# MIDDLEGATE SECURITIES INC. X-17A-5 (2023-03-29) — Broker-dealer annual report

- Company: MIDDLEGATE SECURITIES INC.
- Form: X-17A-5
- Filed: 2023-03-29
- Period: 2022-12-31
- Accession: 0000826048-23-000001
- CIK: 826048
- File #: 8-39031
- Type: Broker-dealer
- Material weakness: No
- Auditor: Mazars USA LLP
- Auditor location: New York, NY
- Contact: Howard Spindel
- Phone: 212-897-1688
- Website: mazars.us
- Signed by: Steven Ostrofsky (President)

Original filing: https://www.sec.gov/Archives/edgar/data/826048/000082604823000001/mid22s4.pdf

---

{0}------------------------------------------------

#### UNITED STATES SECURITIES A.'\'D EXCHA~GE CO~fMISSION Washington, D.C. 20549

# AN UAL REPORTS FORM X-17A-5 PARTIII

| 0MB APPROVAL             |
|--------------------------|
| 0MB Number: 323S-0123    |
| Expires: Oct. 31, 2023   |
| Estimated average burden |
| hours per response: 12   |
| SEC ALE NUMER            |

8- 39031

FACING PAGE Information R('quir('d Pursuant to Ru1('S 17a-5. 17a-12, and 18a-7 under the Securities .Exchange Act of 1934

FILING FOR THE PERIOD BEGINNING O 1/01 /22 Al"lD ENDING **12/31 /22** 

MMDD'YY

**~L\.1'DDYY** 

# **A. REGISTRA.~T IDENTIFICATION**

# NAME OF FIRM: Middlegate Securities Inc.

TYPE OF REGISTRANT (check all applicable boxes):

~ Broker-dealer O Security-based swap dealer O Major security-based swap participant D Check here if respondent is also an OTC deri\atiYcs dealer

ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.)

# 8 West 40th Street, 4th Floor

| 10018-3805                    |
|-------------------------------|
|                               |
| (Zip Code)                    |
|                               |
| hspindel@integrated.so1utions |
| (Email Address)               |
|                               |
|                               |

|                                               | Mazars USA LLP                                            |                                             |            |  |  |
|-----------------------------------------------|-----------------------------------------------------------|---------------------------------------------|------------|--|--|
|                                               | (Name - t f individual. state last first and middle name) |                                             |            |  |  |
| 135 West 50th Street                          | New York                                                  | NY                                          | 10020      |  |  |
| (Addr~)                                       | (City)                                                    | (Stalt!)                                    | (/1p Code) |  |  |
| 10/08/2003                                    | 339                                                       |                                             |            |  |  |
| (Date of Rcgtstmtion with PCAOB)(ifapphcable) |                                                           | (PCAOB Regi~tralion :-;umber. ifapplicable) |            |  |  |

#### **FOR OFFICIAL CSE O~LY**

• Clauns for exemption from the requirement that the annual rcporu. be covered by the repom. of an mdcpcndent public accountant must be supported by a statement of facts and circumstances re!Jed on as the basis of the excmpllon. See 17 CFR 240.17a-5(eX I )(ii), tf applicable.

P(.'r.on~ who ar(.' to re51>0nd to the <'Oll(.'<'tion of information <'ontained in this form are not r(.'quired to r~ond 1tn.le\~ th(.' form displays a currently ,alid 0MB contrnl number.

{1}------------------------------------------------

# AFFI lb 1 *:\* TION

I, Steven Ostrofsky , swear {or affirm) that, to the best of my knowledge and belief, the financi.11 report pertaining to Middlegate Securities Inc. as of 12/31/22 , is true and correct. I further swear {or affirm) that neither the company nor any partner, officer, di.rector, or equiv~lent person, as the case may be, has any proprietary interest in any act0unt **cwsified**  solely as that of a customer.

