--|--| | Capital market relationships | | 17,208 | A | (4,620) \$ | | 12,588 | | | | Trading relationships | | 1,961 | | (1,228) | | 733 | | | | Trade name | | 4,023 | | (756) | | 3,267 | | | | Non-competition agreements | | 689 | | (689) | | | | | | Total | | 23,881 | A | (7,293) | 分 | 16.588 | | | Filed pursuant to Rule 17a-5(e)(3) under the Securities Exchange Act of 1934 as a PUBLIC DOCUMENT. {10}------------------------------------------------ #### 6. Leases Weighted average information related to leases as of December 31, 2021 is as follows: | Weighted-average remaining lease term (years): | | |------------------------------------------------|-------| | Operating leases | 1.2 | | Finance Jeases | 0.2 | | Weighted-average discount rate: | | | Operating leases | 4.7 % | | Finance leases | 3.7 % | Maturities of lease liabilities as of December 31, 2021 are as follows (dollars in thousands): | | | Operating
Leases | Finance
Leases | | |-----------------------|--|---------------------|-------------------|----| | 2022
2022 | | 818
146 | ಲ್ಲಿ ಈ | 13 | | Total lease payments | | 964 | | 13 | | Less imputed interest | | (25 | | | | | | 939 | | 13 | #### 7. Fair Value Measurements FASB ASC 820, Fair Value Measurement, defines fair value as 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. A financial instrument's level within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. However, the determination of what constitutes observable requires judgment. Management considers observable data, which is readily available, regularly distributed or updated, reliable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The Company's fair value measurements are evaluated within the fair value hierarchy based on the nature of inputs used to determine the fair value at the measurement date. In accordance with ASC 820, the Company discloses the fair value of its investments in a hierarchy as follows: Level 1: Inputs that reflect unadjusted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date; Level 2: Inputs, other than quoted prices that are observable for the directly or indirectly, including inputs in markets that are not considered to be active; Level 3: Inputs that are unobservable. {11}------------------------------------------------ The following table presents the Company's hierarchy for assets measured at fair value on a recurring basis as of December 31, 2021 (dollars in thousands): | | Level 1 | | | Level 2 | | Level 3 | Total | | |-----------------------------------|---------|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------|--------| | Assets | | | | | | | | | | Cash and cash equivalents: | | | | | | | | | | U.S. government debt security \$ | | | | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | સ્ત્ર | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ക | 60,998 | | Securities owned: | | | | | | | | | | Common stock | | 1,447 | | 18 | | | | 1.465 | | Warrants | | | | 1,760 | | | | 1,760 | | Subtotal - Securities owned | | 1,447 | | 1,778 | | | | 3,225 | | Total assets at fair value | | 62,445 | ക്ക | 1,778 | સ્ત્ર | l | S | 64,223 | The U.S. government debt security included within cash and cash equivalents has a maturity of less than 90 days. The fair value is based on prices obtained from an independent pricing vendor. Common stock may be received as compensation for investment banking services. These securities are restricted and may be freely traded only upon the effectiveness of a registration statement covering them or upon the satisfaction of the requirements of Securities Act Rule 144, including the requisite holding period. Restricted common stock is classified as Level 2 securities. The fair value is based on prices obtained from an independent pricing vendor. Warrants are carried at a discount to fair value as determined by using the Black-Scholes option-pricing model due to illiquidity. This model takes into account the underlying securities' current market volatility of the underlying securities, the term of the warrants, exercise price, and risk-free rate of return. The fair value is based on prices obtained from an independent pricing vendor. As of December 31, 2021, approximately \$0.7 million of securities owned was deposited with the Company's clearing broker. Under the clearing agreement with such clearing broker, the securities may be sold or hypothecated by such clearing broker. ### 8. Related Party Transactions Receivables from and payables to affiliates, as shown on the Statement of Financial Condition, are generally settled in cash on a monthly basis. The payment, timing and amount of dividends are subject to approval by the Board of Directors as well as net capital rules which require that the broker-dealer's capital may not be withdrawn if resulting net capital would be less than minimum requirements. Additionally, certain withdrawals require the SEC and FINRA to the extent they exceed defined levels, even though such withdrawals would not capital to be less than minimum requirements. During the year