# STERLING SMITH CORPORATION X-17A-5 (2021-02-26) — Broker-dealer annual report - Company: STERLING SMITH CORPORATION - Form: X-17A-5 - Filed: 2021-02-26 - Period: 2020-12-31 - Accession: 0000938401-21-000001 - CIK: 938401 - File #: 8-48058 - Material weakness: No - Auditor: EEPB - Auditor location: Houston, TX - Contact: Sterling R. Smith - Phone: 713861-6500 - Signed by: Sterling R. Smith (CFO/President) Original filing: https://www.sec.gov/Archives/edgar/data/938401/000093840121000001/fixed2audit2020.pdf --- {0}------------------------------------------------ Sterling Smith Corporation December 31, 2020 Financial Statements ![](_page_0_Picture_3.jpeg) {1}------------------------------------------------ **UNITED STATES SECURITIESANDEXCHANGECOMMISSION Washington, D.C. 20549** 0MB APPROVAL 0MB Number: 3235-0123 Expires: October 31 , 2023 Estimated average burden hours per response ... . . . 12.00 # **ANNUAL AUDITED REPORT FORM X-17 A-5 PART Ill** | | SEC FILE NUMBER | |---------|-----------------| | 8-48058 | | **FACING PAGE** **Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a-5 Thereunder** | REPORT FOR THE PERIOD BEGINNING_ | _____
0""'l""'"/0"""I"'"' /2=0'--_ | AND ENDING _ | __
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_ _ | |--------------------------------------------------------------------------|---------------------------------------------------------------------|--------------------------|--------------------------------------------------| | | MM/DD/VY | | MM/DD/VY | | | A. REGISTRANT IDENTIFICATION | | | | Sterling Smith Corporation
NAME OF BROKER-DEALER: | | I
OEEICIAI IISE Q~I y | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | FIRM 1.0. NO. | | | | 4326A Scotland | | | | | (No. and Street) | | | | Houston | Texas | | 77007 | | (City) | (State) | | (Zip Code) | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT | | | | | Sterling R. Smith | | | {713) 861-6500
{Area Code - Telephone Number) | | | | | | | | B. ACCOUNTANT IDENTIFICATION | | | | INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report* | | | | | | EEPB, P.C. | | | | | (Name - if individual, state last. first, middle name) | | | | | | | | | 2950 North Loop West, S ite #1200 | Houston | Texas | 77092 | | (Address) | (City) | (State) | (Zip Code) | | CHECK ONE: | | | | | Certified Public Accountant | | | | | ~
Public Accountant | | | | | | Accountant not resident in United States or any of its possessions. | | | | □ | FOil OFFICIAL USE ONLY | | | | | | | | | | | | | | | | | | *\*Claims for exemption from the requirement that the annual report be covered by the opinion of an independent public accountant must be supported by a statement of f acts and circumstances relied on as the basis f or the exemption. See Section 240. / 7a-5(e)(2)* > Poten tial persons who are to respond to the collection of infor m ation contained in this form arc not required to respond unle~s the form displays a currently va lid 0MB control number. {2}------------------------------------------------ ### **OATH OR AFFIRMATION** I, - --- - -=Sc..:.te=.:....:rl.:..:.in.:..::gi-,...R-'-'.--'S~m...,\_,i"'"th..,\_\_ \_\_\_\_\_\_\_\_\_\_\_ \_\_\_ \_,, swear (or affirm) that, to the best of my knowledge and belief the accompanying fin ancial statement and supporting schedules pertaining to the fi rm of \_ \_ \_\_\_ S~t=e-'-'- rl"'"' in""g......:S=m..:....:..:.. ith Corporation , as of February 26 , 20 21 , are true and correct. I further swear (or affirm) that neither the company nor any partn er, proprietor, principal officer or director has any proprietary interest in any account classified solely as that of a customer, except as fo llows: ![](_page_2_Picture_3.jpeg) Sta t e o f Texas Count y of Harris <\ 0 ( ~ e\_\_\_ *e,* ,:,.,~- Notary Public CFO / President Title Th is report \*\* contains (check all app licable boxes): - @ (a) Facing Page. - **lid** (b) Statement of Financial Conditi on. - @ (c) Statement of Income (Loss) or, if there is other comprehensive income in the period(s) presented, a Statement Of Comprehensive Income (as defined in §210. 1-02 of Regulation **S-X).** - Ix] (d) Statement of Changes in Financial Condition. - 1K] (e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. - O (f) Statement of Changes in Liabi I ities Subordinated to Claims of Creditors. - ~ (g) Computation of Net Capital. - @ (h) Computation for Determination of Reserve Requirements Pursuant to Rule I 5c3-3. - @ (i) Information Relating to the Possession or Contro l Requirements Under Rule I 5c3-3. - 0 U) A Reconciliation, includ.ng appropriate explanation of the Computation of Net Capita l Under Ru le l 5c3- I and the Computation for Determination of the Reserve Requirements Under Exh ibit A of Ru le l 5c3-3. - 0 (k) A Reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods of consolidation. - £] (I) An Oath or Affirmation. - Ix) (m) A copy of the SIPC Supplemental Report. - 0 (n) A report describing any material inadequacies fo und to exist or fo und to have existed since the date of the previous audit. ~ Exemption Report - ~ Report of Independent Registered Public Accounting Firm \*\* *For conditions of confidential treatment of certain portions of this filing, see section 240. ! 