*<sup>1</sup>*I-.\_, \_:\_ /") ~ - ' ;/ . '7[/-U 9".,1 *'-/U,1j~~""'7f*  Signahire f

President Title

\_\J..;\_,,yyl,/ *Y\* 0 1Q(J,~ Notary Public

t<IM R. CREAN NOTARY PUel.lC, STAT£ ~ **NEW** YORK **Regillrllon No.** 01CM308616 ~in°'\*"' Cq,,ir,ty Commosslon upns Ji-. 23. 2026

{2}------------------------------------------------

#### **This filing\*\* contains (check all applicable boxes):**

- m (a) Statement of financial condition.
- CEI (b) Notes to unconsolidated or consolidated statement of financial condition, as applicable.
- D (c) Statement of income (loss) or, if there is other comprchcnsi\·e income in the pcriod(s) presented, a statement of comprehensi\·e income (as defined in§ 210. 1-02 of Regulation S-X).
- D (d) Statement of cash flows.
- D (c) Statement of changes in stockholders' or partners' or members' or sole proprietor's equity, as applicable.
- D (f) Statcmcm of changes in liabilities suborclinatcd to claims of creditors.
- D (g) Notes to unconsolidated or consolidated financial statements .. as applicable.
- D (h) Computation of net capital under J 7 CFR 240.l5c3-L or 17 CFR 240.I8a-l. as applicable.
- D (i) Computation of tangible net worth under 17 CFR 240. I 8a-2.
- D (i) Computation for determination of customer rcser\C requirements pursuant to Exhibit A to 17 CFR 240.15c3-3.
- D (k) Computation for determination of security-based swap reserve requirements pursuant to Exhibit B to 17 CFR 240. l 5c3- 3 or Exhibit A to 17 CFR 240. l 8a-4, as applicable.
- D (l) Computation for Determination of PAB Requirements wtder Exhibit A to§ 2-W.l 5c3-3.
- D (m) Information relating to possession or control requirements for customers under 17 CFR 240.1 -c3-3.
- D (n) Information relating to possession or control requirements for security-based swap customers under 17 CFR 240. I 5c3- 3(p)(2) or 17 CFR 240.18a-4. as applicable.
- D {o) Reconciliations. including appropriate explanations, of chc FOCUS Report with computation of net capital or tangible net worth under 17 CFR 240. I 5c3-1, 17 CFR 240. l8a-l , or 17 CFR 240. I 8a-2. as applicable, and the rcsenre requirements under 17 CFR 240. l 5c3-3 or 17 CFR 240. l 8a-4. as applicable, if material differences exist, or a statement that no material differences exist.
- D (p) Summary of financial data for subsidiaries not consolidated in the statement of financial condition.
- l!J (q) Oath or affirmation in accordance with 17 CFR 240. J 7a-5. 17 CFR 240. J 7a-12. or 17 CFR 240. l8a-7. as applicable.
- 0 (r) Compliance report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7. as applicable.
- D (s) Exemption report in accordance with 17 CFR 240. I 7a-5 or 17 CFR 240. l 8a-7. as applicable.
- CEI (t) Independent public accountant's report based on an examination of the statement of financial condition.

D (u) Independent public accountant· s report based on an examination of the financial report or financial statements under 17 CFR 240. I 7a-5. 17 CFR 240. I 8a-7, or I 7 CFR 240. l 7a-1 2, as applicable.

- 0 (v) Independent public accountant's report based on an examination of certain statements in the compliance report under 17 CFR 2-W. l 7a-5 or 17 CFR 240. J 8a-7, as applicable.
- D (w) Independent public accountant's report based on a review of the exemption report under l 7 CFR 240.17a-5 or 17 CFR 240. l 8a-7, as applicable.
- 0 (x) Supplemental reports on applying agreed-upon procedures, in accordance with 17 CFR 240. l 5c3-le or 17 CFR 240. l 7a-l 2, as applicable.
- D (y) Report describing any material inadequacies found to exist or found to have existed since the date of chc pre\ ious audit, or a statement that no material i.nadeq\.lacies exist, under 17 CFR 240.l 7a-12(k). D (z) Other:-------------------------------------
	-

Ofo *requesf confidential 1reatmen1 of certain portions of 1his filing, see* J 7 *CFR 240.* J *7a-5(eJ(JJ or* J 7 *CFR 240.* J *8a-*7(d)(2), *as applicable.* 

{3}------------------------------------------------

STATEMENT OF FINANCIAL CONDITION DECEMBER 31 , 2022

{4}------------------------------------------------

![](_page_4_Picture_0.jpeg)

Tel: 212.812.7000 www.mazars.us

# Report of Independent Registered Public Accounting Firm

#### **To the Board of Directors and Stockholders of Middlegate Securities Inc.**

#### **Opinion on the Financial Statement**

We have audited the accompanying statement of financial condition of Middlegate Securities lac., (the .. Company"), as of December 31, 2022, and the related notes (collectively referred to as the " financial statement"). In our opinion, the statement of financial condition presents fairly, in all material respects, the financial position of the Company, as of December 31 , 2022, in confonnity with accounting principles generally accepted in the United States of America.

