# NATIONAL SECURITIES CORPORATION X-17A-5 (2020-12-21) — Broker-dealer annual report - Company: NATIONAL SECURITIES CORPORATION - Form: X-17A-5 - Filed: 2020-12-21 - Period: 2020-09-30 - Accession: 0000070517-20-000008 - CIK: 70517 - File #: 8-00164 - Material weakness: No - Auditor: EisnerAmper LLP - Auditor location: New York, NY - Contact: Giovanni Castellanos - Phone: 5618695279 - Signed by: Natalia Watson (CFO) Original filing: https://www.sec.gov/Archives/edgar/data/70517/000007051720000008/nscshortg.pdf --- {0}------------------------------------------------ # FOnr1 ras SEC FILE NUMBER | 8-164 | | |-------|--| | | | | | | #### FACING PAGE Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a-5 Thereunder | | UNITEDSTATES
SECURITIESAND
EXCHANGECOMMISSION
Washington,D.C.
20549 | OMB | OMB
APPROVAL
Number:
3235-0123
October
31, 2023 | | |---------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|--------------------------------------------------------|----------------------------------------------------------------|--| | | ANNUAL
AUDITED | Expires:
REPORT
hours | Estimated average burden
per response 12.00 | | | | nr
ras
FO
1 | | FILE NUMBER
SEC
8-164 | | | | PAGE
FACING | | | | | Required
Information
of
Exchange
Securities | and
Brokers
Dealers
and
Act
1934
Rule
of | Pursuant
Section
17
to
Thereunder
17a-5 | of
the | | | REPORTFOR
THE
PERIOD
BEGINNING | 2019
OCtober
1,
MM/DD/YY | September
AND
ENDING | 2020
30,
MM/DD/YY | | | A. | REGISTRANT
IDENTIFICATION | | | | | NAME
BROKER-DEALER:
OF
National
OF
PLACE
OF
ADDRESS
PRINCIPAL | Corporation
Securities
(Donot
BUSINESS:
Box
use
P.O. | No.) | USE
ONLY
OFFICIAL
FIRM
I.D. NO. | | | T
5000
300
-Rex
Avenue,
Suite | | | | | | Boca
Raton | (No. and Street)
FL | 33431 | | | | (City)
OF
NAME
AND
TELEPHONE
NUMBER | (State)
CONTACT
REGARD
PERSON
TO
IN | (Zip Code)
TO
REPORT
THIS | | | | Natalia Watson | ACCOUNTANT | | 561-869-5215
(Area Code
— Telephone Number) | | | B.
ACCOUNTANTwhose
INDEPENDENT
PUBLIC | IDENTIFICATION
opinion
is contained | in this Report* | | | | LLP
EisnerAmper | | | | | | Avenue
733
Third | (Name
— if individual, state last, first, middle name)
New
York | NY | 10017 | | | (Address)
CHECK
ONE: | (City) | (State) | (Zip Code) | | | [Y
Accountant
[Certifica Public
Accountant
Public | | | | | | Accountant
resident in United
not | of its
any
States or
possessions. | | | | | | ONLY
FOR
USE
OFFICIAL | | | | | | | | | | \*Claimsfor exemptionfrom the requirement that the annual report be covered by the opinion ofan independent public accountant must be supported by a statement offacts and circumstances relied onas the basis for the exemption. See Section 240.17a-5(e)(2) Potential persons whoare to respond to the collection of information containedin this form are not required to respond SEC 1410 (11-05) unlessthe form displays a currently valid OMB control number. {1}------------------------------------------------ # OATH OR AFFIRMATION | OATH
OR | AFFIRMATION | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | Natalia Watson
1,
my
knowledge
the accompanying
and
financial statement
belief
National Securities Corporation
December21
, 20
of
nor any
the company
neither
partner, proprietor, principal officer or
classified solely as that of
a customer, except
as follows: | , swear
(or affirm) that, to the best of
and
of
supporting
schedules
pertaining
to the firm
"as
20
, are true and
I further swear
(or affirm)
correct.
that
any
interest in any
account
director has
proprietary | | | Mb
cedar.
Signature | | Notary
Public | Chief
Financial Officer
Title | | (check
This
**
contains
report
all applicable
boxes):
(a) Facing
Page.
(b) Statement
of
Condition.
Financial
[]
Income
Statement
of
(Loss)
or, if there is other
(c)
(as
Comprehensive
-
of
in \$210.1-02
Income
defined
Changesin
(d) Statement
of
Condition.
Financial
Changes
of
(e) Statement
Equity
in Stockholders'
or
Changesin
[]
of
Statement
Liabilities Subordinated
(f)
Net
(g) Computation
of
Capital.
(h) Computation
Reserve
Requirements
for Determination
of | incomein
comprehensive
a Statement
the
period(s)
presented,
of
Regulation
S-X).
Partners' or
Sole
Proprietors'
Capital.
to Claims
of
Creditors. | | Information
Relating
to the Possession
Control
or
(i) | to Rule
Pursuant
15c3-3.
Under
Requirements
Rule
15c3-3. | | O
A
Reconciliation, including
explanation
appropriate
(j)
Computation
of
the Reserve
for Determination
O
(k) A
between
and
unaudited
Reconciliation
the audited
consolidation.
An
Oath
or
Affirmation.
(1)
A
the SIPC
(m)
copy
of
Supplemental
Report.
