# EMMET & CO, INC. X-17A-5 (2022-06-30) — Broker-dealer annual report - Company: EMMET & CO, INC. - Form: X-17A-5 - Filed: 2022-06-30 - Period: 2022-03-31 - Accession: 0000757808-22-000002 - CIK: 757808 - File #: 8-33073 - Type: Broker-dealer - Material weakness: No - Auditor: Berkower LLC - Auditor location: Iselin, NJ - Contact: Maru Pineiro - Phone: 908-867-7244 - Signed by: Christopher T. Emmet (President & CEO) Original filing: https://www.sec.gov/Archives/edgar/data/757808/000075780822000002/Emmetpublic2022.html.pdf --- {0}------------------------------------------------ # **Financial Statements** ## **March 31, 2022** **PUBLIC** {1}------------------------------------------------ ### **TABLE OF CONTENTS** #### **Page** | Report of Independent Registered Public Accounting Firm
| 1 | |-------------------------------------------------------------|---| | Statement of Financial Condition | 2 | | Notes to the Financial Statements3 – | 8 | {2}------------------------------------------------ ![](_page_2_Picture_0.jpeg) {3}------------------------------------------------ #### **STATEMENT OF FINANCIAL CONDITION** #### **As of March 31, 2022** #### **ASSETS** | Cash | \$
113,784 | |-----------------------------------------------------------------|-----------------| | Deposit -
Clearing Organization | 250,833 | | State and Municipal Government Obligations | 6,435,418 | | Property and Equipment, Net | 17,438 | | Deposit -
Internal Revenue Service | 120,248 | | Accrued Interest | 44,647 | | Other Assets | 31,668 | | TOTAL ASSETS | \$
7,014,036 | | | | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | Payable to Brokers and Dealers | \$
2,935,090 | | Accounts Payable and Other Liabilities | 37,000 | | TOTAL LIABILITIES | 2,972,090 | | COMMITMENTS & CONTINGENCIES (See Note 7) | | | SHAREHOLDER'S EQUITY | | | Common Stock | | | 4,375 Authorized and Issued | | | Without Par Value | 1,200,000 | | Paid-In Capital | 3,219,426 | | Less Treasury Stock, 297.50 Shares at Cost
Retained Earnings | (377,480)
- | | TOTAL SHAREHOLDER'S EQUITY | 4,041,946 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | \$
7,014,036 | {4}------------------------------------------------ #### **NOTES TO THE FINANCIAL STATEMENTS** #### **March 31, 2022** #### **1. Organization and Nature of Operations** Emmet & Co., Inc. (the "Company") is a broker-dealer registered with the Securities and Exchange Commission ("SEC") effective December 24, 1984 and is a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). The Company is a New Jersey corporation formed on January 19, 1983 operating from a primary office located in Far Hills, New Jersey. The Company is a municipal securities dealer and trades on a proprietary basis. The Company operates under the exemption provisions of paragraph (k)(2)(ii) of SEC Rule 15c3-3. All customer securities transactions are cleared on a fully disclosed basis through a clearing broker-dealer. The clearing broker-dealer maintains the customers' accounts as well as carries the customers' holdings. Customers' funds and securities are deposited directly with or promptly transmitted to the clearing broker-dealer. #### **2. Summary of Significant Accounting Policies** #### *Basis of Presentation* The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") as detailed in the Financial Accounting Board's ("FASB") Accounting Standards Codification ("ASC"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported and disclosed in the financial statements. Actual results could differ from those estimates. #### *Cash and Deposits* Cash consists of amounts held with a reputable bank, as well as immediately available funds held with its clearing broker-dealer. Cash was \$113,784 as of March 31, 2022. Cash equivalents consist of highly liquid, readily marketable, short-term investments with an original maturity of 90 days or less. There were no cash equivalents at March 31, 2022. The Company maintains a security deposit with its clearing broker-dealer, as required by the terms of its clearing agreement. The deposit is refundable to the Company upon termination of the clearing agreement. The deposit was \$250,833 as of March 31, 2022. {5}------------------------------------------------ #### **2. Summary of Significant Accounting Policies –** *continued* #### *Cash and Deposits – continued* The Company is required to maintain available funds with its clearing broker-dealer equal to the agreed margin loan requirement on the applicable underlying securities. Municipal and corporate bonds have a 15% margin requirement above BBB-; 35% between BBB- down to B-; and 100% below B-. This margin loan requirement ("Inventory Reserve Account") was \$1,015,741 as of March 31, 2022. Typically, the Company maintains available funds with its clearing broker-dealer in excess of the Inventory Reserve Account ("Excess Deposit"), which amounted to \$2,625,830 as of March 31, 2022. The Inventory Reserve