#### **Basis for Opinion**

This financial statement is 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 independent with respect to the Company in accordance with 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 perfonn the audit to obtain reasonable assurance about whether the fmancial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and perfonning procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.

We have served as the Company's auditor since 2014.

cw York, NY March 29, 2023

{5}------------------------------------------------

# **Statement of Financial Condition December 31, 2022**

#### **ASSETS**

| Cash                                                      | \$ | 550,312     |
|-----------------------------------------------------------|----|-------------|
| Securities owned, at fair value                           |    | 42,295,343  |
| Receivable from clearing brokers                          |    | 5,807,477   |
| fught-uf-use asset                                        |    | 725,793     |
| Interest receivable                                       |    | 550,<br>196 |
| Prepaid expenses and other assets                         |    | 140,398     |
| Dll! from stockholders                                    |    | 8,392,502   |
| flUTiitme, equiprrent and leasehold Dll)rovements less    |    |             |
| accumulated depreciation and rurortization of\$ l,037,829 |    | 24,738      |
| Restricted collateral deposit                             |    | 67,788      |
| Prepaid income taxes                                      |    | 45,390      |
| Total Assets                                              | s  | 58,599,937  |
| LIABILITIES AND STOCKHOLDERS' EQUllY                      |    |             |
| Liabilities                                               |    |             |
| Securities sold short, at fair value                      | \$ | 26,249,592  |
| Accrued expenses payable                                  |    | 16,638,900  |
| Subordinated loans payable                                |    | 2,500,000   |
| Lease liabilities                                         |    | 1,022,683   |
| Loans payable                                             |    | 159,900     |
| Interest payable                                          |    | 151,598     |
| Total Liabhs                                              |    | 46,722,673  |
| Stockholders' Equity                                      |    |             |
| Cormron stock, no par value, 200 shares authorized        |    |             |
| I 00 shares issll!d and outstanding                       |    | 400,000     |
| Retained earnings                                         |    | 11,477,264  |
| Total Stockholders' Equity                                |    | 11,877,264  |
| Total Liabilities and Stockholders' Equity                | \$ | 58,599,937  |

The accompanying notes are an integral part of mis financial statement.

{6}------------------------------------------------

# Notes to Financial Statement Year Ended December 31 , 2022

#### 1. ORGANIZATION AND NATURE OF BUSTh'ESS

Middlegate Securities Inc. (the "Company")1 a New York State "S" Corporation1 is a broker-dealer registered with the U.S. Securities and Exchange Commission and is a member of the Financial lndustry Regulatory Authority ("FINRA"). The Company clears all of its customer transactions through two clearing broker-dealers on a fully disclosed basis and buys and sells primarily corporate securities and municipal bonds. The Company also engages in firm comminnent underwriting syndicates primarily in municipal securities.

# **2. SUMMARY OF SIGNIFICANT ACCOUNT~G POLICIES**

**Revenue Recognition** - The revenue recognition guidance of ASC Topic 606, *Revenue from Contracts with Customers* requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires an entity to follow a five-step model to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the tram:action price to the performance ohligation..~ in the contract, and (e) recognize revenue when (or as) the entity saris.fies a perfonnance obligation. In 9etennining the tran~actic;m price, an entity may include varifll;)le CQrl\$iderari~m only tQ the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved. The revenue recognition guidance does not apply to revenue associated with financial instruments, interest income and expense, leasing and insurance contracts.