ended December 31, 2021, the Company paid \$8.9 million in dividends to AGHI. {12}------------------------------------------------ #### 0 Income Taxes Deferred tax assets principally arise as a result of temporary differences from amortization of intangible assess, accrued bonuses and operating leases. The following table presents the net deferred tax assets / (liabilities) as of December 31, 2021 (dollars in thousands): | Deferred tax asset: | | |------------------------------|---------| | Accrued legal tees | 157 | | Accrued bonus | 1.499 | | Bad debt expense | 36 | | Lease liability | 296 | | Other | 144 | | State taxes | 288 | | Unearned income | 251 | | Total deferred tax asset | 2,671 | | Deferred tax liability: | | | Fixed assets | (46) | | Intangible assets | (5.029) | | Prepaid expenses | | | Right-of-use asset | (279) | | Total deferred tax liability | (5,586) | | Net deferred tax liability | | The Company recognizes and measures its unrecognized tax benefits in accordance with authoritative guidance. Under that guidance the Company assesses the likelihood, based on their technical merit, that tax positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period. The measurement of unrecognized tax benefits is adjusted when new information is available, or when an event occurs that requires a change. The Company accrues interest and penalties related to uncertain tax provision for income taxes within the Statement of Financial Condition. As of December 31, 2021, the Company had no liability for uncertain tax positions. The Company files income tax returns in the federal jurisdiction, as well as most state jurisdictions, and is subject to routine examinations by the respective taxing authorities. The tax years of 2018 to 2021 remain open to examination in the federal jurisdiction. The tax years of 2017 to 2021 remain open to examination in the state jurisdictions. The Company does not have any tax positions at the year for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within twelve months of the reporting date. ### 10. Net Capital Requirements and Exemptions Under SEC Uniform Net Capital Rule 15c3-1 of the Securities Exchange Act of 1934, the Company is required to maintain a minimum net capital amount. The Company is required to maintain minimum net capital of 1) the greater of \$250,000 or 2% percent of aggregate debit balances arising from client transactions under the alternative method or 2) the greater of \$250,000 or the minimum net capital required per the market maker requirements. The Company meets the definition of a market maker per SEC Rule 15c3-1, therefore the capital requirements for market makers under SEC Rule 15c3-1(a)(4) apply. Per this section of the Company is required to maintain minimum net capital in an amount of \$2,500 for each security in which it makes a market, unless a security in which it makes a market value of \$5 or less. In instances where the security has a market value of \$5 or less, the amount of net capital is \$1,000 for each such security. The calculation is based on the average number of markets made by the 30 days immediately preceding the {13}------------------------------------------------ computation date. The Company is not required to maintain capital in excess of \$1 million, unless the minimum net capital calculation, based on the requirements stated above, meets or exceeds \$1 million. Net capital and net capital requirements for the Company as of December 31, 2021 are summarized in the following table (dollars in thousands): | | Net Capital | | Required Minimum Net Capital | | Excess Net Capital | | |---|-------------|-----------|------------------------------|-----|--------------------|--------| | A | | 45.256 \$ | | 262 | | 44.994 | The Company is exempt from the Computation of a Reserve Requirement under the provision of SEC Rule 15c3-3(k)(2)(i) and because the Company's other business activities met the requirements specified in Footnote 74 of the SEC Release No. 34-70073 adopting amendments to 17 C.F.R. § 240.17a-5. ### 11. Commitments and Contingencies In the normal course of business, the Company enters into contain a variety of representations and warranties and which provide general indemnifications. The Company's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Company that have not yet occurred. However, based on experience, the Company expects any risk of loss to be remote. #### Litigation and Regulatory Matters In November 2015, two purported class action complaints were filed in the Circuit Court for Morgan County, Tennessee (Ninth Judicial District) against Miller Energy Resources, Inc. ("Miller"), officers, auditors and nine firms that underwrote six securities offerings, which raised approximately \$151 million in 2013 and 2014. The Company was one of the underwriters of two of the offerings, and the Company raised approximately \$4.4 million for those offerings. The complaints allege, among other things, that the offering materials were misleading based on the