# JOSEPH GUNNAR & CO. LLC X-17A-5 (2021-02-26) — Broker-dealer annual report - Company: JOSEPH GUNNAR & CO. LLC - Form: X-17A-5 - Filed: 2021-02-26 - Period: 2020-12-31 - Accession: 0000852091-21-000002 - CIK: 852091 - File #: 8-41386 - Material weakness: No - Auditor: Alperin, Nebbia & Associates, CPA, PA - Auditor location: Fairfield, NJ - Contact: Stephan Stein - Phone: 212-440-9600 - Signed by: Stephan Stein (President) Original filing: https://www.sec.gov/Archives/edgar/data/852091/000085209121000002/jgunnpublic2020.pdf --- {0}------------------------------------------------ # **JOSEPH GUNNAR & CO., L.L.C. STATEMENT OF FINANCIAL CONDITION December 31, 2020** {1}------------------------------------------------ **UMTEDSTATES SECURITIESANDEXCHANGECOMMISSION Washington,D.C. 20549** # **ANNUAL AUDITED REPORT FORM X-17A-5 PART Ill** 0MB APPROVAL 0MB Number: 3235-0123 Expires: October 31, 2023 Estimated average burden hours per response .... . . 12.00 | SEC FILE NUMBER | |-----------------| | B-41386 | **FACING PAGE** **Information Required of Brokers and Dealers Pursuant to Section** 17 **of the Secu.-ities Exchange Act of 1934 and Rule 17a-5 The1·eunder** | REPORT FOR THE PERIOD BEGINNING 0 1/01 /20 | | AND ENDJNG 12/31 /20 | | | |-------------------------------------------------------------------|---------------------------------------------------------------------------|----------------------|---------------------------------|--| | | Ml\,1/DD/YY | | -----------
MM/DD/YY | | | | A. REGISTRANT IDENTIFICATION | | | | | NAME OF BROKER-DEALER: Joseph Gunnar & Co., L.L.C. | | | OFFICIAL USE ONLY | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P O Box No .) | | | FIRM 1. 0 . NO. | | | 30 Broad Street, 11th Floor | | | | | | | (No. and Street) | | | | | New York | NY | 10004 | | | | (City) | (State) | (Lip Code) | | | | | NAME AND TELEPHONE NUMBER OF PERSON TO CONT ACT IN REGARD TO THI | REPORT | | | | Stephan Stein | | | 212-440-9600 | | | | | | (Area Code - Te lephone Number) | | | | B. ACCOUNTANT IDENTIFICATION | | | | | | INDEPENDENT PUBLIC ACCOUNT ANT whose opinion is contained in this Report* | | | | | Alperin Nebbia & Associates, CPA, PA | | | | | | | ( ame - if individual. state last, first. middle name) | | | | | | 375 Passaic Avenue, Suite 200 Fairfield | NJ | 07004 | | | (Address) | (City) | (State) | (Zip Co de) | | | CHECK ONE: | | | | | | ✓ I ce
rtified Publi c Accountant | | | | | | li c Acco untant | | | | | | | Acco unt nt not resident in United States or any of its possessions. | | | | | | FOR OFFICIAL USE ONLY | | | | | | | | | | | | | | | | | | | | | | *\*Claims for exemption J,-0111 the requirement that the annual report be covered by the opinion of an independent public accountant must be supported by a statement a/facts and circumstances relied on as the basis.for the exemption. See Section 240.* J *7a-5(e){2)* > **Potential persons who are to respond to the collection of Information contained In this form are not required to respond unless the form displays a currently valid 0MB control number.** SEC 1410 (11 -05) {2}------------------------------------------------ #### **OATH OR AFFIRMATION** | my knowledge and belief the accompanying financial statement and supporting schedules pe~ta ining to the firm of | , swear (or affirm) that, to the best of | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | Joseph Gunnar & Co., L.L.C. | ----------------------------------------------'
as | | of De cembe r 31
20 20 | , are true and correcl. I r urther swear (or a ffirm) that | | ne ither the company nor any partner, propri etor, principal officer or director has any propri etary in terest in any account
classified solely as that of a c ustomer, except as follows: | | | | | | President | Signature | | This report *'' contains (check a ll applicabl e boxes):
0 (a) Facing Page.
[2] (b) Statement of Financia l Condition.
D (c) Statement of lncome (Loss) or, if there is other comprehensive income in the period(s) presented, a Statement | Titl e
ORNELLA PALMIERI
Notary Public - St
GALLAGHER
are of New Yori<
. NO. O 1 PA6292854
Oual1fled in Richmo
My Commission ExpiresnNd County
ov 12. 2021 | | of Comprehensive Income (as defined in ~2 10. 1-02 of Regulation S-X).
D (d) Statement of Changes in Financial Condition.