The Company buys and sells securities on behalf of its customers. Each time a customer enters into a buy or sell transaction, the Company charges a commission. Commission income from customers' securities transactions and related expenses are recorded on a trade dare basis. The Company bas determined that the performance obligation is satisfied on the trade date because that is when the underlying financial insLrumem/coumcrpanies arc idenLificd, I.he pricing is agrt:t:d upon and I.he risks and rewards of ownership have transferred to/from the customer.

Profit and loss arising from securities transactions entered into for the account of the Company arc recorded on the trade date and are included as revenue from principal transactions or as syndicate income, respectively. Realized and unrealized gains and losses resulting from valuing marketable securities at fair value are also included in the calculation of revenue from principal transactions. There were no open contractual commitments from underwriting syndicates at December 31 , 2022.

**Credit Losses -** The guidance under ASC Topic 326, *Financial Instruments - Credit Losses* ("ASC 326"). ASC 326 impacts the impairment model for certain financial assets by requiring a current expected credit loss ("CECL") methodology to estimate expected credit losses over the entire life of the financial asset Under the accounting update, the Company has the ability to determine that there are no expected credit losses in certain circumstances (e.g., based on the credit quality of the customer).

{7}------------------------------------------------

# **Notes to Financial Statement Year Ended December 31 , 2022**

# 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

#### **Credit Losses (continued)**

The allowance for credit losses is based on the Company's ex:pectatioo of the collectabiliry of financial instruments, including fees and other receivables utilizing the CECL framework. The Company considers factors such as historical experience, credit quality, age of balances and current and future economic conditions that may affect the Company's expectation of the collectability in determining the allowance for credit losses. The Company's expectation is that the credit risk associated with fees and other receivables is not significant and accordingly, the Company has not provided an allowance for credit losses at December 31 , 2022.

**Use of Estimates** - The prepararion of financial statements in confonnity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

**Securities** - The Company's securities owned and securities sold short are stated at fair value (See Note 5).

**Depreciation and Amortization** - Depreciation on fumirure and equipment is computed using the straightline method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the remaining term of the lease.

**Income Taxes** - The provision for income taxes is based on income and expenses reported in the financial statements. The Company has elected to be treated as an "S" Corporation under Federal and New York Seate income tax law. Accordingly, no provision has been made for Federal income tax because Federal income taxes are imposed on the stockholders based on their respective allocation of net income. New York State special franchise and surcharge taxes and New York City corporation tax are provided for in the financial statements.

The amount of current and deferred taxes payable or refundable is recognized as of the date of the financial statements, utilizing currently enacted tax laws and rates. Deferred tax expenses or benefits are recognized in the financial statements for changes in deferred tax liabilities or assets between years.

The Company recognizes and measw-es its unrecognized tax. benefits in accordance wich U.S. GAAP. Under that guidance, the Company assesses the likelihood, based on their technical merits, that tax positions will be sustained upon examination based on the facts, circumstances, and information available at the end of each period. The measurement of unrecognized tax benefits is adjusted when new information is available or when an event occurs that requires a change.

{8}------------------------------------------------

# Notes to Financial Statement Year Ended December 31 , 2022

#### 3. **OFF-BALANCE-SHEET RISK AND CONCENTRATIONS**

Pursuant to its clearing agreements, the Company introduces all of its securities transactions to each clearing broker on a fully disclosed basis. The Company has agreed to indemnify each clearing broker for losses, if any, from canying securities transactions introduced by the Company. In accordance with industry practices and regulatory requirements, the Company and the clearing firms monitor collateral on the customer accounts on a daily basis. The Company's securities are held by its clearing brokers and in the case of one of its clearing brokers, serves as collateral for its margin balance and short positions (See Note 4).

In the normal course of business1 substantially all of the Company's securities transactions, money balances, and security positions are transacted with the Company's clearing brokers. The Company is subject to credit risk to the extent any broker with which it conducts business is unable to fulfill contractual obligations on its behalf. The Company's management monitors the financial condition of such brokers and does not anticipate any losses from these counterparties.

The Company is subject to certain inherent risks arising from selling securities short. The ultimate cost to the Company to acquire these securities may exceed the liability reflected in these financial statements.

Due from stockholders includes significant concentrations (See Note 7).

Ar various rimes throughout the year ended December 31, 2022, the Company maintained cash balances or securities positions with major financial institutions.

The Company does not consider itself to be at risk with respect to any of its concentrations.

