# FIRST FINANCIAL EQUITY CORPORATION X-17A-5 (2022-02-28) — Broker-dealer annual report - Company: FIRST FINANCIAL EQUITY CORPORATION - Form: X-17A-5 - Filed: 2022-02-28 - Period: 2021-12-31 - Accession: 0000768965-22-000002 - CIK: 768965 - File #: 8-34082 - Type: Broker-dealer - Material weakness: No - Auditor: Semple, Marchal & Cooper, LLP - Auditor location: Phoenix, AZ - Contact: Andrew Sitzman - Phone: 4809510079 - Email: dsitzman@ffec.com - Website: ffec.com - Signed by: Andrew Sitzman (CFO) Original filing: https://www.sec.gov/Archives/edgar/data/768965/000076896522000002/firstfinancial.pdf --- {0}------------------------------------------------ #### FIRST FINANCIAL EQUITY CORPORATION FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Year Ended December 31, 2021 {1}------------------------------------------------ #### FIRST FINANCIAL EQUITY CORPORATION TABLE OF CONTENTS | | Page | |----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------| | Annual Audited Report Form X-17A-5 Part III | 3 | | Report of Independent Registered Public Accounting Firm | 5 | | Financial Statements | | | Statement of Financial Condition | 6 | | Statement of Operations | 7 | | Statement of Changes in Stockholders' Equity | 8 | | Statement of Cash Flows | 9 | | Notes to the Financial Statements | 10 | | Supplemental Information | | | Schedule of General and Administrative Expenses | 20 | | Schedule of Computation of Net Capital Under SEC Rule 15c3-1 | 21 | | Computation for Determination of
Reserve Requirement Under Rule 15c3-3
(Exemption) and Information for Possession or Control Requirements Under
Rule 15c3-3 (Exemption) of the Securities and Exchange Commission | 22 | | Exemption Report Review | 23 | | Exemption Report | 24 | {2}------------------------------------------------ **UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549** | 0MB APPROVAL
0MB Number: ':123S-0123.
Expires: Oct. 31, 2023
Estimated average burden | |------------------------------------------------------------------------------------------------| | | | | | | | hours- per response: 12 | | | | SEC FILE NUMBER | # **ANNUAL REPORTS FORM X-17A-5 PART Ill** **FACING PAGE Information Required Pursuant to Rules 17a-S, 17a-12, and 18a-7 under the Securities Exchange Act of 1934** FILING FOR THE PERIOD BEGINNING \_\_ 1\_/1\_/2\_0\_2\_1 \_\_\_\_ AND ENDING \_\_ 1\_21\_3\_1I\_2\_D2\_1 \_\_\_ \_ MM/DD/YY MM/DD/Y'< **A, REGISTRANT IDENTIFICATION** NAME OF FIRM: First Financial Equity Corporation TYPE OF REGISTRANT (check all applicable boxes): []J Broker-dealer D Security-based swap dealer D Major security-based swap participant 0 Check here if respondent is also an OTC derivatives dealer ADDRESS OF PRINCIPAL PlACE OF BUSINESS: (Do not use a P.O. box no.) 7047 E Greenway Parkway, Suite, 350 Scottsdale (City) (No. and Street) AZ (State) PERSON TO CONTACT WITH REGARD TO THIS FILING 85254 (Zip Code) Andrew Sitzman 480-951-0079 dsitzman@ffec.com (Name) (Area Code - Telephone Number) (Email Ad.dress) **B. ACCOUNTANT IDENTIFICATION** INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing\* Semple, Marchal & Cooper, LLP (Name - if lndivldual, state last, first, and middle name) 3101 N Central Ave, Ste 1600 Phoenix AZ {Address) (City) (State) /tJ/80/800 3 I ' 85012 (Zip Code) Tie of **Reg;~raUo"** with **PCAOB)l;f** appH~bleJ **FOR OFFICIAL USE ONLY (PCAOB Regotratkm** N•mb"', **;f appl;~bleJ** I ,. Claims for e> 17 CFR 240.17a-12, or 17 CFR 240.lBa-7, as applicable. - D (r) Compliance report in accordance with 17 CFR 240.17a-S or 17 CFR 240.lBa-7, as applicable. - \$ (s) Exemption report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.lBa-7, as applicable. - D (t) Independent public accountant's report based on an examination of the statement of financial condition. - '21 (u) Independent public accountant's report based on an examination of the financial report or financial statements under 17 CFR 240.17a-S, 17 CFR 240.lBa-7, or 17 CFR 240.17a-12, as applicable. - D (v) Independent public accountant's report based on an examination of certain statements in the compliance report under 11 CFR 240.17a-5 or 17 CFR 240.lBa-7, as applicable. - **r.l (w)** Independent public accountant's teport based on a review of the exemption report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - 0 (x) Supplemental reports on applying agreed-upon procedures, in accordance with 17 CFR 240.15c3-le or 17 CFR 240.17a-12, as applicable. - □ (y) Report describing any material inadequacies found to exist or found to have existed since the· date of the previous audit, or a statement that no material inadequacies **ex-ist,** under 17 CFR 240.l 7a- 12(k). □ [z) Other: \_\_\_\_\_ \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_ \_\_\_\_\_\_ \_ - - *"\*To request confidential treatment of certain portions of this filing, see 17 CFR 240.17o-5(e){3) or 17* CFR *240.18a·l(d)(2), as applicable.