_
(n) A
[]
any
found
report describing
material inadequacies
treatmentofcertain
For
of
**
conditions
confidential
portions | and the
the Computation
Net
Under
of
of
Rule
Capital
15c3-1
A
Under
Requirements
of
Rule
Exhibit
15c3-3.
respect to methods
Statements
of
Condition
of
Financial
with
to have
to exist or found
the date ofthe
previous
existed
since
audit.
of
this filing, see
section
240. 17a-5(e)(3). | | | | {2}------------------------------------------------ (a wholly-owned subsidiary of National Holdings Corporation) STATEMENTOF FINANCIAL CONDITION SEPTEMBER30, 2020 {3}------------------------------------------------ #### National Securities Corporation (a wholly-ownedsubsidiary of National Holdings Corporation) ## Statementof Financial Condition and Notes #### Year ended September30, 2020 #### Contents | Report
Independent
Accounting
Registered
Firm
of
Public | | |----------------------------------------------------------------------------------------------------|--| | Audited
Statements:
Financial | | | Statement
Condition
Financial
of
Notes
to Statement
Condition
Financial
of | | {4}------------------------------------------------ # EISN ERAMDE e 733 Third Avenue EisnerAmper LLP New York, NY 10017 T 212.949.8700 F 212.891.4100 com # REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors National Securities Corporation #### Opinion on the Financial Statement We have audited the accompanying statement of financial condition of National Securities Corporation (the "Company") as of September 30, 2020 andthe related notes(collectively referred to as the "financial statement"). In our opinion, the financial statement presentsfairly, in all material respects, the financial position of the Company as of September 30, 2020, in conformity with accounting principles generally acceptedin the United States of America. #### Basis for Opinion Thisfinancial statementis the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's 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 independentwith respect to the Companyin accordancewith the U.S. federal securities laws andthe applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. Weconducted our audit in accordance with the standards of the PCAOB. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whetherthe financial statementis free of material misstatement, whether dueto error or fraud. Our audit included performing procedures to assess the risks of material misstatementof 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 disclosuresin 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 provides a reasonable basis for our opinion. Enoihmper LP We have served as the Company's auditor since 2019. EISNERAMPER LLP New York, New York December 21, 2020 {5}------------------------------------------------ #### Statement of Financial Condition September30, 2020 #### ASSETS | Cash | \$22,495,433 | |---------------------------------------------------------------------|--------------| | Cash
deposits
with clearing organizations | 445,800 | | at
Securities owned,
fair value | 3,840,979 | | and
Receivables from
broker-dealers
clearing organizations | 3,060,691 | | Forgivable
loans
receivable | 2,655,295 | | Other
receivables | 6,908,077 | | expenses
Prepaid | 892,900 | | and
equipment,
Property
net | 977,697 | | Goodwill | 5,537,701 | | Intangibles, net | 1,571,663 | | Due from
affiliates | 3,880,100 | | and
Deposits
other
assets | 249,637 | | assets
Right-of-use | 5,062,426 | | Deferred
tax asset, net | 2,136,250 | | TOTAL
ASSETS | \$59,714,649 | #### LIABILITIES AND SHAREHOLDER'S EQUITY | Liabilities | | |----------------------------------------------------------------|------------| | at
fair value
Securities sold, but not
yet purchased, | \$549 | | Accrued
commissions
and
payroll | 13,037,631 | | and
expenses
Accounts
other accrued
payable | 5,559,277 | | clearing and
marketing
Deferred
credits | 157,143 | | Operating
leaseliability | 5,562,620 | | PPP loan | 5,550,436 | | Due to
parent | 5,066,852 | | Total
Liabilities | 34,934,508 | | | | #### Commitments and Contingencies (Note 1) #### Shareholder's Equity | Commonstock
authorized, 100
\$0.02
value, 5,000,000 shares
shares
par | | |--------------------------------------------------------------------------------------|--------------| | and
issued
outstanding | 2 | | Additional paid-in-capital | 24,733,101 | | Retained
earnings | 47,038 | | Shareholder's
Equity
Total | 24,780,141 | | AND
SHAREHOLDER'S
TOTALLIABILITIES
EQUITY | \$59,714,649 | {6}------------------------------------------------ #### Notes to Statement of Financial Condition September30, 2020 ## NOTE A - DESCRIPTION OF BUSINESS National Securities Corporation, ("National" or the "Company"), a wholly owned subsidiary of National Holdings Corporation ("Parent"), was incorporated under the laws of the State of Washington. lts primary businessis to provide financial services and products to the general public and to the financial community as a registered broker-dealer. The Companyhasoffices throughout the United States with main offices in New York City, New York and Boca Raton, Florida. The Companyis subject to regulation by, among others, the Securities and Exchange Commission ("SEC") and Financial Industry Regulatory Authority ("FINRA"). The Company does not hold customerfunds or securities. The Companyclears its transactions on a fully disclosed basis through National Financial Services, LLC ("NFS"), Axos Clearing ("Axos") formerly COR Clearing LLC, Raymond James("RJ") and Interactive Brokers LLC. #### NOTE B - SUMMARYOFSIGNIFICANT ACCOUNTING POLICIES #### [1] Basis of presentation The statementof financial condition is presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). #### [2] Use of estimates The preparation of this financial statement in conformity with accounting principles generally accepted in the United States of America 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. Actual results could significantly differ from those estimates. #### [3] Income taxes The Companyaccounts for income taxes in accordance with US GAAPwhich requires the recognition of tax benefits or expenses based on the estimated future tax effects of temporary differences betweenthefinancial statement and tax basis of its assets and liabilities. Valuation allowances are established to reduce deferred tax assets to an amountthat is morelikely than notto be realized. FASB ASC 740clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements, requiring the Company to determine whethera tax position is more likely than not to be sustained upon examination, including resolution of any related appealsorlitigation processes, based on the technical merits of the position. For tax positions meeting the morelikely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50%likelihood of being realized uponultimate settlement with the relevant taxing authority. As of September 30, 2020, the Company had no unrecognized tax positions. The Companyis included in consolidated federal and certain combined state and local income tax returns with its Parent. #### [4] Cash and cash equivalents The Companyhasdefined cash and cash equivalents as cash held at financial institutions and highly liquid investments with maturities of less than three months whenacquired that are notheld for sale in the ordinary course of business. Cash and cash equivalents held at financial institutions, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation. {7}------------------------------------------------ #### Notes to Statement of Financial Condition September30, 2020 #### [5] Receivables from broker-dealers and clearing organizations Receivables from broker-dealers and clearing organizations represent net amounts due for fees and commissions associated with the Company's retail brokerage business. #### [6] Forgivable loans Forgivable loans representloansto primarily newly recruited independentfinancial advisors as an incentive for their affiliation. The notes receivable balance is comprised of unsecured non-interest-bearing and interest- bearing loans (interest ranging up to 9%). These forgivable loans are amortized over time. The Company provides an allowance for doubtful accounts on the notes based on historical collection experience and continually evaluates the receivables for collectability and possible write-offs where a loss is deemed probable. As of September 30, 2020, no allowance wasconsidered to be required. #### [7] Property and equipment, net Property and equipmentare recorded at cost net of accumulated depreciation and amortization. #### [8] Deferred