7a-5(e)(3).* {3}------------------------------------------------ FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION DECEMBER 31, 2020 {4}------------------------------------------------ # **CONTENTS** | | PAGE
NUMBER | |-----------------------------------------------------------------------------------------------------------------------|----------------| | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 3 | | | FINANCIAL STATEM
ENTS | | | STATEMENT OF FINANCIAL CONDITION .4 | | | STATEMENT OF INCOME 5 | | | STATEMENT OF s··ocKHOLDER'S EQUITY 6 | | | STATEMENT OF C ASH FLOWS 7 | | | NOTES TO FINANCIAL STATEMENTS 8 -14 | | | FORMATION
SUPPLEMENTAL IN | | | COMPUTATION OF NET CAPITAL 15 | | | EXEMPTION REPORT 16 | | | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 17 | | | INDEPENDENT ACCOUNTANTS' REPORT ON APPL YIN,G AGREED UPON
ENTITY'S SIPC A
PROCEDURES RELATED TO AN
SSESSMENT | | | RECONCILIATION 18 | | | GENERAL ASSESSMENT RECONCILIATION (FORM SIPC-7)
19-20 | | {5}------------------------------------------------ ![](_page_5_Picture_0.jpeg) #### REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To Management of Sterling Smith Corporation #### **Opinion on the Financial Statements** We have audited the accompanying statement of financial condition of Sterling Smith Corporation as of December 31, 2020, the related statements of income, changes in stockholder's equity, and cash flows for the year then ended, and the related notes and schedules (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Sterling Smith Corporation as of December 31 , 2020, 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 Sterling Smith Corporation's management. Our responsibility is to express an opinion on Sterling Smith Corporation'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 Sterling Smith Corporation 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. #### **Auditor's Report on Supplemental Information** The Computation of Net Capital has been subjected to audit procedures performed in conjunction with the audit of Sterling Smith Corporation's financial statements. The supplemental information is the responsibility of Sterling Smith Corporation management. Our audit procedures included determining whether the supplemental information reconciles 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 supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity witr 17 C.F.R. §240.1 ?a-5. In our opinion, the Computation of Net Capital is fairly stated, in all material respects, in relation to the financial statements as a whole. EEPB We have served as Sterling Smith Corporation's auditor since 1995. Houston, Texas February 23, 2021 {6}------------------------------------------------ # STERLING SMITH CORPORATION STATEMENT OF FINANCIAL CONDITION DECEMBER 31, 2020 ### ASSETS | Cash and cash equivalents, unrestricted | \$
490,639 | |----------------------------------------------|-----------------| | Cash held with clearing broker | 701,216 | | Deposits held by clearing broker, restricted | 250,000 | | Prepaid expenses | 2,973 | | Securities. at market value | 1,429,518 | | TOTAL ASSETS | \$
2,874,346 | #### LIABILITIES AND STOCKHOLDER'S EQUITY | LIABILITIES | | |-------------------------------------------------------------------------------------------------------------------------|-----------------| | Accounts payable and accrued expenses | \$
11,906 | | STOCKHOLDER'S EQUITY
Common stock with par value of \$.01 per share,
50,000,000 shares authorized, 100,000 issued | | | and outstanding | 1,000 | | Additional paid-in capital | 315,200 | | Retained earnings | 2,546,240 | | TOTAL STOCKHOLDER'S EQUITY | 2,862,440 | | TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | \$
2,874.346 | {7}------------------------------------------------ #### STATEMENT OF INCOME #### FOR THE YEAR ENDED DECEMBER 31 2020 #### REVENUES | Gains on firm securities trading
Placement revenue
Interest | \$
1,961,661
52,432
71,447 | |---------------------------------------------------------------------------------------|-------------------------------------------| | TOTAL REVENUES | 2,085,540 | | EXPENSES | | | Commissions