* {4}------------------------------------------------ # **SEMPLE, MARCHAL & COOPER, LLP** CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS ### 3101 NORTH CENTRAL A VENUE I SUITE 1600 I PHOENIX, ARIZONA 85012-2615 #### **Report of Independent Registered Public Accounting Firm** To the Board of Directors and Shareholders' of First Financial Equity Corporation #### *Opinion on the Financial Statements* We have audited the accompanying statement of financial condition of First Financial Equity Corporation (an Arizona S-Corporation), (the "Company") as of December 31, 2021, the related statements of operations, changes in shareholders' equity, and cash flows for the year then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. #### *Basis for Opinion* These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements 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 statements are 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 statements, 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 statements. 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 statements. We believe that our audit provides a reasonable basis for our opinion. #### *Supplemental Information* The Schedule of General and Administrative Expenses, the Schedule of Computation of Net Capital Under Rule 15c3- 1 of the Securities and Exchange Commission, and the Schedule of Computation for Determination of Reserve Requirements Under Rule 15c3-3 of the Securities and Exchange Commission (the "Schedules") has been subjected to audit procedures in conjunction with the audit of the Company's financial statements. The Schedules are the responsibility of the Company's management. Our audit procedures included determining whether the Schedules reconcile to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the Schedules. In forming our opinion on the Schedules, we evaluated whether the Schedules, including their form and content, is presented in conformity with 17 C.F.R. § 240.17a-5. In our opinion, the Schedules are fairly stated, in all material respects, in relation to the financial statements as a whole. Certified Public Accountants We have served as the Company's auditor since 2016. Phoenix, Arizona February 28, 2022 {5}------------------------------------------------ FIRST FINANCIAL EQUITY CORPORATION STATEMENT OF FINANCIAL CONDITION December 31, 2021 #### ASSETS | CURRENT ASSETS | | |--------------------------------------------------------------------------------------|----------------------| | Cash | \$
1,044,366 | | Deposits with clearing organization
Commissions receivable | 250,000
1,545,405 | | Prepaid expenses | 68,589 | | TOTAL CURRENT ASSETS | 2,908,360 | | PROPERTY AND EQUIPMENT, net | 408,960 | | OPERATING LEASE - RIGHT OF USE ASSETS | 6,410,828 | | OTHER ASSETS | 123,948 | | TOTAL ASSETS | \$
9,852,096 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | CURRENT LIABILITIES | | | Accounts payable | \$
61,478 | | Accrued salaries, commissions and related expenses | 1,974,461 | | Accrued employee 401(k) liability
Due to employees | 71,717
68,506 | | Other accrued liabilities | 48,305 | | Current portion of note payable | 51,474 | | Current portion of operating lease liabilities | 529,207 | | TOTAL CURRENT LIABILITIES | 2,805,148 | | LONG-TERM ACCRUED LIABILITY | 28,042 | | NOTE PAYABLE, less current portion | 239,436 | | OPERATING LEASE LIABILITIES, less current portion | 5,982,843 | | TOTAL LIABILITIES | 9,055,469 | | COMMITMENTS AND CONTINGENCIES | - | | STOCKHOLDERS' EQUITY | | | Common stock, \$.01 par value; 100,000 shares
authorized, issued, and outstanding | 1,000 | | Retained earnings | 795,627 | | TOTAL STOCKHOLDERS' EQUITY | 796,627 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | \$
9,852,096 | The accompanying notes are an integral part of the financial statements. 6 {6}------------------------------------------------ #### FIRST FINANCIAL EQUITY CORPORATION STATEMENT OF OPERATIONS Year Ended December 31, 2021 | REVENUES
Commissions
Investment advisory fees
Interest income
Other income | \$
14,786,296
17,892,107
52
1,208,023 | |------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------| | TOTAL REVENUES | 33,886,478 | | OPERATING EXPENSES
Clearing charges
Commissions and bonuses
General and administrative
Advertising
Interest expense | 585,721
22,091,144
9,593,778
122,887