clearing and marketing credits Deferred clearing and marketing credits represent clearing fee and marketing rebates from NFS. At September 30, 2020, the remaining deferred clearing and marketing rebates amounted to approximately \$107,000 and \$50,000, respectively. #### [9] Goodwill and other intangible assets Goodwill, which is not subject to amortization, is tested for impairment annually or more frequently if events or changesin circumstancesindicate that the asset may be impaired. As the Companyhasonly one reporting unit, the impairment test consists of a comparisonof the fair value of the Companywith the carrying amount ofits net assets, including goodwill. Fair value is typically based upon estimated future cash flows discounted at a rate commensurate with the risk involved or market-based comparables. If the carrying amount of the Company's net assets exceedsthe fair value of the Company, then an impairmentloss will be recognized. After an impairmentloss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. Accounting guidance on the testing of goodwill for impairmentallows entities testing goodwill for impairment the option of performing a qualitative assessment to determine the likelihood of goodwill impairment. The annual impairmenttest performed on September 30, 2020 based on a quantitative assessmentdid notindicate any impairment of goodwill. Intangible assets consisting of brand nameare being amortized over their estimated useful lives on a straight- line basis and are subject to impairment testing on an annual basis through a comparison ofthe fair value of the assetsto its carrying value. Based on the impairmenttest performed at September 30, 2020, there was no impairment of the brand nameintangible asset. The Companyutilized the relief-from-royalty method in determining the fair value of the brand name. Intangible assets with finite lives including customerrelationships are being amortized over their estimated useful lives on a straight-line basis and are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company assesses the recoverability of its finite-lived intangible assets by determining whether the unamortized balance can be recovered over the assets' remaining useful life through undiscounted estimated future cash flows. If undiscounted estimated future cash flows indicate that the unamortized amounts will not be recovered, an adjustmentwill be made to reduce such amountsto fair value based on estimated future cash flows discounted at a rate commensurate with the risk associated with achieving such cash flows. Estimated future cash flows are based on trends ofhistorical performance and the Company's estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. The Companyutilized the relief-from-royalty method in determining the fair value of the brand name. {8}------------------------------------------------ #### Notes to Statement of Financial Condition September30, 2020 #### [10] Variable Interest Entities The Companyhasentered into agreements to provide investment banking and advisory services to numerous investment funds (the "Funds") that are considered variable interest entities ("VIEs") underthe accounting guidance. These Fundsare established primarily to make and manage investments in equity or convertible debt securities of privately held companies that the Company, as investment advisory to the Funds, believes possessinnovative or disruptive technologies and present opportunities for an initial public offering ("IPO") or anothersimilarliquidity event within approximately one to five years from the date of investment. The Funds intend to hold the investments until an IPO or anothersimilarliquidity event and then to makedistributions to its investors when contractually permitted, estimated approximately six months following such IPO or liquidity event. The Companyearns fees from the Funds in the form of placement agentfees and carried interest. As the fee arrangements under such agreements are arm's-length and contain customary terms and conditions and represent compensation that is consideredfair value for the services provided, the fee arrangements are not considered variable interests and accordingly, the Company does not consolidate such VIEs. ## [11] New accounting guidance In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires the lessee to recognize the right to use lease assets and leaseliabilities that arise from operating leases, and presentthem in its statement of financial condition. The recognition of these lease assets and leaseliabilities represents a change from previous US GAAPrequirements, which did not require lease assets and leaseliabilities to be recognized for operating leases. The recognition, measurement, and presentation of expenses and cash flowsarising from a lease by a lessee, have notsignificantly changed from previous US GAAP requirements. The Company adopted the provisions of Topic 842 on October 1, 2019, using the modified retrospective approach and the option presented under ASU 2018-11 to transition only active leases as of October 1, 2019. The Companyelected to utilize the packageof practical expedients permitted within the new standard, which among other things, allowed the Companyto carryforward the historical lease classification. The Company made an accounting policy election to keep leases with an initial term of 12 monthsorless off the Company's consolidated statements of financial condition which resulted in recognizing those lease payments in the consolidated statements of operations on straight-line basis over the lease term. Adoption of the new standardresulted in the recording ofright-of-use assets and corresponding leaseliabilities of \$5,602,000 and \$5,844,000, respectively, as of October 1, 2019. The difference betweentheright-of-use assets and the leaseliabilities was recorded to eliminate existing deferred rent balances and remaining balancesof lease incentives recorded under Topic 840. The Company's current lease arrangements expire through 2030. See Note M for further information. In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement- Disclosure Framework - Changes to the Disclosure Requirements for the Fair Value Measurement," which removesor modifies certain current disclosures, and adds additional disclosures. The changes are meant to provide more relevant information regarding valuation techniques and inputs usedto arrive at measuresoffair value, uncertaintyin the fair value measurements, and how changesin fair value measurements impactan entity's performance and cashflows. Certain disclosures in ASU 2018-13 will need to be applied on a retrospective basis and others on a prospective basis. The standardis effective for the Company beginning October 1, 2020 for both interim and annualperiods. Early adoption is permitted. The Companyis currently assessing the impact that the adoption of ASU 2018-13 will have on its financial statements. In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes". The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, Income Taxes. The amendments also improve consistent application of {9}------------------------------------------------ #### Notes to Statement of Financial Condition September30, 2020 #### NoTE C — FAIR VALUE OF ASSETSANDLIABILITIES US GAAPdefines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy whichprioritizes the inputs to valuation techniques.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 measurementdate. A fair value measurement assumesthat the transaction to sell the asset or transfer the liability occursin the principal marketfor the assetorliability or, in the absenceof a principal market, the most advantageous market. Valuation techniquesthat are consistent with the market, incomeor cost approach are used to measurefair value. - Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. - Level 2 Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions marketparticipants would use in pricing the asset or liability and are developed based on market data obtained from sources independentof the Company. - Level 3 Unobservable inputs which reflect the assumptions that the Company develops based on available information about what marketparticipants would usein valuing the assetorliability. | Corporation
National
Securities | | | | | |-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | Notes
Statement
Condition
to
of
Financial
September30,
2020 | | | | | | and
simplify
US
GAAPfor
other
areas
12
will
be
effective
for
the
Company'sfiscal
Thetransition
requirements
are
prospectively
or
retrospectively.