#### **4. DUE FROM CLEARING BROKERS**

The Company has an agreement with National Financial Services, LLC CNFS"), a Fidelity Investments company, to act as the Company's clearing broker. The net amount due from the clearing broker consists of the balances in the Company's various trading accounts maintained by NFS. lncluded in the receivable balance at December 31 , 2022, is a deposit of \$1 00,000 required by NFS for operating the accounts.

The Company also has an agreement with Wedbush Securities Inc. to clear its securities transactions. The balance includes a clearing deposit in the amount of\$200,000.

{9}------------------------------------------------

# **Notes to Financial Statement Year Ended December 31 , 2022**

#### 5. **FAIR VALUE MEASUREMENTS**

U.S. GAAP defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy that prioritizes 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 panicipams at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liabiJity or, in the absence of a principal market, the most advantageous market. Valuation techniques d1at are consistent with the market, income or cost approach are used to measure fair value.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

- Level l Quoted prices (unadjusted) in active markets for identical assets or Liabilities that the Company has the ability to access.
- Level 2 Significant other observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are ot>s~rvat>lc for the s\SSCts or liat>Hirics (su<.:ti as intcrcst .-ates, yield curves, volatilities, pr~pa)'l11cnt speeds, loss severities, credit risks and default rates) or other market corroborated inputs.
- Level 3 Unobservable inputs for the asset or liability that rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best infonnation available in the circumstances and may include the Company's own data.

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including,for example, the type of security, the liquidity of markets, and other characteristics particular to the security. To the extent that val uation is based on models or inputs that arc less observable or unobservable in the market, the detennination of fair value requjres more j udgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

The inputs used to measure fair value may faJJ into different levels of the fair vaJue hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety isdetennined based on the lowest level input that issignificant to the fair value measurement in ils entirety.

{10}------------------------------------------------

# **Notes to Financial Statement Year Ended December 31 , 2022**

#### **5. FAIR VALUE MEASUREMENTS (continued)**

The following table presents the Company's fair value hierarchy for the investments measured at fair value as of December 31 , 2022:

| Securities owned,<br>at fair value      | Level 1           |    | Level<br>2      | Level 3           | !2E!               |
|-----------------------------------------|-------------------|----|-----------------|-------------------|--------------------|
| Corporate stock                         | \$<br>-           | \$ | 11              | \$<br>-           | \$<br>11           |
| Municipal bonds                         |                   |    | 40,647,584      |                   | 40,647,584         |
| Corporate bonds                         |                   |    | 17,733          |                   | 17,733             |
| U.S. Government obligations             | 1,518,915         |    |                 |                   | 1,518,915          |
| Investment in private company           |                   |    |                 | 111,100           | 111 ,<br>100       |
| Total                                   | \$<br>1,518,915   | \$ | 40,665,328      | \$<br>111 1100 \$ | 42,2951343         |
| Seturities sold short,<br>at fair value |                   |    |                 |                   |                    |
| Corporate stock                         | \$                | -s | (3) \$          | -                 | \$<br>(3)          |
| Municipal exchange traded funds         |                   |    | (7,<br>175,360) |                   | (7,175,360)        |
| U.S. Government obligations             | {19,074,229)      |    |                 |                   | (19,074,229)       |
| Total                                   | \$ (19,074,229) s |    | (7,175,363) \$  | -                 | \$<br>(26,249,592) |

{11}------------------------------------------------

Notes to Financial Statement Year Ended December 31 , 2022

### 5. **FAIR VALUE MEASUREME~S** (continued)

The fair value of le\,cl 2 municipal and corporate bonds is estimated using recently executed transactions or data ofcomparable issuers, market price quotations (when observable), or bond spreads obtained from independent external parties. such as vendors and brokers. adjusted for any basis difference. Municipal and corporate bonds are generally categorized in Level 2 of the fair value hierarchy; in instances when prices, spreads, or any of the aforementioned key inputs are unobservable, they are categorized in Level 3 of the fair value hierarchy. The Level 3 investment in private company is valued at a price which allows for the fact that it is highly illiquid.

Investment in private company is valued using a model based on the most recent valuation included in a round of financing related to a holding of the investee company. This model indicates that the cost of the investment approximates fair value. The President of the Company is also the Managing Member of the investee company, and stockholders of the Company directly invest in this investment.