Clearing broker fees
Office and other operating expenses
Payroll | 1,676,653
164,346
80,665
138,627 | | TOTAL EXPENSES | 2,060,291 | | NET INCOME | \$
25,249 | {8}------------------------------------------------ # STERLING SMITH CORPORATION STATEMENT OF STOCKHOLDER'S EQUITY FOR THE YEAR ENDED DECEMBER 31, 2020 | | Common
Stock | Additional
Paid-in
Capital | Retained
Earnings | Total | |-----------------------------------|-----------------|----------------------------------|----------------------|-----------------| | BALANCE, DECEMBER 31, 2019 | \$ 1,000 | \$
315,200 | \$
2,620,991 | \$
2,937,191 | | Distributions paid to stockholder | | | (100,000) | (100,000) | | Net income | | | 25,249 | 25,249 | | BALANCE, DECEMBE~ 31 , 2020 | \$ 1,000 | \$
315,200 | \$
2,546,240 | \$
2,862,440 | {9}------------------------------------------------ #### STATEMENT OF CASH FLOWS #### FOR THE YEAR ENDED DECEMBER 31, 2020 ### CASH FLOWS FROM OPERATING ACTIVITIES | Net income | \$
25,249 | |--------------------------------------------------------------------------------------|------------------------------| | Adjustments to reconcile net income to net
cash provided by operating activities: | | | Changes in working capital: | | | (Increase) decrease in cash related to changes in assets: | | | Cash held wi th clearing broker
Prepaid expenses
Securities | 72,578
(117)
(301,554) | | Decrease in cash related to changes in liabilities: | | | Accounts payable and accrued expenses | (266,601) | | NET CASH USED IN OPERATING ACTIVITIES | (470,445) | | CASH FLOWS FROM INVESTING ACTIVITIES | | | CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholder | (100,000) | | NET DECREASE 11\1 CASH AND CASH EQUIVALENTS | (570,445) | | CASH AND CASH EQUIVALENTS, beginning of year* | 1,061 ,084 | | CASH AND CASH EQUIVALENTS, end of year* | \$
490,639 | | INTEREST PAID | \$ | | TAXES PAID | \$ | | | | \* Amounts do not include cash and deposits held with clearing broker. {10}------------------------------------------------ # STERLING SMITH CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2020 # NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES # Organization STERLING SMITH CORPORATION, a Texas corporation (the "Company"), was formed on January 25, 1995. The Company was formed for the purpose of conducting business as a broker/dealer in securities. The Company is registered with the Securities and Exchange Commission ("SEC") as a broker/dealer in securities under the Securities Exchange Act of 1934 and the Financial Industry Regulatory Authority ("FINRA"). The Company clears its proprietary and customer transactions through another brokerdealer on a fully disclosed basis. # Cash and Cash Equivalents For the purposes of the statement of cash flows, the Company considers cash and highly liquid investments with maturities of three months or less when purchased to be cash and cash equivalents. ## Deposits Held by Clearing Brokers Under the terms of the Clearing Agreement between the Company and Pershing, LLC ("Pershing"), the Company is required to maintain a certain level of cash on deposit with Pershing, which amounted to \$250,000 at December 31, 2020. Should Pershing suffer a loss due to a failure of the Company's customer to complete a transaction, the Company is required to indemnify Pershing to the extent of such loss. As of December 31, 2020, there were no amounts owed to this clearing broker nor did the Company incur a loss during the year ended December 31, 2020 due to a customer's failure to complete a transaction. ## Marketable Securities Marketable securities owned are recorded at market value as of the balance sheet date. The difference between cost and market value is included in income. The Company classifies marketable securities owned as trading securities. It is the Company's policy to classify debt and equity securities with readily determinable fair values as trading securities and report them on the balance sheet at fair value if they are purchased and held principally for the purpose of selling them in the near term. ## Securities Transactions Proprietary securities transactions are recorded on a trade date basis. Profit and losses arising from all securities transactions entered into for the account and risk of the Company are recorded on a trade date basis. Accounts receivable and payable for securities transactions that have not reached their contractual settlement date are recorded in the statement of financial condition. {11}------------------------------------------------ #### NOTES TO FINANCIAL STATEMENTS ## NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Marketable