The
2019-12
will
have
on
its
financial | of
Topic
year
dependent
upon
each
Companyis
statements. | 740byclarifying
and
beginning
October
1,
amendmentwithin
currently
assessing | amending
existing
2021,
with
early
this
update
and
the
impact
that | guidance.
ASU
2019-
adoption
permitted.
will
be
applied
either
the
adoption
of
ASU | | C
ASSETSANDLIABILITIES
NoTE
—
VALUE
OF
FAIR | | | | | | US
GAAPdefines
fair
value,
establishes
hierarchy
whichprioritizes
the
inputs
sell
an
asset
or
paid
to
transfer
a
measurementdate.
A
fair
value
liability
occursin
the
principal
marketfor
advantageous
market.
Valuation
used
to
measurefair
value. | a
framework
to
valuation
liability
in
an
measurement
assumesthat
the
assetorliability
techniquesthat
are | for
measuring
techniques.Fair
value
orderly
transaction
the
transaction
or,
in
the
consistent
with
the | fair
value,
and
is
the
price
that
between
market
to
sell
the
absenceof
a
principal
market,
incomeor | establishes
a
fair
value
would
be
received
to
participants
at
the
asset
or
transfer
the
market,
the
most
cost
approach
are | | The
fair
value
hierarchy
ranks
the
Financial
assets
and
liabilities
carried
categories: | quality
and
reliability
at
fair
value
are | of
the
information
classified
and | used
to
disclosed
in
one
of | determine
fair
values.
the
following
three | | Unadjusted
quoted
Level
prices
1 | markets
in active | for identical | assets
or liabilities. | | | Level
2
Inputs
other
than
quoted
reasonably
available.
pricing
the
asset
or
liability
independentof
the
Company. | market
prices
Observable
inputs
and
are | that
are
observable,
reflect
the
assumptions
developed
based
on | either
directly
marketparticipants
market
data | or
indirectly,
and
would
use
in
obtained
from
sources | | Level
3
Unobservable
inputs | which
reflect
the
what
marketparticipants | assumptions
that
would | the
Company
usein
valuing
the | develops
based
on
assetorliability. | | available
information
about | | | at
September | 30,
2020offinancial | | The
following
table
presents
the
carrying
assets
and
liabilities,
excluding
financial
information
is
provided
on
their
amounts
that
approximate
fair
value | values
and
instruments
classification
within
the
due
to
their
short-term | estimated
fair
values
that
are
carried
at
fair
value
hierarchy.
nature
and | fair
value
on
a
Such
instruments
generally
negligible | recurring
basis,
and
are
carried
at
credit
risk. | | Assets | | September30, | 2020 | | | | Value
Carrying | Level
1 | Level
2 | Estimated
Total
Value | | Cash | \$
22,495,433 | \$
22,495,433 | \$ | \$
22,495,433 | | Cash
deposits
with clearing organizations
Receivables
and
from
broker-dealers | 445,800
3,060,691 | 445,800 | 3,060,691 | 445,800
3,060,691 | | clearing organizations
Forgivable
loans
receivable | 2,655,295 | | 2,655,295 | 2,655,295 | | Other receivables
Duefrom
affiliates | 6,908,077
3,880,100 | | 6,908,077
3,880,100 | 6,908,077
3,880,100 | | | \$
39,445,396 | 22941,233
\$ | 16,504,163
\$ | \$
39,445,396 | | Liabilities | | | | | | Accrued
and
commissions
payroll
Accounts
and
payable
accrued
other | 13,037,631
5,559,277 | | 13,037,631
5,559,277 | 13,037,631
5,559,277 | | expenses
Dueto
parent | 5,066,852
\$
23,663,760 | | 5,066,852
\$
23,663,760 | 5,066,852
\$
23,663,760 | {10}------------------------------------------------ #### Notes to Statementof Financial Condition September30, 2020 The following table presents the financial assets and liabilities measured at fair value on a recurring basis at September 30, 2020: | National
Notes
to
September30, | Securities
Statementof
2020 | Financial | Corporation | Condition | | | | | | | | | | | |----------------------------------------------|---------------------------------------------------------|-----------------------|-----------------------------------|---------------------------------------|-------------------------------|------------------------|----------------------------------|--------------------------|-----------------------------------------------------|---------------------------------|-----------------------------------|--------|---------------------------------------------------|-------| | The
September | following
table
30,
2020: | presents | the | financial | assets | | and
liabilities | | measured | at
fair
value | on
a | | recurring
basis | at | | Assets | | | Carrying | Value | | | Level
1 | | Level
2 | September30,
2020
Level | 3 | | Total
Estimated
Fair
Value | | | Securities
Corporate
Warrants | owned:
stocks
Restricted commonstock | | | \$
75,160
528,532
3,237,287 | | \$ | 75,160 | | 528,532
2,162,380 | | 1,074,907 | | 75,160
\$
528,532
3,237,287 | | | Liabilities | | | \$
Carrying | 3,840,979
Value | | \$ | 75,160
Level
1 | | 2,690,912
September
Level 2 | \$
30, 2020
Level | 1,074,907
3 | \$ | 3,840,979
Total
Estimated
Fair | | | Securities
purchased:
yet
Corporate | but
not
sold,
stocks | | | 549
\$ | | | 549
\$ | | | | | | Value
549
\$ | | | Changesin
2020: | Level | assets
3 | | 549
\$
measuredat | | fair value | 549
\$
on
a | recurring | basis | year
for the | ended | | 549
\$
September30, | | | | Beginnin
a