D (e) Sta
tement of Changes in Stockholders' Equity or Partners' or Sole Propri etors' Cap.ta!.
D (f) Statement of Changes in Liabiliti
es Subordina ted to Claims of Creditors. | | | § (g) Computation of Net Capital.
(h) Computation for Determination of Reserve Requirements Pursuant to Rule I 5c3-3.
(i) Tn formation Relating to the Possession or Control Requirements Under Rul e I 5c3-1 .
D (j) A Reconcili
ation, including appropriate expl anation of the Computation of Net CapitM Under Rule l 5c3 -l and the | | | Computation fo r Determination of the Reserve Requirements Under Exhibit A of Rui c l 5c3-3.
D (k) A Reconcilia
tion between the audited and unaudited Statements of Financial Conditi on with respect to methods of
con so Iida ti on . | | | 0 (I)
An Oa th or Affirmation . | I | | D (m) A copy of the SIPC Supplemental Repo
rt. | | {3}------------------------------------------------ # **CONTENTS** December 31, 2020 | | Page | |------------------------------------------------------------|------| | REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 1 | | FINANCIAL STATEMENT | | | Statement of Financial Condition | 2 | | Notes to Statement of Financial
Condition | 3-9 | {4}------------------------------------------------ 375 Passaic Avenue Suite 200 Fairfield, NJ 07004 973-808-8801 Fax 973-808-8804 Steven J. Alperin, CPA Vincent Nebbia, CPA Jeffrey M. Seligmuller, CPA Roger J. Hitchuk, CPA #### **Report of Independent Registered Public Accounting Firm** #### To the Member of Joseph Gunnar & Co., LLC #### Opinion on the Financial Statement We have audited the accompanying statement of financial condition of Joseph Gunnar & Co., LLC (the "Company") as of December 31, 2020, and the related notes and schedules (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2020, in conformity 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 this financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit also included assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit of the financial statement provides a reasonable basis for our opinion; We have served as the Company's auditor since 2019. Alperin, Nebbia & Associates, CPA, PA • . p ~..,,.~~ *.e* Fairfield, New Jersey February 25, 2021 {5}------------------------------------------------ # **STATEMENT OF FINANCIAL CONDITION** # December 31, 2020 #### **Assets** | Cash and cash equivalents | \$
579,640 | |-----------------------------------------------|---------------| | Restricted cash -
clearing deposit | 600,000 | | Due from clearing broker | 3,407,096 | | Accounts receivable | 708,235 | | Due from registered representatives | 190,300 | | Prepaid expernes and other assets | 139,273 | | Right-of-use assets, net | 3,433,701 | | Prope1ty and equipment, net | 53,234 | | Seclllity deposits | 62,250 | | Total assets | \$ 9,173,728 | | Liabilities and Member's Eauitt | | | Liabilities: | | | Com:nissions payable | \$ 2,226,515 | | Accounts payable and accrned expenses | 589,811 | | DefeITed revenue | 44,000 | | Lease liabilities | 3,442,349 | | PPP loan payable | 360,300 | | Due to broker/dealer | 350,000 | | Total liabilities | 7,012,975 | | Lease connnitments and contingencies (Note 6) | | | Member's equity | 2,160,753 | | Total liabilities and member's equity | \$ 9,173,728 | *See accompanying notes.* {6}------------------------------------------------ # **1. Description of Business and Organization** Joseph Gunnar & Co., L.L.C. (the "Company") is a broker-dealer registered with the Securities and Exchange Commission ("SEC") and the Financial Industry Regulatory Authority ("FINRA"). As of October 22, 2012, the Company became a registered investment adviser with the SEC. The Company is wholly-owned by Joseph Gunnar Holding Co., LLC ("JGH"). The Company executes principal and agency transactions in listed and over-the-counter securities and engages in investment banking activity. All customer transactions are cleared on a fully disclosed basis through an independent clearing firm. The Company claims exemption from the requirements of SEC Rule 15c3-3 under Section (k)(2)(ii) of the rule, and consequently does not carry securities accounts for customers nor does it perform custodial functions related to their securities. Since the Company is a limited liability company, the member is not liable for the debts, obligations, or liabilities of the Company, whether arising in contract, tort or otherwise, unless the member has signed a specific guarantee. # **2. Summary of Significant Accounting Policies** # Basis of Presentation **ANCIAL STATEMENTS** The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). ### Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. ### Cash and Cash Equivalents The Company considers all highly liquid debt instruments having maturities of three months or less at the date of acquisition to be cash equivalents. The Company places its cash with major financial institutions, which at times may be in excess of the Federal Deposit Insurance Corporation ("FDIC") limits of \$250,000 per depositor per insured bank. At December 31, 2020, deposits in excess of the insured limit were approximately \$330,000. ### Restricted cash Restricted cash consists of contractually restricted account balances held at the Company's clearing brokers. The Company accounts for restricted cash based upon Accounting Standards Update (ASU) 2016-18. Accordingly, the cash balances in the accompanying statement of cash flows include those amounts that are deemed to be restricted cash. {7}------------------------------------------------ # Property and Equipment Depreciation of equipment is provided on a straight-line basis over the estimated useful lives of the respective assets. Leasehold improvements are amortized on a straight-line basis over the term of the lease. # Leases The Company accounts for leases under ASC 842 – *Leases*, which requires the recordation of a rightof-use asset and related lease liability on the statement of financial condition. Such amounts are based on the net present value of future lease obligations, using an incremental borrowing rate to determine the Company's effective cost of capital (see Note 6). ### Income Taxes The Company's parent, JGH, has elected to be treated as a partnership for federal, state, and local tax purposes and is responsible for New York City Unincorporated Business Taxes. Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") 740-10, *Income Taxes*, clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements, by prescribing a minimum recognition threshold in which the company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position, before being recognized in this financial statement. As of December 31, 2020, the Company has no uncertain tax positions that qualify for either recognition or disclosure in this financial statement. # **3. Due From Clearing Broker** The Company has a clearing agreement with a brokerage firm to carry its accounts. The clearing broker has custody of the Company's securities and cash balances. These securities and/or cash positions serve as collateral for any amounts due to the clearing broker and as collateral for potential defaults of the Company's customers which are carried on the books and records of the clearing broker. The Company is also subject to credit risk if the clearing broker is unable to repay balances due or deliver securities in its custody. The clearing agreement requires the Company to maintain a 250,000 deposit with the clearing broker, plus an additional \$350,000 relating to a sub-clearing arrangement (see Note 6), which in total is included in restricted cash - clearing deposit on the accompanying statement of financial condition. # **4. Due From Registered Representatives** Due from registered representatives represents amounts advanced to registered representatives as incentives. The unsecured loans are non-interest-bearing and have no specific repayment terms. The loans are amortized over the lives of the loans and included as compensation to the respective registered representatives. The loans are completely forgiven once the registered representatives have met their length of service obligations. If a registered representative fails to meet the requirement and is terminated, the balance will be evaluated by management to determine collectability. The balance {8}------------------------------------------------ # **NOTES TO STATEMENT OF FINANCIAL CONDITION** #### JOSEPH GUNNAR & CO., L.L.C. of the loans receivable at December 31, 2020, was \$190,300. The Company has not taken a reserve for possible write-downs of the unsecured balance. # **5. Property and Equipment** Property and equipment consists of the following: | Equipment,
furniture
and
fixtures | \$
1,605,818 | |------------------------------------------------------------|-----------------| | Leasehold
improvements | 787,966 | | | 2,393,784 | | Less
accumulated
depreciation
and
amortization | (2,340,550) | | and
equipment,
Property
net | \$
53,234 | ### **6. Commitments and Contingencies** #### Operating Leases The Company accounts for leases under ASC 842, Leases ("ASC 842"), which requires substantially all leases (with the exception of leases with a term of one year or less) to be recorded on the statement of financial condition using the right-of-use (''ROU") asset approach. The discount rate used to calculate the present value of future minimum lease payments was 5%. The Company leases its New York City office space under an amended operating lease that is due to expire in January 2023. Pursuant to the office lease, the Company is responsible for its annual share of real property taxes and other operating expenses. The Company's CEO/managing member of JGH has issued a limited personal guarantee of certain office lease obligations. In November 2020, the Company leased additional office space in Long Island, New York which expires in 2031. The approximate minimum annual lease payments under the Company's operating lease liabilities together with their present value as of December 31, 2020 are as follows: | 2021 | \$
540,000 | |------------------------------------------------------|-----------------| | 2022 | 745,000 | | 2023 | 312,000 | | 2024 | 281,000 | | 2025 and after | 2,330,000 | | Total payments due under operating lease liabilities | \$
4,208,000 | | Less discount to present value | \$
(768,000) | | Total operating lease liabilities | \$
3,440,000 | | | | The weighted average remaining lease term for the operating leases is approximately 9 years. {9}------------------------------------------------ # Sub-clearing arrangement In October 2017, the Company entered into an agreement with JP Derivatives LLC ("JPD") and the Company's clearing firm, for JPD to introduce its securities business to the Company's clearing firm through a sub-clearing arrangement with the Company. The Company deposited an additional \$350,000 with its clearing firm for the benefit of JPD, which is included in clearing deposit on the accompanying statement of financial condition. JPD has a deposit with the Company for the same amount which is reflected as accounts payable and accrued expenses on the statement of financial condition. # Legal Matters From time to time, the Company may be a respondent in legal actions incidental to its securities business. These cases may allege violations of various securities rules, and claim damages plus the recovery of legal fees and other costs. As of December 31, 2020, the Company does not believe that these matters will have a material adverse effect on the Company's financial condition. # COVID-19 The COVID-19 pandemic has developed rapidly in 2020, with a significant number of cases. Measures taken by various governments to contain the virus have affected economic activity. We have taken a number of measures to monitor and mitigate the effects of COVID-19, such as safety and health measures for our people including social distancing