4,557 | | TOTAL OPERATING EXPENSES | 32,398,087 | | INCOME FROM OPERATIONS | 1,488,391 | | PAYCHECK PROTECTION PROGRAM (PPP) LOAN FORGIVENESS | 2,256,797 | | NET INCOME | \$
3,745,188 | {7}------------------------------------------------ #### FIRST FINANCIAL EQUITY CORPORATION STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Year Ended December 31, 2021 | | Common
Stock | | Retained
Earnings | | Total
Stockholders'
Equity | | |-----------------------------|-----------------|-------|----------------------|-------------|----------------------------------|-------------| | Balances, December 31, 2020 | \$ | 1,000 | | 692,465 | \$ | 693,465 | | Net income | | - | | 3,745,188 | | 3,745,188 | | Distributions | | - | | (3,642,026) | | (3,642,026) | | Balances, December 31, 2021 | \$ | 1,000 | \$ | 795,627 | \$ | 796,627 | {8}------------------------------------------------ #### FIRST FINANCIAL EQUITY CORPORATION STATEMENT OF CASH FLOWS Year Ended December 31, 2021 | CASH FLOWS FROM OPERATING ACTIVITIES | | | |------------------------------------------------------------|----|-------------| | Net income | \$ | 3,745,188 | | Adjustments to reconcile net income to net cash | | | | provided by operating activities: | | | | Depreciation and amortization expense | | 22,620 | | PPP loan forgiveness | | (2,256,797) | | Non-cash portion of operating lease expense | | (19,485) | | Increase in: | | | | Commissions receivable | | (620,337) | | Prepaid expenses | | (19,921) | | Other assets | | (54,541) | | Increase (decrease) in: | | | | Accounts payable | | (34,921) | | Accrued salaries, commissions and related expenses | | 503,343 | | Accrued employee 401(k) liability | | (19,837) | | Due to employees | | (8,987) | | Other accrued liabilities | | (4,551) | | NET CASH PROVIDED BY OPERATING ACTIVITIES | | 1,231,774 | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | Payments on note payable | | (21,933) | | Distributions to stockholders | | (3,642,026) | | NET CASH USED IN FINANCING ACTIVITIES | | (3,663,959) | | | | | | NET DECREASE IN CASH | | (2,432,185) | | CASH AT BEGINNING OF YEAR | | 3,476,551 | | CASH AT END OF YEAR | \$ | 1,044,366 | | | | | | SUPPLEMENTAL CASH FLOW INFORMATION | | | | Cash paid for interest | \$ | 4,557 | | Property and equipment acquired with note payable | \$ | 312,843 | | | | | | Right of use assets obtained in exchange for new operating | | | | lease liabilities | \$ | 4,745,181 | {9}------------------------------------------------ #### NOTE 1 ORGANIZATION NOTES TO FINANCIAL STATEMENTS First Financial Equity Corporation (an Arizona S-Corporation) ("FFEC" or "Company") engages in the business of conducting security trades for clients and providing investment advisory services. FFEC operates as a non-clearing broker-dealer, is registered with the Securities and Exchange Commission ("SEC") and the Financial Industry Regulatory Authority ("FINRA"), and is subject to federal and state securities laws. FFEC processes its trades through one clearing broker-dealer. FFEC has its headquarters office and main Office of Supervisory Jurisdiction ("OSJ") located in Scottsdale, Arizona. Other satellite OSJ offices are located in the following locations: Billings, Montana; Dallas, Texas; Denver Tech Center in Greenwood Village, Colorado; Glendale, Arizona; and San Diego, California. Other satellite non-OSJ offices are located in the following locations: Downtown Denver in Denver, Colorado; Long Beach, California; Waco, Texas; Casper, Wyoming; Shawnee Mission, Kansas; Wichita, Kansas; Fargo, North Dakota; Tucson, Arizona and Columbus, Ohio. FFEC was incorporated on May 1, 1985 and began operations on that date. FFEC has adopted a fiscal year end of December 31. #### NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The summary of significant accounting policies is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to the accounting principles generally accepted in the United States ("GAAP") and have been consistently applied in the preparation of the financial statements. As such, the Company has adopted the accrual basis of accounting for financial statement purposes and the cash basis of accounting for income tax purposes. #### Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles necessarily 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 as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. #### Cash and Cash Equivalents For purposes of reporting cash flows, the Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments with an original maturity of three months or less at the time of purchase to be cash equivalents. {10}------------------------------------------------ #### NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) #### Commissions Receivable At December 31, 2021, commissions receivable represent amounts due from the clearingbroker, insurance companies and other revenue sources for transactions with a trade date prior to year-end for which cash has not yet been received. #### Bad Debts The Company uses the allowance method regarding potentially uncollectible commissions receivable. As of December 31, 2021, the Company determined that no allowance for bad debts would be required. The Company incurred no bad debts during the year. #### Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and deposits with clearing institutions. The Company maintains its cash and cash equivalents with National Bank of Arizona. The Company maintains its deposits with the clearing organization, Hilltop Securities. As of December 31, 2021, the Company's cash and cash equivalents and deposits with clearing organization at both the National Bank of Arizona and Hilltop Securities are believed to be covered to the limit of federal depository insurance. The Company periodically may exceed the \$250,000 FDIC limit; however, management does not deem this a significant risk. #### Property and Equipment Property and equipment are recorded at cost and depreciated over the estimated useful lives of the assets, which range from 3 to 7 years for financial statement purposes. The straight-line method of depreciation is used for financial statement purposes. Repairs and maintenance are charged to expense and renewals and betterments are capitalized. Leasehold improvements are amortized using the straight-line method over the lesser of the terms of the lease or the estimated lives of the improvements. The Company reviews its property and equipment whenever events indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded when the sum of the future cash flows is less than the carrying amount of the asset. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. No impairment loss was recorded during the year ended December 31, 2021. {11}------------------------------------------------ #### NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) #### Leases The Company recognizes assets and liabilities for operating and finance leases with terms of more than 12 months. An arrangement is deemed a finance lease if it effectively represents an installment purchase by the Company subject to the criteria outlined in FASB ASC 842, *Leases*. At December 31, 2021, the Company had no finance leases. The Company assess whether an arrangement qualifies as a lease at inception and only reassess its determination if the terms and conditions of the arrangement are changed. The Company treats lease and nonlease components as a single lease component. Lease expense is recognized on a straight-line basis over the lease term. #### Revenues The Company accounts for revenue under Financial Accounting Standards Board Accounting Standards Codification 606, *Revenue from Contracts with Customers*. The Company's main sources of revenue are from trading commissions and investment advisory fees. The Company processes trades on the stock market for its clients and earns a commission at a point in time as of the trade date. These trades are handled through a third party executingbroker and are cleared through a clearing corporation, which provides the Company with a monthly summary report for all trades conducted. Commissions are earned on each trade. The Company receives investment advisory fees monthly and quarterly, which are recognized as earned over time on a pro rata basis over the term of the contract as service is provided. The Company also receives income from commissions paid by mutual funds, real estate investment trusts, insurance and limited partnerships for initial investments and transfers also known as trailers. These commissions are earned at a point in time when transactions are generated by brokers. The mutual funds, real estate investment trusts, insurance companies and limited partnerships issue commission checks to the Company weekly for initial placements. Trailer commissions are generally paid monthly or quarterly. #### Advertising Costs The Company follows the policy of charging the costs of advertising to expense as incurred. The Company had advertising expense of \$122,887 during the year ended December 31, 2021. {12}------------------------------------------------ #### NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) #### Income Taxes Effective April 1, 2000, FFEC elected to be taxed as a Subchapter-S Corporation. Income taxes on net income are payable personally by the shareholders pursuant to elections made under Subchapter-S of the Internal Revenue Code. Accordingly, no current provision has been made for federal or state income taxes. There are currently approximately three open years for examination by federal and state taxing authorities: December 31, 2018, December 31, 2019 and December 31, 2020. Management has determined that there are no uncertain tax positions taken by the Company. #### NOTE 3 PROPERTY AND EQUIPMENT Property and equipment consisted of the following at December 31, 2021: | Office equipment | \$