Balance
of
September
30, 2019 | R | Net
ae
Esalized
(losses) | Net
Appreciation
(Depreciation) | Change
Unrealized | :
nm | Purchases | | Sales | Transfer
into Level
3 (a) | Transfer
Outof
Level
(b) | 3 | Endin
Balanceas
of
September
30, 2020 | | | Assets
Warrants | 3,925,312 | | - | | (2,401,201) | | | - | - | 74,508 | (523,712) | | 1,074,907 | | | (a) The
(b) Transfers | Companyreceived
out
registered
security | consist | warrants
a
of
and
a | as
transfer
warrant | part
to Level
exercise. | of
2 | investment
a
warrant
of | banking | as
the | transactions.
underlying | security | became | a
publicly | | | The
table
rangesfor | below
our | presents
financial | information
assets | on
measured | the
atfair | valuation | value
on
a | techniques,
recurring | basis | significant
with
a | unobservable
significant | Level | inputs
and
3
balance. | their | | Instruments | Financial
Owned | | Fair Value | | | Valuation
Technique | : | | Significant
Unobservable
Input(s)
Discount | for lack
of | | | Input/Range | | | | Beginnin
a
Balance
of
September
30, 2019 | R
Net
ae
Esalized
(losses) | :
Change
Net
nm
Unrealized
Appreciation
(Depreciation) | Purchases | Sales | Transfer
into Level
3 (a) | Transfer
Outof
Level
3
(b) | Endin
Balanceas
of
September
30, 2020 | |----------|---------------------------------------------------------|----------------------------------------|--------------------------------------------------------------------------|-----------|-------|---------------------------------|----------------------------------------|---------------------------------------------------| | Assets | | | | | | | | | | Warrants | 3,925,312 | - | (2,401,201) | - | - | 74,508 | (523,712) | 1,074,907 | - (a) The Companyreceived warrants as part of investment banking transactions. - (b) Transfers out consist of a transfer to Level 2 of a warrant as the underlying security became a publicly registered security and a warrant exercise. | Financial
Owned
Instruments | Fair Value | Valuation
Technique
: | Significant
Unobservable
Input(s) | Input/Range | |-----------------------------------|-----------------|-----------------------------|-----------------------------------------------------------|-------------------------------| | Warrants | \$
1,074,907 | Market
approach | for lack
Discount
of
marketability
Volatility | 25%
- 46%
65%
- 122% | Certain positions in common stock and warrants were received as compensation for investment banking services. Restricted common stock and warrants may be freely traded only upon the effectiveness of a registration statement covering them or upon the satisfaction of the requirements of SEC Rule 144, including the requisite holding period. Warrants are carried at fair value as determined by using the Black-Scholes option pricing model. This model takesinto account the underlying securities current market values, the underlying securities market volatility, the terms of the warrants, exercise prices, and risk-free return rate. The market value of the underlying securities' market value is discounted based on the value of a protective put. {11}------------------------------------------------ #### Notes to Statement of Financial Condition September30, 2020 #### Note D — OTHER RECEIVABLES Other receivables representprincipally employee receivables, investment banking transactions and trailing fees due from product sponsors. #### NOTE E —FORGIVABLE LOANS RECEIVABLE From time to time, the Company may makeloans, evidenced by promissory notes, primarily to newly recruited independentfinancial advisors as an incentive for their affiliation. The notes receivable balance is comprised of unsecured non-interest-bearing and interest-bearing loans (interest ranging up to 9%). These notes have various schedules for repaymentor forgiveness based on production or retention requirements being met and mature at various dates through 2029. In the event the advisor's affiliation with the Companyterminates, the advisor is required to repay the unamortized balance of the note. The Company provides an allowance for doubtful accounts on the notes based on historical collection experience and continually evaluates the receivables for collectability and possible write-offs where lossis deemed probable. As of September30, 2020, no allowance wasconsidered to be required. #### NOTE F — INTANGIBLES | Corporation
National
Securities | | | | | |-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------| | Notes
Statement
Condition
of
to
Financial | | | | | | D
Note
—
OTHER
RECEIVABLES | | | | | | Other
receivables
representprincipally
fees
due
from
product
sponsors. | employee | receivables, | investment
banking | transactions
and
trailing | | NOTE
E
LOANS
—FORGIVABLE
RECEIVABLE | | | | | | From
time
to
time,
the
Company
may
independentfinancial
advisors
as
an
of
unsecured
non-interest-bearing
and
various
schedules
for
repaymentor
mature
at
various
dates
through
2029.
advisor
is
required
to
repay
the | makeloans,
incentive
for
their
interest-bearing
forgiveness
based
In
the
event
unamortized
balance | evidenced
by
affiliation.