The following table summarizes changes in fair value of the Company's Level 3 assets for the year ended December 31 , 2022. The Company recognizes all transfers between levels at the beginning of the reporting period.

# **Investment in Private Company BaJaocr-December 31, 2021 S** 111, 100 **Balaocc-Dccember 31, 2022 S** 111.100 =======

The following summarizes the quantitative information about Level 3 fair value measurements as of December 31, 2022. Certain assets that ace categorized within Level 3 ace not disclosed below because the Company does not develop quantitative unobservable inputs when measuring the fair value of these assers.

| Level<br>3<br>Investments        |    | Fair Value | Valuation<br>Technique           | U<br>nobservable<br>Input          | Input<br>VoJues                                     |  |
|----------------------------------|----|------------|----------------------------------|------------------------------------|-----------------------------------------------------|--|
| Investment in private company \$ |    | 11 I. I 00 | Utilu.ation of<br>recent funding | Bu.iii into most<br>recent funding | Vah.iation of significant<br>investment of investee |  |
| Total Level 3 1nvesnnenls        | \$ | 111,100    |                                  |                                    |                                                     |  |

There were no transfers between Level 2 and 3 investments.

{12}------------------------------------------------

# Notes to Financial Statement Year Ended December 31 , 2022

#### 6. **RELATED PARTY TRAt~SACTIO <sup>1</sup> S**

**Due from stockholders** - Under an existing agreement, amounts due from stockholders total \$7,876,326 as of December 31, 2022, bear interest based on the Short Term Applicable Federal Rate and have no definitive due date. For the year ended December 31, 2022, the effectiYe annual interest rate used was 0.33%.

Under a separate loan agreement, there is an amount due from a stockholder totaling \$516,176. The loan accrues interest at 3% per annum.

The Company has an arrangement under which an affiliate provides services to the Company. This affiliate is owned by major shareholders of the Company. In prior years, these shareholders have received discretionary bonuses. At December 31 , 2022, the affiliate has earned \$3,550,000 for the year ended December 31, 2022 which has been agreed to by both the affiliate and the Company.

**Sublease arrangement** - See Note 9.

Subordinated loans and loans payable- See Note 13.

#### 7. **RETIREMENT PLAN**

The Company maintains a deferred compensation plan for eligible employees. The Company may, at its discretion contribute up to 25% of eligible compensation. The Company elected to make contributions of \$1 ,098,866 to the plan for the year ended December 31 , 2022.

### **8. COMMITMENTS AND CO~TINGENCIES**

**Leases** - The Company has a lease on its New York City office space, which expires on May 31, 2024. In accordance with the original lease terms, the Company provided the lessor with a letter of credit in the amount of \$60,000 to secure its obligations under d1e lease. The letter of credit is collateralized by a certificate of deposit of approximately the same amount.

The Company subleases a pan of its office space under a sublease agreement expiring on May 30, 2024. The sublesscc is required to pay the Company 25% of fixed rent, its proportionate share ofreaJ estate taxes and miscellaneous expenses which may be due to the Landlord. In addition, the Company subleases a portion of the premises to affiliates on an informal month-to-month basis.

{13}------------------------------------------------

# Notes to Financial Statement Year Ended December 31 , 2022

# **8. COMMITMENTS AND CONTINGENCIES** (continued)

The Company recognizes *its* lease in accordance with ASC Topic 842, Leases ("ASC 842'1). The guidance increases the transparency and comparability by requiring the recognition of right-of-use assets and lease liabilities on the statement of financial condition.

Lease liabilities are recognized at the present value of the fixed lease payments using the prime rate of *5.5%.* Right-of-use assets are recognized based on the initial present value of the fixed lease payments. At

December 31, 2022, the right-of-use asset and lease Liability balance was \$725,793 and \$1,022,683, respectively.