Account and Excess Deposit are netted against the margin loan payable to the clearing broker-dealer, which is included in Payable to Brokers and Dealers as of March 31, 2022. See Note 4. As an S Corporation with a non-calendar year-end, the Company has an ongoing deposit requirement with the Internal Revenue Service ("IRS"). The Deposit – IRS balance was \$120,248 as of March 31, 2022. #### *Credit Risk Concentration* The Company's bank and clearing broker-dealer balances summarized in the preceding section are protected by Federal Deposit Insurance Corporation ("FDIC") and Securities Investor Protection Corporation ("SIPC") insurance coverage, respectively. Generally, FDIC and SIPC insurance cover balances up to \$250,000 and \$500,000, respectively. The Company's financial balances regularly exceed insured limits. The Company monitors the credit worthiness of the financial institutions it deals with in order to minimize the associated credit risk. The Company has not experienced such a credit loss since inception. #### *Revenue Recognition* The Company recognizes revenue in accordance with *ASC 606, Revenue from Contracts with Customers.* This GAAP accounting standard requires that securities transactions be recorded on the trade date, including the recognition of associated revenues and costs. The Company's performance obligation is satisfied on the trade date because the transaction's parties, securities and pricing have been determined; and the securities' ownership has transferred. The terms of municipal securities transactions include the transfer of accrued interest in the purchase consideration and sales proceeds. {6}------------------------------------------------ #### **2. Summary of Significant Accounting Policies –** *continued* #### *Receivables* Receivables represent net unsettled transaction balances due from the Company's clearing broker-dealer or other broker-dealers. Receivables are stated at net realizable value. An allowance for doubtful accounts is recorded, if appropriate, based upon the Company's assessment of relevant collectability factors, as required by *ASC 326, Financial Instruments – Current Expected Credit Losses ("CECL").* This standard requires the immediate recognition of estimated credit losses expected over the life of applicable financial assets. The CECL evaluation considers factors such as historical experience; credit quality; terms; balances; current and projected economic conditions; and other matters. There were no Receivables as of March 31, 2022. #### *Investments* Investments consist of State and municipal fixed income securities of varying coupon interest rates and maturities. Investments are carried at fair value, updated daily. See Note 3. Interest income is earned based on the coupon interest rate applied to the principal amount and recognized in the accounting period earned. Interest income payments are usually received on a semi-annual schedule. Futures contracts are marked to market daily based on the fair value of the underlying securities, as reported in a recognized market. #### *Property and Equipment* Property and equipment are carried at cost. Depreciation is computed using the straightline method. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized. See Note 5. #### *Leases* The Company accounts for leases in accordance with *ASC 842, Leases.* The Company elected *ASC 842's* short-term lease election to record lease expense for leases with an original term less than one-year on a straight-line basis over the lease term. #### *Income Taxes* The Company accounts for income taxes in accordance with *ASC 740, Income Taxes.* The Company is an S Corporation, which is a corporation that is taxed as a partnership for federal income tax purposes. As a result, the Company's financial results are passed through to its four shareholders, who are personally responsible for the associated federal income taxes. The Company is subject to State of New Jersey S Corporation income taxes. See Note 7. {7}------------------------------------------------ #### **3. Fair Value – State and Municipal Government Obligations** The Company's investments are stated at fair value. Fair value is defined as the price that would be exchanged for the investment in an orderly transaction between willing parties, other than in a forced, liquidation or other non-orderly manner. GAAP standards set forth the appropriate methods and disclosures of fair valuation. GAAP establishes a valuation hierarchy, which prioritizes and ranks the market price observability used in determining fair value. In accordance with GAAP, investments measured and reported at fair value are classified and disclosed by the observability of their valuation inputs using the following criteria: Level 1 – Quoted prices are available for identical investments in active markets as of the measurement date. Investments included in Level 1 include listed equities and