The
loans
(interest
on
production
the
advisor's
of
the
note. | promissory
notes,
notes
receivable
ranging
up
to
or
retention
affiliation
with
the | primarily
to
newly
recruited
balance
is
comprised
9%).
These
notes
requirements
being
met
Companyterminates, | | The
Company
provides
an
allowance
experience
and
continually
evaluates
deemed
probable.
As
of
September30, | for
doubtful
the
receivables
2020,
no | accounts
on
for
collectability
allowance | the
notes
based
and
possible
wasconsidered
to
be | on
historical
collection
write-offs
where
lossis
required. | | | | | | | | September30,
2020,
At
intangibles | of
the
consisted | following: | | | | | Estimated
Useful
Life
(years) | Gross
Carrying
Amount | Accumulated
Amortization | Net
Carrying
Amount | | name
Brand
Customerrelationships | 3
10 | 410,000
\$
4,109,839 | \$
136,666
2,815,243 | 273,334
\$
596 | | Software
license | 3 | 44,800 | 41,067 | 1,294
3,733 | | | | 4,564,639
\$ | \$
2,992,976 | \$
1,571,663 | # NOTEG- NET CAPITAL AND OTHER REGULATORY REQUIREMENTS The Companyis subject to the Securities and Exchange Commission Uniform Net Capital Rule (Rule 15c3- 1), which, amongotherthings, requires the maintenance of minimum netcapital. At September 30, 2020, the Company had net capital of \$3,812,891, which was \$2,812,891 in excess of its required net capital of \$1,000,000. The Companyclaims exemption from the provisions of the SEC's Rule 15c3-3 pursuantto paragraphs (k) (2) (i) and (ii) since the Companyis an introducing broker dealer that clears all transactions on a fully disclosed basis and promptly transmits all customerfunds and securities to clearing brokers. #### NOTE H - INCOME TAXES The Companyis included in the consolidated federal and certain combined state and local income tax returns with its Parent. For financial reporting purposes, the Company determinesits income tax provision on a separate company basis. Taxes currently payable by the Company on a separate companybasis, which for 2020 amounted to approximately \$632,000, will be paid to its Parent, or reduce amounts due toits parent. {12}------------------------------------------------ #### Notes to Statementof Financial Condition September30, 2020 Deferred tax amounts are comprised of the following at September 30, 2020: | Deferred
tax
assets: | | |-----------------------------------------------------------------|-----------------| | Operating
lease
liability | 1,583,292
\$ | | Expenses
Paycheck
associated
forgiveness
with
of | | | loan
Protection | 1,579,824 | | Stock-based
compensation | 982,675 | | Other
accruals | 1,050,471 | | assets
deferred
tax
Total | 5,196,262 | | Deferred
tax
liability: | | | value
warrants
Fair
of | (921,431) | | asset
Right-of-use | (1,440,922) | | and
and
equipment
property
Intangibles | (697,659) | | Total
deferred
tax
liability | (3,060,012) | | Net | 2,136,250
\$ | # NOTE| - COMMITMENTS AND CONTINGENCIES #### Litigation and regulatory matters The Companyis a defendant or respondentin various pending and threatened arbitrations, administrative proceedings and lawsuits seeking compensatory damages. Several cases have no stated alleged damages. Claim amounts are infrequently indicative of the actual amounts the Companywill be liablefor, if any. Further, the Companyhasa history of collecting amounts awarded in these types of matters from its brokers that are still affiliated, as well as from those that are no longer affiliated. Many of these claimants also seek, in addition to compensatory damages, punitive or treble damages, and all seek interest, costs and fees. These matters arise in the normal course of business. The Companyintendsto vigorously defenditself in these actions, and the ultimate outcome of these matters cannot be determinedatthis time. On July 3, 2019, a lawsuit was filed against the Company, the Parent and certain ofits subsidiaries, the Parent's current board members and certain former board members,certain officers of the Parent, John Does 1-10, and the Company as a nominal defendant, in the United States District Court for the Southern District of New York, captioned Kay Johnsonv. National Securities Corporation, et al., Case No. 1:19-cv-06197-LTS. The complaint presents three purported derivative causesof action on behalf of the Company,andfive causes of action by the plaintiff directly. As part of the derivative claims, the complaint generally alleges that certain of the individual defendants failed to establish and maintain adequate internal controls to ensure that the Parent's boardof directors (the "Board") acted in accordancewith its fiduciary duties to prevent and uncover alleged legal and regulatory misconduct and wrongdoingon the part of a National officer. As part ofits claims brought directly by the plaintiff, the complaint generally alleges that certain individual and corporate defendants wrongfully terminated the employment of the plaintiff in violation of the Dodd-Frank Act and applicable commonlaw,or conspired to do so. The complaintfurther alleges that certain corporate defendants violated the Equal Pay Act with regards to the plaintiffs compensation. The complaint seeks monetary damagesin favor of the Company, an order directing the Company's board members to take actions to enhance the Company's governance, compensatory and punitive damages in favor of the plaintiff, and attorneys' fees and costs. On February 2, 2020, theplaintiff filed an amended complaint presenting additional causesof action. The Companyhasnotified its insurer of the lawsuit and believes it has valid defensesto the asserted claims of the complaint. On March 18, 2020, the defendantsfiled a motion to dismiss the amended complaint. The plaintiff filed an opposition to the defendants' motion to dismiss on April 15, 2020, and the defendantsfiled a reply in further support of the motion to dismiss on May 6, 2020. Liabilities for potential losses from complaints, legal actions, governmentinvestigations and proceedings are established where managementbelieves thatit is probable thata liability has been incurred and the amount of loss can be reasonably estimated. In making these decisions, managementbasesits judgments on its {13}------------------------------------------------ #### Notes to Statement of Financial Condition September30, 2020 knowledgeofthe situations, consultations with legal counsel and its historical experience in resolving similar matters. In many lawsuits, arbitrations and regulatory proceedings, it is not possible to determine whether a liability has been incurred or to estimate the amount ofthatliability until the matter is close to resolution. However, accruals are reviewed regularly and are adjusted to reflect management's estimates of the impact of developments, rulings, advice of counsel and