83,363 | |------------------------------------------------|---------------| | Furniture and fixtures | 332,461 | | Leasehold improvements | 170,047 | | | | | | 585,871 | | Less accumulated depreciation and amortization | 176,911 | | | | | | \$
408,960 | The Company had depreciation and amortization expense of \$22,620 for the year ended December 31, 2021. #### NOTE 4 NOTE PAYABLE Note payable consisted of the following at December 31, 2021: | Note
payable
to
a
finance
company
in
monthly
installments
totaling
\$6,525, including interest at 10.02%, secured by furniture. Final installment | | |---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------| | is due in August 2026. | \$
290,910 | | Less current portion | 290,910
(51,474) | | | \$
239,436 | {13}------------------------------------------------ #### NOTE 4 NOTE PAYABLE (Continued) Future maturities of the note payable as of December 31, 2021 is as follows: | Year Ending December 31, | | |--------------------------|---------------| | 2022 | \$
51,474 | | 2023 | 56,874 | | 2024 | 62,840 | | 2025 | 69,433 | | 2026 | 50,289 | | | \$
290,910 | #### NOTE 5 NET CAPITAL REQUIREMENTS The Company is subject to the Securities and Exchange Commission's Uniform Net Capital Rule (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 (and the rule of the "applicable" exchange also provides that equity capital may not be withdrawn or cash dividends paid if the resulting net capital ratio would exceed 10 to 1). Subparagraph (2) of the Rule also provides that the Company must maintain net capital of not less than \$100,000. As of December 31, 2021, the Company had net capital of \$195,130 which was \$18,820 in excess of its minimum net capital requirement of \$176,310. Aggregate indebtedness at December 31, 2021 was \$2,644,641. The ratio of aggregate indebtedness to net capital was 13.55% as of December 31, 2021. #### NOTE 6 LEASES #### Operating Leases The Company has non-cancelable operating lease agreements for office space in locations including each of the following: Scottsdale, Arizona; Dallas, Texas; Denver Tech Center in Greenwood Village, in Denver, Colorado; Tucson, Arizona; Long Beach, California; Fargo, North Dakota and Billings, Montana. Currently, the Company has not entered into office space related leases at its branch offices located in Columbus, Ohio; Waco, Texas; and Casper, Wyoming. These offices are leased pursuant to arrangements that do not result in obligations to the Company. The Company also has non-cancelable operating leases for copier machines and other office equipment in several of its offices. Monthly base rent lease payments range from approximately \$1,000 to \$50,000 and the leases expire beginning in 2021 and through 2032. The discount rate used to calculate all lease liabilities is based on the Company's estimate of its incremental borrowing rate of 5% with a weighted average remaining lease term of approximately 8.5 years. {14}------------------------------------------------ #### NOTE 6 LEASES (Continued) Future minimum lease commitments under operating leases and a reconciliation to operating lease liabilities as of December 31, 2021 are as follows: | 2022
\$
845,591
2023
1,093,987
2024
1,103,588
2025
983,681
2026
749,307
Thereafter
3,427,706
Total payments
8,203,860
(1,691,810)
Total
6,512,050
Less current portion
(529,207)
\$
5,982,843 | Year Ending December 31, | | | |--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|--|--| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less: Present value discount | | | | | | | | | | | | | | | | | | | | | | | | | Long-term portion of operating lease | | | The Company had total lease expense of \$1,680,469 for the year ended December 31, 2021. Substantially all lease expense is from leases with terms greater than 12 months. #### NOTE 7 PAYCHECK PROTECTION PROGRAM (PPP) LOAN In April 2020, the Company received a loan under the CARES Act Paycheck Protection Program (PPP) totaling \$2,256,797. Management applied for forgiveness in August 2020 and received notification of full forgiveness of the