other securities products. As required by GAAP, the Company does not adjust the quoted price for these investments, even in situations where the Company holds a larger position than that associated with the quoted price. Level 2 – Pricing inputs are other than quoted prices for identical investments in active markets. Instead, the fair value is determined by applying the various inputs available for that investment in the order of their ranking within the valuation hierarchy, until sufficient evidence is obtained to determine the appropriate fair valuation. Such inputs include: quoted prices in inactive markets; quoted prices for similar investments; recent market data; the results of pricing models and valuation methodologies; and other. Fixed income securities such as the Company's typical investments are classified as Level 2. Level 3 – Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs used in the determination of fair value require significant management judgment or estimation. Investments in this category include: certain loans, bonds and collateralized loan obligations; privately-held businesses; distressed entities and their assets; private placement investment interests; and others. \*\*\* In certain cases, the inputs used to measure fair value may fall into several levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company determines the fair value of its investments using a range of available market price quotes for both the investment and similar investments. Sources include: independent pricing services; broker-dealer quotations; and detailed recent market data. The Company applies its best judgment to assess the appropriate valuation inputs as well as their relative significance for each individual investment. The Company normally does not use unobservable inputs such as pricing models and other valuation methodologies. {8}------------------------------------------------ As of March 31, 2022, the Company's investments stated at fair value are summarized in the table below. The Company incurred an unrealized loss of \$192,859 on these holdings. | | Fair Value
as of
March 31, 2022 | Level 2
–
Significant Other
Observable Inputs | |--------------------------------------------|---------------------------------------|--------------------------------------------------------| | State and Municipal Government Obligations | \$
6,435,418 | \$
6,435,418 | #### **4. Payable to Brokers and Dealers** The Company introduces securities trades on behalf of its customers to its clearing brokerdealer on a fully disclosed basis. The clearing broker-dealer is responsible for trade execution and clearing; provision of qualified margin loans; custody of the customers' funds and securities; maintenance of the customers' account records; and other normal duties. The clearing broker-dealer agreement can be terminated at any time by either party. At March 31, 2022, the Company's Payable to brokers and dealers of \$2,935,090 ("Payable") represents the net balance due to its clearing broker-dealer, consisting principally of: margin loans (net of deposits); unsettled transactions; and pending charges. The Payable is stated net of two Company deposits maintained with its clearing brokerdealer: a margin loan deposit requirement of \$1,015,741 at March 31, 2022; and additional funds on deposit of \$2,625,830 at March 31, 2022. By agreement, these deposits reduce the Company's effective margin loan balance. See Note 2. The Payable is collateralized by all Company assets held by the clearing broker-dealer. #### **5. Net Capital Requirements** The Company is subject to the SEC Uniform Net Capital Rule 15c3-1, which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. Rule 15c3-1 also provides that equity capital may not be withdrawn, or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. At March 31, 2022, the Company had net capital of \$3,457,989, which was \$3,357,989 in excess of its required net capital of \$100,000. The Company's ratio of aggregate indebtedness to net capital was 0.01 to 1. {9}------------------------------------------------ #### **6. Property and Equipment, Net** Property and equipment consisted of the following as of March 31, 2022: | Office Equipment | \$
46,590 | |-------------------------------------------------|--------------| | Computer Equipment | 74,291 | | Leasehold Improvements | 19,701 | | Furniture & Fixtures | 15,754 | | Computer Software | 84,970 | | | 241,306 | | Less: Accumulated Depreciation and Amortization | (223,868) | | | \$