any other information pertinent to a particular matter. Because of the inherent difficulty in predicting the ultimate outcome of legal and regulatory actions, management cannotpredict with certainty the eventual loss or range of loss related to such matters. In accordance with applicable accounting standards, the Company establishes an accruedliability for contingent litigation and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. In such cases,there still may be an exposureto loss in excess of any amounts reasonably estimated and accrued. When a loss contingency is not both probable and estimable, the Company doesnotestablish an accruedliability, but continues to monitor, in conjunction with any outside counsel handling a matter, further developments that would make such loss contingency both probable and reasonably estimable. Once the Companyestablishes an accruedliability with respect to a loss contingency, the Company continues to monitor the matter for further developments that could affect the amountof the accruedliability that has been previously established, and any appropriate adjustments are made each quarter. In making these decisions, managementbasesits judgments on its knowledgeofthe situations, consultations with legal counselandits historical experience in resolving similar matters. In many lawsuits, arbitrations and regulatory proceedings,it is not possible to determine whethera liability has been incurred or to estimate the amountofthatliability until the matter is close to resolution. Because of the broad differences in value ascribed to each case by each plaintiff and the Company, management cannotestimate the possible loss or range ofloss, if any, in excess of any amounts reasonably estimated and accrued. As of September 30, 2020, the Company accrued approximately \$920,000 for these matters whichis included in accounts payable and other accrued expensesin the statementoffinancial condition. # NOTE J - OFF-BALANCE-SHEET RISK AND CONCENTRATIONSOF CREDIT RISK The Companyis engagedin trading and providing a broad range of securities brokerage and investment services to a diverse group of retail and institutional clientele, as well as corporate finance and investment banking services to corporations and businesses. Counterparties to the Company's business activities include broker-dealers and clearing organizations, banks and other financial institutions. The Companyusesclearing brokers to process transactions and maintain customer accounts for the Company on a fee basis. The Companypermits the clearing firms to extend credit to its clientele secured by cash and securities in the client's account. The Company's exposureto credit risk associated with the non-performancebyits customers and counterparties in fulfilling their contractual obligations can be directly impacted by volatile or illiquid trading markets, which may impair the ability of customers and counterparties to satisfy their obligations to the Company. The Company has agreed to indemnify the clearing brokers for losses they incur while extending credit to the Company's customers. It is the Company's policy to review, as necessary, the credit standing of its customers and counterparties. Amounts due from customers that are considered uncollectible by the clearing broker are charged back to the Companyby the clearing broker when such amounts becomedeterminable. Upon notification of a charge back, such amounts, in total or in part, are then either (i) collected from the customers,(ii) charged to the brokerinitiating the transaction, and/or (iii) charged to operations, based on the particular facts and circumstances. The Company maintains cash in bank deposit accounts which, at times, may exceed federally insuredlimits. The Companyhas not experienced and does not expect to experience any losses on such accounts. {14}------------------------------------------------ #### Notes to Statement of Financial Condition September30, 2020 To the extent the Companyinvests in marketable securities, the Companyis subject to various marketrisks related to the portfolio. ## NOTE K - RELATED PARTY TRANSACTIONS The Companyentered into a service agreement, as amended in November 2015, with its Parent, whereby the Parent charges the Companyfor certain employees, insurance and benefits coverage,rent and utilities, software, equipment, email services, office supplies and travel costs as needed. The Company entered into a service agreement, as amended in November2015,withits affiliate, National Tax and Financial Services ("National Tax"), a wholly owned subsidiary of the Parent, whereby National Tax provides the Company with certain services related to its former brokerage operation, which the Parent transferred to the Company in November 2013, principally for compliance, supervision, information technology, human resources and corporate administrative support services. Additionally, rent and related utilities, advertising, recruiting, general insurance, office supplies, postage and overnight delivery and meals and entertainment mayalso be furnished as needed. # NOTEL— PROPERTY AND EQUIPMENT At September 30, 2020, property and equipment consisted of the following: | | September
30,
2020 | Estimated
Useful
Lives | |----------------------------------------------------------------------------------------------------|-----------------------------------------|----------------------------------------------------------| | Equipment
and
software | \$
577,870 | 3-6 | | and
Furniture
fixtures | 217,499 | 5 | | leases
Capital | 509,483 | 3-7 | | Leasehold
improvements | 459,600 | Lesser
of
useful
term
life or
of
lease | | Less
accumulated
depreciation
and
amortization
and
equipment,
net
Property | \$
1,764,452
(786,755)
977,697 | | ## NOTE M - LEASES The Company's lease agreements primarily cover office space in various states expiring at various dates. The Company's leases are predominantly operating leases, which are included in right-of-use assets and operating leaseliabilities on the Company's statementof financial condition. The Company's current lease arrangements expire from 2020 through 2030, someofwhich include options to extend or terminate the lease. However, the Companyin general is not reasonably certain to exercise options to reneworterminate, and therefore renewal and termination options are not considered in the lease term or the right-of-use asset and leaseliability balances. The Company's lease population does notinclude any residual value guarantees, and therefore none were consideredin the calculation of the lease balances. The Companyhas leaseswith variable payments, most commonlyin the form of commonarea maintenance charges which are based on actual costs incurred. These variable payments were excluded from