loan from the Small Business Administration in June 2021, at which time the Company recognized the loan forgiveness as other income below income from operations. #### NOTE 8 COMMITMENTS AND CONTINGENCIES #### Governmental Regulation The Company is subject to federal and state provisions regulating brokers and dealers. Compliance with these provisions has not had a material effect in 2021 upon the capital expenditures, net income, financial condition or competitive position of the Company. The Company's management believes that its current practices and procedures comply with all applicable federal and state requirements. {15}------------------------------------------------ #### FIRST FINANCIAL EQUITY CORPORATION NOTES TO FINANCIAL STATEMENTS YEAR ENDED December 31, 2021 #### NOTE 8 COMMITMENTS AND CONTINGENCIES (Continued) #### Litigation/Arbitrations Involving Complaints The Company is subject to certain claims and litigation, including unasserted claims in the normal course of business. The Company and its counsel are of the opinion that, based on information presently available, such legal matters will not have a material adverse effect on the financial position or results of operations of the Company as of December 31, 2021. (See Note 13.) #### NOTE 9 RESERVE REQUIREMENT Rule 15c3-3 of the Securities and Exchange Commission provides a formula for the maintenance by broker-dealers of reserves in connection with customer-related transactions and standards for the physical possession or control of fully-paid and excess margin securities. There are allowable exemptions to the Rule provided that certain conditions are met. Due to the nature of FFEC's business, these conditions are satisfied and the Company claims an exemption under subparagraph (k)(2)(ii) of the Rule. #### NOTE 10 DEPOSITS WITH CLEARING ORGANIZATIONS The Company has a deposit with the clearing organization, which is required per the signed agreement. The current required amount is \$250,000. The deposit is held in an interest-bearing cash account with an interest rate as of December 31, 2021 of approximately .85% per annum. FINRA requires that the clearing organization hold this cash in a separate account. #### NOTE 11 FAIR VALUE OF FINANCIAL INSTRUMENTS FASB ASC 825, *Financial Instruments*, requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial condition. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. FASB ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. {16}------------------------------------------------ #### FIRST FINANCIAL EQUITY CORPORATION NOTES TO FINANCIAL STATEMENTS YEAR ENDED December 31, 2021 #### NOTE 11 FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments as of December 31, 2021: Cash and cash equivalents: The carrying amounts reported in the statement of financial condition for cash and cash equivalents approximate their fair value because of the short maturity of these instruments. Deposits with clearing organization: The carrying amount reported in the statement of financial condition for the deposit with clearing organization approximates its fair value because of the short maturity of these instruments. Operating lease right of use assets and liabilities: The carrying amount reported in the statement of financial condition for operating lease right of use assets and liabilities approximate fair value as it is discounted at the Company's estimated incremental borrowing rate. Note payable: The carrying amount reported in the statement of financial condition for the note payable approximates its fair value based on the current market rate for instruments with similar maturities adjusted for applicable credit risk. #### Off Balance Sheet Risk The Company introduces all customer transactions in securities traded on U.S. securities markets to another FINRA member firm on a fully-disclosed basis. The agreement between the Company and its clearing organization provides that the Company is obligated to assume any exposure related to non-performance by customers or counter parties. The Company's exposure to credit risk associated with the non-performance of customers and counter parties in fulfilling their contractual obligations pursuant to these securities transactions can be directly impacted by volatile trading markets which may impair the customer's or counter party's ability to satisfy their obligations to the Company. In the event of non-performance, the Company may be required to purchase or sell financial instruments at unfavorable market prices resulting in a loss to the Company. The Company does not anticipate non-performance by customers and counter parties in