securities, including derivative financial instruments, are recorded at market value based on the closing price on nationally traded exchanges at the balance sheet date. Securities not readily marketable are valued at fair value as determined by management. As of year end, there were no positions open on derivative financial instruments. #### Revenue Recognition The Company accounts for revenue under ASC 606- Revenue from Contracts with Customers (ASC 606). ASC 606 supersedes previous revenue recognition requirements in ASC 605 and includes a fivestep revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration in exchange for those goods or services. Companies will apply the following five steps in determining the amount of revenues to recognize: (i) identify the contract; (ii) identify the performance obligations in the contract; (iii) detmmine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the performance obligation is satisfied. Each of these steps involves management's judgment and an analysis of the material terms and conditions of the contract. The Company's revenues are earned primarily from the sale of trading fixed income securities to counterparties. Revenues are recognized as securities are sold on a trade date basis (the date that the Company fills the trade order by finding and contracting with a counterparty and confirms the trade with the counterparty). The Company believes that the performance obligation is satisfied on trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon and the risks and rewards of ownership have been transferred to/from the counterparty. Placement revenue includes a placement fee the Company charged to a broker dealer. The Company entered into an agreement to buy and sell the issue of Mexican bank paper for a placement fee. Revenue was recognized on the trade date. #### Income Taxes The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay federal corporate income taxes on its taxable income. Instead, the stockholder is liable individually for federal income taxes arising from the Company's income. Accordingly, no provision has been made for federal income tax in the accompanying financial statements. The Company is subject to the Texas Gross Margin Tax. The Texas Gross Margin Tax generally is calculated as one percent of gross margin, as defined. No tax is due for the year ended December 31, 2020. {12}------------------------------------------------ # NOTES TO FINANCIAL STATEMENTS #### NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) # Use of Estimate~~ The preparation of financial statements in conformity with accounting principles generally accep1ed in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of support and revenues and expenses during the reporting period. Actual results could differ from those estimates. # Foreign Currency Transactions As an agent, in the normal course of business, the Company enters into securities transactions which are denominated in foreign currencies, primarily the Mexican peso. Realized and unrealized foreign currency gains and losses on such transactions are recorded in income in the period they are incurred. There was a \$22,010 net realized foreign currency loss recorded in 2020. # NOTE 2: NET CAPITAL REQUIREMENTS The Company is subject to the Securities and Exchange Commission Uniform Net Capital Rule (SEC Rule 15c3-1 ), which requires the maintenance of minimum net capital of \$100,000 (including subordinated indebtedness) and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. At December 31, 2020, the Company had net capital, as defined, of \$2,381,784, which was \$2,281,784 in excess of the required minimum net capital of \$100,000. The Company's ratio of aggregate indebtedness was 0.0 to 1 at December 31, 2020. The Company is currently in compliance with these requirements. # NOTE 3: SECUl~ITIES The Company has adopted FASB Accounting Standards Codification Topic 820-10, "Fair Value Measurements", for all financial assets and liabilities. ASC 820-10 provides standards and disclosures for assets and liabilities that are measured and reported at fair value. As defined in ASC 820-10, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). ASC 820-10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories: {13}------------------------------------------------ ### NOTES TO FINANCIAL STATEMENTS #### NOTE 3: SECURITIES (Continued) Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2: Measured based upon inputs that are observable, either directly or indirectly, for the asset or liability other than quoted market prices included in Level 1. These inputs include: a) quoted prices for similar asset or liabilities in