17,438 | | | | Depreciation and amortization expense was none for the year ended March 31, 2022. #### **7. Income Taxes** State income tax expense was \$18,375 for the year ended March 31, 2022. There were no significant book-tax differences. Accordingly, no deferred tax balances were recorded. The Company is subject to tax examinations by U.S. federal and applicable state and local jurisdictions for the years beginning March 31, 2019. No tax examinations were in process at March 31, 2022 that the Company believes will have a material effect on its financial statements. #### **8. Risks, Commitments and Contingencies** The Company is subject to certain risks related to its business: #### *Credit Concentration Risk* The Company's assets are held at a bank or its clearing broker-dealer, with the exception of Property and equipment, net; Deposit – IRS; and Other assets. See Note 2. #### *Market Interest Risk* Fluctuations in interest rates affect the fair value of the Company's securities for investment and trading. See Note 13. #### *Market Risk* The Company is also subject to market risk due to other factors that may affect its securities' fair value or its contractual commitments. All financial instruments are subject to market risk. The Company's exposure to market risk is a function of variables such as the size, duration, composition and diversification of positions held, market volatility and liquidity; economic conditions; and world events. See Note 13. {10}------------------------------------------------ #### **8. Risks, Commitments and Contingencies** *(Continued)* #### *Counterparty Risk* The Company is exposed to risk of loss in the event that a customer; its clearing brokerdealer; other broker-dealer; or other counterparty fail to complete their performance obligations related to a customer securities transaction. In such a case, the Company may be held responsible to the damaged party or required to indemnify its clearing brokerdealer. The Company applies risk management procedures to control this risk. The Company monitors the credit worthiness of its customers; clearing broker-dealer; and others it does business with. The Company continually updates its operating policies for current market conditions. The Company continually assesses its clearing-broker's performance. The Company may be a party to disputes, arbitration or litigation arising from the normal conduct of its business. The Company is not aware of any open, pending or other matters that could potentially have a material effect on the Company's financial statements. #### **9. Related Party Transactions** The Company rents its New Jersey office from a shareholder at a cost of \$6,500 per month on a month-to-month basis. Rent expense was \$78,000 for the year ended March 31, 2022. #### **10. 401(k) Plan** The Company maintains a 401(k) Plan ('Plan") that enables employees to make tax-deferred savings by payroll deduction, according to the terms detailed in the Plan document. For the year ended March 31, 2022, the Company did not make a discretionary matching contribution or safe harbor contribution to the Plan. #### **11. Recently Issued Accounting Pronouncements** Regulatory authorities make ongoing revisions to the GAAP standards applicable to the preparation of the Company's financial statements. The Company has evaluated or is currently evaluating the impact of pending GAAP pronouncements. The Company believes that these future standards will not have a material impact on its financial statements. #### **12. COVID-19** The COVID-19 pandemic has caused a significant disruption world-wide since early 2020. As a result, the Company made the necessary operating changes for employees to work remotely from home. The Company continues to operate remotely during the COVID-19 pandemic. {11}------------------------------------------------ #### **13. Subsequent Events** The Company has evaluated subsequent events through the date the financial statements were issued for matters required to be recognized or disclosed in the financial statements as of March 31, 2022 and for the year then ended. The Federal Open Market Committee ("FOMC") of the Federal Reserve System raised the target range for the federal funds rate 0.25% and 0.75% in March 2022 and June 2022, respectively. The FOMC announced that ongoing increases are likely to be appropriate. The Company's investments are state and municipal fixed income securities subject to the interest rate risk that increased rates may depress the investments' value. In addition, a period of rising interest rates may create uncertainties that reduce market trading volume and/or the Company's customer trading volume. Resultant economic conditions may range over time from negative for low-interest-rate securities to relatively positive for yieldbearing safe-haven securities. The Company seeks to mitigate interest rate risk and other market risks by myriad adjustments in trading operations and investment inventory management. The Company's risk management function continually evaluates and responds to market conditions. At present, the Company is unable to predict future interest rates as well as future business conditions. Accordingly, their effect on the Company's financial statements is currently unknown. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.