purportedly overstated valuation of certain assets, and that the underwriters are liable for violations of federal securities laws. Also, a purported class action complaint was filed in the United States District Court for the Eastern District of Tennessee in May 2016 alleging similar claims; that complaint was dismissed without prejudice in March 2020. The plaintiffs seek an unspecified amount of compensatory damages, as well as other relief. In December 2015, the defendants removed the state court complaints to the federal court in Tennessee. In November 2016, the cases were consolidated. In August 2017, the court granted in part and denied in part the underwriters' motion to dismiss the complaint. In December 2019, the court issued an order remanding to state court the two suits that were initially filed in state court. In August 2021, certain of the defendants filed a motion for preliminary approval of partial settlements, to which the Company and other defendants have objected; that motion is pending. The Company intends to vigorously defend against these claims. The Company is subject to claims and lawsuits arising in the normal course of business. The Company maintains Errors and Omissions insurance for certain claims and lawsuits. Amounts not covered by indemnification or insurance, including amounts less than the insurance deductible, will be paid directly by the Company. In addition, in the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or other inquiries. These matters could result in censures, fines, penalties or other sanctions. ASC 450, Contingencies, governs the recognition and disclosure of loss contingencies, including potential losses from legal and regulatory matters. ASC 450 categorizes loss contingencies using three terms based on the likelihood of occurrence of events that result in a loss: "probable" means that "the future event or events are likely to occur," "remote" means that "the chance of the future event or events occurring is slight;" "reasonably possible" means that "the chance of the future event or events occurring is more than remote but less than likely." Under ASC 450, the Company accrues for losses that are considered both probable and reasonable. As of December 31, 2021, the Company accrued approximately \$0.5 million for legal and regulatory matters. These liabilities are included in Accounts payable and accrued expenses in the Statement of Financial Condition. {14}------------------------------------------------ #### Indemnifications In the normal course of business, the Company indemnifies and guarantees certain service providers, such as clearing and custody agents, trustees and administrators against specified potential losses in connection with their acting as an agent of, or providing services to, the Company or its affiliates. The Company also indemnifies some clients against potential losses incurred in the event specified third-party service providers, including sub-custodians and third-party brokers, improperly execute transactions. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the Statement of Financial Condition for these indemnifications. The Company provides representations and warranties in connection with a variety of commercial transactions and occasionally agrees to indemnify them against potential losses caused of those representations and warranties. The Company may also provide standard indemnifications to some counterparties to protect them in the event additional taxes are owed, or payments are withheld, due either to a change in or adverse application of certain tax laws. These indemnifications generally are standard contractual terms and are entered into in the normal course of business. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the Statement of Financial Condition for these indemnifications. #### Clearing Broker-Dealers In the normal course of business, the Company's customer activities involve the execution, settlement and financing of various customer securities transactions. The Company uses unaffiliated clearing broker-dealers to execute certain customer transactions. Such transactions may expose the Company and the clearing broker-dealers to significant offbalance-sheet risk in the event margin requirements are not sufficient to fully cover losses which customers may incur. In the event customers fail to satisfy their obligations, the Company may be required to purchase or sell financial instruments at prevailing market prices in order to fulfill the customers' obligations. The Company does not expect nonperformance by customers. There is no maximum risk of loss under such arrangement. Based on experience, the Company does not believe any potential losses will be material. #### Concentration of Risk At times, cash and equivalents may exceed the insurance limits of the Federal Deposit Insurance Corporation. Management believes its risk of loss is mitigated by investing in or through reputable financial institutions. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.