and working from home. At this stage, the impact on our business and results has not been significant and based on our experience to date we expect this to remain the case. We will continue to follow the various government policies and advice and, in parallel, we will do our utmost to continue our operations in the best and safest way possible without jeopardizing the health of our people. # **7. Fair Value Measurements** FASB ASC 820, *Fair Value Measurement*, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. Level 2 Inputs to the valuation methodology include: - quoted prices for similar assets or liabilities in active markets; - quoted prices for identical or similar assets or liabilities in inactive markets; - inputs other than quoted prices that are observable for the asset or liability; {10}------------------------------------------------ ● inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset's or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Following is a description of the valuation methodologies used for assets measured at fair value. *Investments in equity securities including warrants*: Investments in equity securities that are classified as trading securities are recorded at fair value on a recurring basis. When quoted market prices are unobservable, management uses quotes from independent pricing vendors based on independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating and other factors such as credit loss assumptions. The pricing vendors may provide the Company with valuations that are based on significant unobservable inputs, and in those circumstances, the Company classifies the fair value measurements of the investment securities as Level 3. Management conducted a review of its pricing vendor to validate that the inputs used in that vendor's pricing process are deemed to be market observable or unobservable as defined in the standard. Based on the review performed, management believes that the valuations used in its financial statements are reasonable and are appropriately classified in the fair value hierarchy. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. At December 31, 2020, there were no material investments owned. Significant increases (decreases) in any of the above unobservable inputs would result in significantly lower (higher) fair value measurements. Due to the nature of these investments, current economic conditions, including the volatility of the financial markets, the general level of interest rates, and the general business climate affecting operations of the investees, will impact the fair values of these investments. {11}------------------------------------------------ # Level 3 investments The following table presents a summary of changes in the fair value of the Company's Level 3 investments for the year ended December 31, 2020: | Balance
1,
2020
- January | \$ | - | |-----------------------------------------------------|-------------|-----------| | Value
of
warrants received
as compensation | | 1,916,399 | | compensation
cost awarded
Less: | (1,916,399) | | | Balance
- December
31,
2020 | \$ | - | The significant unobservable input used in the fair value measurement of the Company's warrant revenue and compensation is the volatility factor in the binomial lattice model, and was based on the average monthly volatility of selected peer companies. Increases (decreases) of this input in isolation could result in a lower (higher) fair value measurement. # **8. Related Party Transactions** During 2020, the Company acted as placement agent to the Buttonwood Alpha, Buttonwood Horizon, and Buttonwood Select Opportunities Funds (the "Funds"). Certain members of the Parent own Buttonwood Select Opportunities Management Associates, LLC ("BSOMA"), the manager of the Funds. During 2020, the Company provided Buttonwood Group Advisors ("BGA") with certain facilities and administrative services under an expense-sharing agreement. Certain members of the Parent own BGA, the investment subadvisor to BSOMA. At December 31, 2020 amounts due from BGA were \$218,917, included in accounts receivable. # **9. Financial Instruments With Off-Balance-Sheet Risk** The Company executes, as principal and agent, securities transactions on behalf of its customers. If either the customer or a counterparty fails to perform, the Company may be required to discharge the obligations of the non-performing party. In such circumstances, the Company may sustain a loss if the market value of the security is different from the contract value of the transaction. The Company is engaged in trading and brokerage activities with customers, broker-dealers and other counterparties. In the event counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty. It is the Company's policy to review, as necessary, the credit standing of each of its counterparties. # **10. 401(k) Plan** The Company offers a 401(k) retirement plan which allows eligible employees to allocate up to 15% of their pre-tax earnings to the plan. The Company, under its safe harbor plan, contributes 3% of gross earnings to the plan for eligible non-highly compensated employees. {12}------------------------------------------------ # **Net Capital Requirement** The Company is subject to the Securities and Exchange Commission Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum regulatory net capital, and requires that the ratio of aggregate indebtedness to regulatory net capital, both as defined, shall not exceed 15 to 1. At December 31, 2020, the Company had regulatory net capital of \$1,776,071 which exceeded its requirement of \$214,598 by \$1,561,473. The ratio of aggregate indebtedness to net capital was 1.81 to l. # **11. Subsequent Events** The Company has evaluated its subsequent events through the date that the accompanying statement of financial condition was available to be issued. There were no subsequent events requiring disclosure. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.