active markets b) quoted prices for identical or similar assets or liabilities in markets that are not active c) inputs other than quoted market prices that are observable and d) inputs that are derived primarily from or corroborated by observable market data by correlation or other means. Level 3: Measured based on unobservable inputs for the asset or liability for which there is little, if any, market activity for the asset or liability at the measurement date. This input includes management's own assumptions about the assumptions that market participam:s would use in pricing the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include management's own data. As required by ASC 820-1 0, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31 , 2020: Government, corporate and foreign bonds: Valued using various techniques which may consider recently executed transactions of the issue or comparable issues, market price quotations (where observable), bond spreads, and fundamental date relating to issuer. Warrants: Valued as determined by observable quoted pricing inputs of the related underlying security. {14}------------------------------------------------ ## NOTES TO FINANCIAL STATEMENTS #### NOTE 3: SECURITIES (Continued) The following table summarizes the valuation of the Company's financial instruments by ASC 820-10 pricing levels as of December 31, 2020: | | Quoted prices in
active markets
for identical
assets {Level 1) | Other
observable
Inputs
{LeveI2) | Unobservable
Inputs
{Level 3) | Fair value at
December 31, 2020 | |---------------------|-------------------------------------------------------------------------|-------------------------------------------|-------------------------------------|------------------------------------| | United States | | | | | | Government Bonds | \$
1,140,955 | \$ | \$ | \$
1,140,955 | | Mexico | | | | | | Corporate Bonds | | 417 | | 417 | | Argentina | | | | | | Government Bonds | | 59,594 | | 59,594 | | Honduras | | | | | | Corporate Bonds | | 226,052 | | 226,052 | | Venezuela | | | | | | Detachable warrants | | 2,500 | | 2,500 | | Total | \$
1,140,955 | \$
288,563 | \$ | \$
1,429,518 | The bonds mature at various dates, ranging from January 2021 to March 2024. ## NOTE 4: CONCENTRATIONS The Company's business consists primarily of trading fixed income securities of non-U.S. issuers, which generally have higher yields than U.S. issuers. Management believes that current economic conditions are conducive for continued demand for these securities and the Company's services. The Company emgages in trading activity and maintains securities in which counterparties include other broker-dealers and financial institutions. In the event the counterparties do not fulfi ll their obligations, the Company may be exposed to certain risks. It is the policy of the Company to consider the creditworthiness of each counterparty, as necessary. {15}------------------------------------------------ # NOTES TO FINANCIAL STATEMENTS #### NOTE 5: COMMITMENTS AND CONTINGENCIES The Company executes securities transactions on behalf of its customers and counterparties. 11 either the customer or the counterparty fails to perform, the Company may be required to discharge the obligation of the nonperforming party. In such circumstances, the Company may sustain a loss if the market value of the security contract is different from the contract value of the transaction. The Company does not expect nonperformance by customers or counterparties. The Company clears all of its securities transactions through a clearing broker (Pershing LLC) on a fully-disclosed basis. Pursuant to the terms of the agreement between the Company and the clearing broker, the clearing broker has the right to charge the Company for losses that result from a counterparty's failure to fulfill its contractual obligations. As the right to charge the Company has no maximum amount and applies to all trades executed through the clearing broker, the Company believes there is no maximum amount assignable to this right. At December 31, 2020, the Company did not have any recorded liabilities with regard to the right. During 2020, the Company did not pay the clearing broker any amounts related to these guarantees. The Company's policy is to monitor its market exposure, customer risk, and counterparty risk through the use of a variety of credit exposure reporting and control procedures, including marking-to-market securities and any related collateral as well as requiring adjuf;tments of collateral levels as necessary. In addition, the Company has a policy of reviewing, as considered necessary, the credit standing of each counterparty with which it conducts business. # NOTE 6: UNCERTAIN TAX POSITIONS The Company dicl not have unrecognized tax benefits as of December 31, 2020 and does not expect this to change significantly over the next twelve months. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2020, the Company has not accrued interest or penalties related to uncertain tax positions. The Company's U.S. federal and state tax returns are open to audit under the statute of limitations for the years ended DecBmber 31, 2017 and beyond. ## NOTE 7: SUBORDINATED LIABILITIES The company had no subordinated liabilities at any time during the year ended December 31 , 2020. Therefore, the statement of changes in liabilities subordinated to claims of general creditors has not been presented for the year ended December 31, 2020. {16}------------------------------------------------ # STERLING SMITH CORPORATION NOTES TO FINANCIAL STATEMENTS #### NOTE 8: SUBSEQUENT EVENTS Subsequent events were evaluated from January 1, 2021 through February 23, 2021, which is the date the financial statements were available to be issued. No reportable subsequent events were noted. {17}------------------------------------------------ # SUPPLEMENTAL INFORMATION {18}------------------------------------------------ # STERLING SMITH CORPORATION COMPUTATION OF NET CAPITAL DECEMBER 31, 2020 Net capital computation: | Stockholder's equity | \$
2,862,440 | |-------------------------------------------------------------------------------------|-----------------------| | Non-allowable assets
Haircuts on marketable securities, including concentrations | (449,878)
(30,778) | | Net capital pursuant to SEC Rule 15c3-1 | 2,381,784 | | Net capital required | (100,000) | | Excess capital | \$
2,281
,784 | | Net capital required based on leverage: | | | Aggregate indebtedness | \$
11,906 | | Total capital required based on 6 2/3% of liabilities | \$
794 | Under its current aweement with the FINRA, the Company is required to maintain net capital of \$100,000. ### STATEMENT PURSUANT TO PARAGRAPH (d)(4) OF RULE 17a-5 There is no material difference between this computation of net capital pursuant to Rule 15c3-1 and the corresponding computation prepared by Sterling Smith Corporation and included in the Company's unaudited Part II A FOCUS report filing as of December 31, 2020. # STATEMENT OF OMITTED SUPPLEMENTAL DATA The Computation for Determination of Reserve Requirements Pursuant to Rule 15c3-3 and the Information Relating to Possession or Control Requirements Under Rule 15c3-3 have been omitted because Sterling Smith Corporation is exempt from the requirements of Rule 15c3-3 under condition (k)(2)(ii) by clearing all transactions with and for customers on a fully disclosed basis with a clearing broker or dealer. The conditions of the exemption were being complied with as of December 31, 2020 and no facts came to our attention to indicate that the exemption had not been complied with during the fiscal year ended December 31, 2020. See accompanying independent auditors' report. {19}------------------------------------------------ **~ttrliug ~mifq** **Qtorporation** ![](_page_19_Picture_2.jpeg) # **DECEMBER 31, 2020** ### **STERLING SMITH CORPORATION** # **EXEMPTION REPORT** The following statements are made to the best knowledge and belief of Sterling Smith Corporation. as an Introducing Broker Dealer: (i) Sterling Smith Corporation identifies the following provisions in paragraph (k) of Rule 15c3-3 under which Sterling Smith Corporation claimed an exemption from Rule l 5c3-3; the exceptions from the requirements of SEC Rule 15c3-3(k) are as follows: SEC Rule l 5c3-3(k)(2)(ii): Sterling Smith Corporation, who, as an introducing broker or dealer, clears all transactions with and for customers on a fully disclosed basis with our clearing broker/ dealer, Pershing, LLC, and who promptly transmits all customer funds and securities to the clearing broker /dealer which carries all of the accounts of such customers and maintains and preserves such books and records pertaining thereto pursuant to the requirements of Rules 17a-3 and 17a-4, as are customarily made and kept by a clearing broker or dealer. (ii) Sterling Smith Corporation has met the identified exemption provisions in paragraph (k) of Rule l 5c3-3 throughout the most recent fiscal year of January 1, 2020 through December 31, 2020 without exception. Review of Sterling Smith Corporation's policies and procedures comply with the exemption provisions of SEC Rule 15c3-3(k)(2)(ii) in that Sterling Smith Corporation did not receive funds or securities for client accounts during the fiscal year of 2020 of which would be required to be forwarded by