the above situations. Therefore, no reserve for nonperformance has been established as of December 31, 2021. The Company seeks to control the aforementioned risks by requiring customers or counter parties to maintain margin collateral in compliance with various regulatory requirements, the clearing organization's guidelines and industry standards. The Company monitors required margin levels daily and pursuant to such guidelines, it requires the customer to deposit additional collateral, or to reduce positions when necessary. {17}------------------------------------------------ #### NOTE 12 EMPLOYEE BENEFIT PLAN The Company maintains a defined contribution 401(k) savings plan (the "Plan") covering substantially all full-time employees. Employees are permitted to make voluntary contributions to the Plan. In addition, the Company can make contributions to the Plan. These contributions are at the discretion of management, and are subject to certain limitations. For the year ended December 31, 2021 there were no discretionary contributions made by the Company. #### NOTE 13 SUBSEQUENT EVENTS The Company has entered into a planned affiliation with Cetera Financial Group, with the affiliation expected to occur by the end of the second quarter 2022. The Company will remain a separate legal entity, operating under the Cetera Financial Group and utilizing their Broker Dealer license. The Company had been involved in a dispute with a former employee that dates back to 2020. Management had deemed the possibility of a negative outcome was remote, that they had a strong defensive position, and consequently no settlement loss had been accrued or anticipated in prior years. However, in contemplation of the affiliation discussed above, and in order to remove any contingencies in advance of the pending transaction with Cetera Financial Group, FFEC has entered into a preliminary settlement agreement with the former employee in the amount of \$500,000. {18}------------------------------------------------ SUPPLEMENTAL INFORMATION {19}------------------------------------------------ #### FIRST FINANCIAL EQUITY CORPORATION SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES For the Year Ended December 31, 2021 | Bank charges | \$
2,698 | |------------------------------|-------------| | Bonding fees | 19,306 | | Business promotion | 15,925 | | Compliance expense | 100,213 | | Continuing education | 10,674 | | Depreciation expense | 22,620 | | Dues and subscriptions | 4,728 | | Employee expense | 5,086,056 | | Information system expense | 114,676 | | Insurance expense | 219,019 | | Lease expense | 1,680,469 | | Legal settlements | 61,900 | | Licenses and regulatory fees | 243,745 | | Meals and entertainment | 62,434 | | Office expense | 1,023,961 | | Outside services | 76,214 | | Postage and delivery service | 32,528 | | Professional fees | 468,185 | | Referral fees | 36,492 | | Repairs and maintenance | 98,368 | | Telephone expense | 168,665 | | Travel | 44,902 | | | | TOTAL GENERAL AND ADMINISTRATIVE EXPENSES \$ 9,593,778 {20}------------------------------------------------ #### FIRST FINANCIAL EQUITY CORPORATION SCHEDULE OF COMPUTATION OF NET CAPITAL UNDER SEC RULE 15C3-1 For the Year Ended December 31, 2021 | NET CAPITAL | | |-------------|--| |-------------|--| | Total shareholders' equity | \$
796,627 | |----------------------------------------------------------------------------|-----------------| | Deductions and/or charges
Nonallowable assets | | | Property and equipment, net | 408,960 | | Prepaid expenses | 68,589 | | Other assets | 123,948 | | | 601,497 | | Net capital before haricuts on securities positions | | | (tentative net capital) | 195,130 | | Haircuts on securities | | | Security adjustment - long haircut position (rounded) | - | | NET CAPITAL | \$
195,130 | | Aggregate indebtedness | | | Items included in the Statement of Financial Condition: | | | Accounts payable and accrued expenses | \$
2,252,509 | | Notes payable | 290,910 | | Lease liabilities in excess of right to use assets | 101,222 | | TOTAL AGGREGATE INDEBTEDNESS | 2,644,641 | | Computation of basic net capital requirement | | | Minimum net capital requirement - (6 2/3% of total aggregate indebtedness) | \$
176,310 | | Minimum net capital requirement of reporting broker-dealer | \$
100,000 | | Net capital requirement (greater of two amounts above) | \$
176,310 | | Net capital in excess of required minimum | \$
18,820 | | Net capital less greater of 10% of total aggregate indebtedness | | | or 120% of minimum net capital requirement | \$
(69,334) | | Ratio: Aggregate indebtedness to net capital | 13.55 | | | | | NET CAPITAL, AS REPORTED IN COMPANY'S PART II (UNAUDITED)