the right-of-use asset and leaseliability balances since they are not fixed or in-substance fixed payments. The Company has lease agreements with lease and non-lease components. The Company has elected the practical expedient to account for lease and non-lease components as a single lease component. {15}------------------------------------------------ #### Notes to Statementof Financial Condition September30, 2020 For leases with terms greater than 12 months, right-of-use assets and leaseliabilities are recognized at the implementation date of Topic 842 or the lease commencementdate based on the present value of the future lease payments overthe lease term. The discount rate used to determine the commencement date present value of lease paymentsis the interest rate implicit in the lease, or when thatis not readily determinable, the Companyutilizes its incremental borrowing rate. The Company's lease agreements generally do not provide a readily determinable implicit rate nor is it available to the Companyfrom its lessors. Instead, the Company estimates the Company's incremental borrowing rate based on information available at either the implementation date of Topic 842 or at lease commencementfor leases enteredinto thereafterin determining the present value of future payments. Lease expensefor net present value of payments is recognized on a Straight-line basis overthe lease term. Leases with an initial term of 12 monthsor less with purchase options or extension options that are not reasonably certain to be exercised are not recorded on the statementof financial condition. In October 2018, the Company entered into an agreementto lease equipment undera finance lease for 24 months. The equipment underthe lease is collateral for the lease obligation and is included within property and equipmentin the statementof financial condition. The leased equipment is amortized on a straight line basis over 7 years. The interest rate related to the lease obligation is 5.6 percent and the maturity date is October 2020. The finance lease obligation is included within other liabilities in the statement of financial condition. | recorded
on
the
statementof
financial
condition
as
of
September
30,
2020: | | | | | |---------------------------------------------------------------------------------------------------------|----|---------------------|----|------------------| | Year
Fiscal
September30,
Ending | | Operating
Leases | | Finance
Lease | | 2021 | \$ | 904,000 | \$ | 51,000 | | 2022 | | 888,000 | | — | | 2023 | | 908,000 | | — | | 2024 | | 866,000 | | —
— | | 2025 | | 835,000 | | — | | Thereafter | | 2,532,000 | | | | minimum
payments
lease
Total | \$ | 6,933,000 | \$ | 51,000 | | Amounts
Less:
representing
not
yet
interest
incurred | | 1,370,000 | | — | | Present
value
lease
of
obligations | \$ | 5,563,000 | \$ | 51,000 | | | | | | | The table below summarizes the Company's scheduled future minimum lease payments under operating and finance leases, recorded on the statementof financial condition as of September 30, 2020: {16}------------------------------------------------ #### Notes to Statement of Financial Condition September30, 2020 The following table presents the balances for operating and finance right-of-use assets and leaseliabilities: | Leases | Classification | September30,
2020 | | |-------------------------------|-------------------------------|----------------------|-----------| | Assets | | | | | Operating
lease
assets | Right-of-use
assets | \$ | 5,062,000 | | Finance
lease
assets | and
equipment
Property | | 336,000 | | assets
Total
lease | | \$ | 5,398,000 | | Liabilities | | | | | Operating
leaseliabilities | Operating
leaseliabilities | \$ | 5,563,000 | | Financeleaseliabilities | Otherliabilities | | 51,000 | | Total
leaseliabilities | | \$ | 5,614,000 | The table below presents additional information related to the Company's leases as of September30, 2020: | | Ended
Year
September
2020
30, | | |----------------------------------------------------|-------------------------------------------|--| | Weighted
Average
Remaining
Lease
Term: | | | | Leases
Operating | years
7.98 | | | Weighted
Average
Discount
Rate: | | | | Leases
Operating | 5.50% | | #### NOTE N — PAYCHECK PROTECTION PROGRAM On April 10, 2020, the Companyentered into a Promissory Note (the "Note") with Axos Bank as the lender (the "Lender'), pursuant to which the Lender agreed to makea loan to the Company under the Paycheck Protection Program offered by the U.S. Small Business Administration (the "SBA") pursuant to the Coronavirus Aid, Relief, and Economic Security ("CARES") Actto qualified small businesses(the "PPP") in a principal amount of \$5,523,738. The interest rate for the PPP Noteis a fixed rate of 1% per annum. Interestis calculated by applying the ratio of the interest rate over a yearof 360 days, multiplied by the outstanding principal balance, multiplied by the actual numberof daysthe principal balance is outstanding. The applicable borroweris required to make monthly payments commencingonthefirst day ofthe first full calendar month following the end of a statutorily defined deferral period (the "Deferral Period"), and such payments shall continue to be due and payable on thefirst day of each calendar month thereafter until the date that is two (2) years following the funding date (the "Maturity Date"), or April 13, 2022. Monthly payment amounts are based on repaymentof interest accrued during the Deferral Period, interest accruing until and including the Maturity Date, and full amortization of the outstanding principal balance. The PPP loan is recorded as debt. According to the terms of the PPP, all or a portion of loans under the PPP maybeforgiven if certain conditions setforth in the CARES Act and the rulesof the SBA are met.In orderto be forgiven, the proceeds of the PPP Loanare to be usedto pay for payroll costs, continuation of group health care benefits during periods of paid sick, medical, or family leave, or insurance premiums; salaries or commissions or similar compensation; rent;utilities; and interest on certain other outstanding debt; however, 60% of the proceeds of each PPP Loan mustbe usedfor payroll purposes. Atits option, the Company mayprepayall or a portion ofits PPP Loan withoutpenalty. {17}------------------------------------------------ #### Notes to Statementof Financial Condition September30, 2020 The PPP Note includes events of default, the occurrence and continuation of which would provide the Lenderwith the right to exercise remedies against the Company,as applicable, including the right to declare the entire unpaid principal balance under the applicable PPP Note and all accrued unpaid interest immediately due. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.