overnight courier the same day as received to the clearing firm. *Stert-t::f:f* • 5 ~ President Sterling Smith Corporation {20}------------------------------------------------ ![](_page_20_Picture_0.jpeg) #### REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM #### Mr. Sterling Smith of Sterling Smith Corporation We have reviewed management's statements, included in the accompanying Exemption report, in which (1) Sterling Smith Corporation identified the following provisions of 17 C.F.R. §15c3-3(k) under which Sterling Smith Corporation claimed an exemption from 17 C.F. R. §240.15c3-3: ((2)(ii)) (exemption provisions) and (2) Sterling Smith Corporation stated that Sterling Smith Corporation met the identified exemption provisions throughout the most recent fiscal year without exception. Sterling Smith Corporation's management is responsible for compliance with the exemption provis ons and its statements. 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 Sterling Smith 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 Exchange Act of 1934. EEPB Houston, Texas February 23, 2021 {21}------------------------------------------------ ![](_page_21_Picture_0.jpeg) #### REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON APPL YING AGREED-UPON PROCEDURES Mr. Sterling Smith of Sterling Smith Corporation We have performed the procedures included in Rule 17a-5(e)(4) under the Securities Exchange Act of 1934 and in the Securities Investor Protection Corporation (SIPC) Series 600 Rules, which are enumerated below and were agreed to by Sterling Smith Corporation and the SIPC, solely to assist you and SIPC in evaluating Sterling Smith Corporation's compliance with the applicable instructions of the General Assessment Reconciliation (Form SIPC-7) for the year ended December 31 , 2020. Sterling Smith Corporation's management is responsible for its Form SIPC-7 and for its compliance with those requirements. This agreed-upon procedures engagement was conducted in accordance with standards established by the Public Company Accounting Oversight Board (United States) and in accordance with attestation standards established by the American Institute of Certified Public Accountants. The suffici:mcy of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures we performed and our findings are as follows: - 1) Compared the listed assessment payments in Form SIPC-7 with respective cash disbursement records entries, noting no differences; - 2) Compared the Total Revenue amounts reported on the Annual Audited Report Form X-17A-5 Part Ill for the year ended December 31 , 2020 with the Total Revenue amount reported in Form SIPC-7 for the year ended December 31 , 2020, noting no differences; - 3) Compared any adjustments reported in Form SIPC-7 with supporting schedules and working papers, noting no differences; - 4) Recalculated the arithmetical accuracy of the calculations reflected in Form SIPC-7 and in the related schedules and working papers supporting the adjustments, noting no differences; and - 5) Compared the amount of any overpayment applied to the current assessment with the Form SIPC-7 on which it was originally computed, noting no differences. We were not engaged to and did not conduct an examination or review, the objective of which would be the expression of an opinion or conclusion, respectively, on Sterling Smith Corporation's compliance with the applicable instructions of the Form SIPC-7 for the year ended December 31 , 2020. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of Sterling Smith Corporation and the SIPC and is not intended to be and should not be used by anyone other than these specified parties. EEPB Houston, Texas February 23, 2021 {22}------------------------------------------------ | SIPC-7 | | |-----------------|--| | (36-REV 12/ 18) | | L SECUR ITIES INVESTOR PROTECTION CORPORATION P.O. Box 92185 Washington , D.C. 20090-2 185 202-371-8300 General Assessment Reconciliation ![](_page_22_Picture_3.jpeg) 7 \_J For the fiscal ear ended 12I31 *l2020* y ------------ ( Read carefully the instructions in your Working Copy before completing th is Form) #### **TO BE FILED BY ALL SIPC MEM BERS WITH FISCAL YEAR ENDINGS** 1. Name of Member, address, Designated Examining Authority , 1934 Act registration no . and mon th in which fiscal year ends for purposes of the audit requirement of SEC Rule 1 ?a-5: I Sterling Smith Corporation 4326A Scotland St Houston, TX 77007-7328 SEC# 8-48058 FINRA CRD # 38041 Note: If any of the information shown on the mai ling label requires correction, please e-mail any corrections to form@sipc.org and so indicate on the form fi led. Name and telephone number of person