FOCUS REPORT | \$
195,130 | | | | | NET CAPITAL | \$
195,130 | {21}------------------------------------------------ #### **FIRST FINANCIAL EQUITY CORPORATION** Computation for Determination of Reserve Requirements Under Rule 15c3-3 (Exemption) and Information for Possession or Control Requirements Under Rule 15c3-3 (Exemption) of the Securities and Exchange Commission The Company is exempt from Rule 15c3-3 pursuant to subparagraph (k)(2)(ii). {22}------------------------------------------------ # **SEMPLE, MARCHAL & COOPER, LLP** CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS ## 3101 NORTH CENTRAL A VENUE I SUITE 1600 I PHOENIX, ARIZONA 85012-2615 #### REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of First Financial Equity Corporation We have reviewed management's statements, included in the accompanying Exemption Report, in which (1) First Financial Equity Corporation (the "Company") identified the following provisions of 17 C.F.R. §15c3-3(k) under which the Company claimed an exemption from 17 C.F.R. §240.15c3-3: (2)(ii) (the "exemption provisions") and (2) the Company stated that First Financial Equity Corporation met the identified exemption provisions throughout the most recent fiscal year without exception. First Financial Equity Corporation's management is responsible for compliance with the exemption provisions and its statements. In addition, the Company did not directly or indirectly receive, hold, or otherwise owe funds or securities for or to customers, other than money or other consideration received and promptly transmitted in compliance with paragraph (a) or (b) (2) of Rule 15c2-4 and/or funds received and promptly transmitted for effecting transactions via subscriptions on a subscription way basis where the funds are payable to the issuer or its agent and not to the Company; did not carry accounts of or for customers; and did not carry PAB accounts (as defined in Rule 15c3-3) throughout the most recent fiscal year without exception. Our review was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) and, accordingly, included inquiries and other required procedures to obtain evidence about First Financial Equity Corporation's compliance with the exemption provisions. A review is substantially less in scope than an examination, the objective of which is the expression of an opinion on management's statements. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to management's statements referred to above for them to be fairly stated, in all material respects, based on the provisions set forth in paragraph (k)(2)(ii) of Rule 15c3-3 under the Securities and Exchange Act of 1934. Certified Public Accountants Phoenix, Arizona February 28, 2022 {23}------------------------------------------------ ![](_page_23_Picture_1.jpeg) #### **December 31, 2021** #### **Rule 15c3-3 Exemption Report** This is to certify that, to the best of my knowledge and belief: Broker-Dealer is a registered broker-dealer subject to Rule 17a -5 promulgated by the Securities and Exchange Commission (17 C.F.R. section 240.17a -5, "Reports to be made by certain brokers and dealers"). This Exemption Report was prepared asrequired by 17C.F.RSection 240.17a-S(d)(I) and (4). To the best of its knowledge and belief Broker Dealer states the following: Broker-Dealer claimed an exemption under provision 17 C.F. R. section 240. 15c3- 3 (k)(2)(ii) as the company is a non -carrying broker-dealer which promptly transmits all funds and delivers all securities received in connection with its activities as a broker-dealer, and does not otherwise hold funds or securities for, or owe money or securities to customers. Broker-Dealer claimed an exemption as a Non-Covered Firm for its direct subscription-way sale of mutual funds and variable annuities. The Broker-Dealer (1) did not directly or indirectly receive, hold, or otherwise owe funds or securities for or to customers, other than money or other consideration received and promptly transmitted in compliance with paragraph (a) or (b)(2) of Rule 15c2-4; (2) did not carry accounts of or for customers; and (3) did not carry PAB accounts (as defined in Rule 15c3-3). Broker-Dealer met the identified provisions throughout the most recent fiscal year without exceptions. I Andrew Sitzman, affirm that, to the best of knowledge and belief, this Exemption Report is true and correct. Andrew Sitzman, CFO Dated: 2/28/2022 | 8:01 AM PST 7047 E. Greenway Parkway, Suite 350 Scottsdale, AZ 85254 / P: 480.951.0079 / P: 800.687.3800 / F: 480.998.2883 Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.