Miojmum annual rental commitments under non-cancelable leases are as follows at December 31, 2022:

| Year ending<br>December 31, |    | Amount        |    | Sublease<br>income |   | Net Lease<br>Comminnents |  |
|-----------------------------|----|---------------|----|--------------------|---|--------------------------|--|
| 2023                        | \$ | 129 s<br>750, |    | 187,532 s          |   | 562,597                  |  |
| 2024                        |    | 315,446       |    | 7&,862             |   | 236,5&4                  |  |
|                             | s  | 1,065,575     | \$ | 266,394            | s | 799,181                  |  |
| Less: imputed interest      |    | 42,892        |    |                    |   |                          |  |
|                             | \$ | 1,022,683     | \$ | 266,394            | s | 799,18<br>1              |  |

**Litigation** - The Company is a defendant co various legal proceedings arising from the normal course of business. In the opinion of management, based on the advice of legal counsel, there are no proceedings pending, or to the knowledge of management, threatened, which in the event of an adverse decision would resuh in a material adverse impact in the financial condition or results of operations of the Company.

**Miscellaneous contractual arrangements** - In the ordinary course of its business, the Company engages in business arraogemeots, some of wbjch are colllJllltted to writing aod some of whjcb arn based upoo custom and usage. Examples of these are its arrangements with its employees, various vendors and professionals, other broker-dealers and customers. Some of these are even dictated by regulatory rules or protocols.

{14}------------------------------------------------

# **Notes to Financial Statement Year Ended December 31 , 2022**

# **8. COMMITMENTS AND CONTINGENCIES (continued)**

In some cases, the Company pays or accrues its obligations relating to these arrangements during the year and settles or trues them up periodically. Included in Accrued Expenses Payable in the Company's Statement offinanciaJ Condition is 16,638,900, which the Company expects to pay to various employees and various vendors including related parties.

**Regulation -** [n the ordinary course of its business, the Company is subject to various complex regulations and examinations and scrutiny from regulatory authorities. In the opinion of management, none of these factors are expected to have a material adverse effect on the Company.

#### **9. CURRENT AND DEFERRED TAXES**

The income tax provision as of December 3 l, 2022 is summarized as follows:

| \$<br>69,255 |  |
|--------------|--|
|              |  |
| \$<br>69,255 |  |
|              |  |

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred tax assets amount to \$369,335 and are related to unused excess charitable connibutions. The valuation allowance increased by \$52,580. These deferred tax assets are fully reserved for.

#### 10. **FURNITURE, EQUIPmNT AND LEASEHOLD IMPROVEMENTS**

Furniture, equipment and leasehold improvements consist of the following:

| Furniture and equipment                         | s         | 736,488   |
|-------------------------------------------------|-----------|-----------|
| Leasehold improvements                          |           | 326,079   |
|                                                 |           | 1,062,567 |
| Less: Accumulated depreciation and amortization | 1,037,829 |           |
|                                                 | S         | 24,738    |

{15}------------------------------------------------

# **Notes to Financial Statements December 31 , 2022**

#### **11. REGULA TORY REQUIREMENTS**

The Company is subject to Securities and Exchange Commission Ruic l 5c3-I under which it is required to maintain minimwn net capital of ac least \$250,000, pursuant co the Alternative Standard of that rule. Ac December 31, 2022, the Company's net capital of approximately \$1,487,000 exceeded minimum requirements by approximately \$1,237,000.

All customer transactions are cleared through other broker-dealers on a fully disclosed basis. Therefore, in accordance with paragraph (k)(2)(ii) of Rule I 5c3-3 of the Securities and Exchange Commission, the Company is not required to maintain a separate bank account for the exclusive benefit of customers nor to segregate securities.

#### **12. SUBORDINATED LOANS PAYABLE**

The Company has subordinated loan agreements with two of its stockholders and cwo of its affiliates with amounts totaling \$2,000,000 and \$500,000, respectively. These loans expire from May 2023 through December 2023 and contain a rollover provision. Interest of 8% per annum is paid yearly.

### **13. LOANS PAY ABLE**

The Company maintains an Economic Injury Disaster Loan with the Small Business Administration at an interest rate of 3.75%. Principal and interest payments on the loan will begin in 2023 and the loan is due in July 2050. At December 31 , 2022, the amount due on this loan was S 159,900.

#### **14. SUBSEQUENT EVENTS**

Subsequent events have been evaluated through the date these financial statements were issued. During this period there were no material subsequent events requiring adjustment or disclosure.


Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.