to contact respecting this form. Dianne Pearson (713) 861 -6500 {2,303 0 611 - 2. A. General Assessment (item :!e from page 2) - B. Less payment made with SIPC-6 filed **{exclude interest)** 07/16/20 Date Paid C. Less prior overpayment applied D. Assessment balance due or {overpaym ent) E. Interest computed on late payment (see instruc tion E) fo r \_\_\_\_\_\_ days at 20% per annum 0 F. Total assessmen t balance and interest due {or ove rpayment carried forward) \$ \_\_\_\_\_\_\_\_\_ 611\_ G. **PAYMENT:** ✓ **the box** Check mai led to **P.O. Box D** Funds **Wired** D Total (must **be same as F above) AC Hl2J 611** \$ \_\_\_\_\_\_\_\_\_\_ \_ H. Overpayment carried forwa,d \$( \_\_ 0 \_\_\_\_ \_ 3. Subsidiaries (S) and predecessors {P) included in this form (give name and 1934 Act registration number): | Sterling Smith Corporation | |----------------------------| | | | | | | Thi s form and the assessment payment i s due 60 days af ter the end of the fiscal year. Retain the Working Copy of this form for a period of not less than 6 years, the latest 2 years in an easi ly accessible place. | | ~ Dates : | | | | | |-----------------------------|-----------------------|--------------------------------|----------|---------------------------|-------------------------| | ;s:
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_ | | | ~ Exceptions: | | | | | | | | en Disposition of exceptions : | | | | | | | | | 1 | | {23}------------------------------------------------ ![](_page_23_Picture_0.jpeg) # **DETERMINATION OF "SIPC NET OPERATING REVENUES" AND GENERAL ASSESSMENT** Amounts for the fiscal period beginning \_0\_1\_10\_1\_12\_0 \_\_\_ \_ and ending **... 12...,/3 ... 1..,/2....\_0 \_\_ \_** | Item No.
2a. Total revenue (FOCUS Line 12/Part IIA L ne 9, Code 4030) | Eliminate cents
\$2,085,539 | |--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------| | 2b. Additions:
(1) Total revenues from the securities business of subsidiaries (except foreign subsidiaries) and
predecessors not included above | | | (2) Net loss from principal transactio 1s in securities in trading accounts. | | | (3) Net loss lrom principal transactio 1s in commodities in trading accounts. | | | (4) Interest and dividend expense deducted in determining item 2a. | | | (5) Net loss from management of or participation in the underwriting or distributio n ol securities. | | | (6) Expenses other than advertising, 3rinling, registration fees and legal fees deducted in determining net
profit from management of or participation in underwriting or distribution of securities. | | | (7) Net loss from securities in investnent accounts. | 26,773 | | Total additions | 26,773 | | 2c. Deductions:
( t) Revenues from the distribution of sha re s of a registered open end investment company or unit
investment trust, from the sale of variable annuities, from the business of insurance, from investment
advisory services rendered to registered investment companies or insurance company separate
accounts, and from transactions in security futures products. | | | (2) Revenues from commodity transact ions. | | | (3) Commissions, floor brokerage and clearance paid to other SIPC members in connection with
securities transactions. | 164,346 | | (4) Reimbursements for postage in connection with proxy solicitation. | | | (5) Net gain from securities in investrient accounts. | | | (6) 100% of commissions and markup s earned from transactions in (i) certificates of deposit and
(ii) Treasury bills, bankers acceptances or co mmercial paper that mature nine months or less
from issuance date. | | | (7) Direct expenses of printing advert sing and legal fees incurred in connection with other re venue
related to the securities business (revenue defined by Section 16(9)(L) of the Ac t). | | | (8) Other reve nue not related either directly or indirectly to the securities business.
(See Instruction C): | | | (Deductions in excess of \$100,000 require documentation) | | | (9) (i) Total interest and dividend expense (FOCUS Line 22/PART IIA Line 13,
5 586
Code 4075 plus line 2b(4) above) but not in excess
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of total in terest and dividend income.
,
_
_
\$.
(ii) 40% of margin interest earned on customers securities | ____
_ | | __________
\$
accounts (40% of FOCUS line 5, Code 3960). | _ | | Enter the greater of line (i) or '. ii) | 5,586 | | Total deductions | 169,932 | | 2d. SIPC Net Operating Revenues | \$1,942,380 | | 2e. General Assessment @ .0015 | 2,914
\$========== | | | (to page 1, line 2.A.) | {24}------------------------------------------------ ![](_page_24_Picture_0.jpeg) Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.