# BAY CREST PARTNERS, LLC X-17A-5 (2023-03-31) — Broker-dealer annual report
- Company: BAY CREST PARTNERS, LLC
- Form: X-17A-5
- Filed: 2023-03-31
- Period: 2022-12-31
- Accession: 0001005393-23-000002
- CIK: 1005393
- File #: 8-48931
- Type: Broker-dealer
- Material weakness: No
- Auditor: WithumSmithBrown
- Auditor location: Whippany, NJ
- Contact: Alan Borrelli
- Phone: 9176472251
- Email: aborrelli@baycny.com
- Website: baycny.com
- Signed by: William Mulligan (Managing Member)
Original filing: https://www.sec.gov/Archives/edgar/data/1005393/000100539323000002/BayCrest-Public-2022.pdf
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
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## **ANNUAL REPORTS FORM X-17A-5 PART** Ill
| SEC FILE NUMBER | |
|-----------------|--|
| 8-48931 | |
FACING PAGE
Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934
| FILING FOR THE PERIOD BEGINNING O 1/01/2022 | AND ENDING 12/31/2022 | |
|---------------------------------------------|-----------------------|--|
|---------------------------------------------|-----------------------|--|
MM/DD/VY
MM/DD/VY
A. REGISTRANT IDENTIFICATION
# NAMEOFFIRM, **Bay Crest Partners, LLC**
TYPE OF REGISTRANT {check all applicable boxes):
~Broker-dealer D Security-based swap dealer D Major security-based swap participant D Check here if respondent ls also an OTC derivatives dealer
ADDRESS ]F PR!NCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.)
# **40 Wall Street 42nd Floor**
| | (No. and Street) | | |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------|-----------------|----------------------------------------------|
| New York | NY | | 10005 |
| (City) | (State) | | (Zlp Code) |
| PERSON TO CONTACT WITH REGARD TO THIS FILING | | | |
| Alan Borrelli CPA,CFA,CAIA | (917) 64 7-2251 | | aborrelli@baycny.com |
| (Name) | (Area Code-Telephone Number) | (Emal! Address) | |
| | B. ACCOUNTANT IDENTIFICATION | | |
| WithumSmith+Brown PC
200 Jefferson Park, Suite 400 | (Name - if individual, state last, first, and middle name)
Whippany | NJ | 07981 |
| (Address) | (City} | (State) | (Zip Code) |
| | | 100 | |
| l"
of Registcatioo with PCAOBllif ,oolicablel | | | IPCAOB Registcatioo Nombec, ,r applicable) I |
| | FOR OFFICIAL USE ONLY | | |
| | | | |
| * Claims for exemption from the requirement that the annual reports be covered by the reports of an independent publlc
accountant must be supported by a statement of facts and circumstances relied on as the basis of thu exemption. See 17 | | | |
CFR 240.17a-S(e)(1)(ii), lf applicab!e.
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 numbor.
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| A w HITTC+ by Back and Person of Carl | Swear (or artirm) that, to the best of the person and penel, the | |
|------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|-------|
| financial report perfaining to the firm of Bay Crest gammers, LLC | | as pr |
| 12/31 | 2 !! is true and correct. I further sweat (or affirm) that neither the company not any | |
| partner, officer director, of equivalent përsonas the gase may be, has any propriedary interest in any arcount clies of ely. | | |
| as that of a customer. | | |
| | | |
/j - /! *(/,/(} tl.* 1'~,-1,,U'Jl */(d1, •.. ~--* · · Notai:y public·: ..
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. US:./Ji, CARBONARA
Nol.ary·Public,- Slate' of New '?Oi:lt R!c!9, No..-01CA6S26178. Oi;ia!t{i~'d Iii Kli'IQs County P.ori1m!ssJon·E;,(plr~s.J1Jne 15, 2023
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FINANCIAL STATEMENT REPORT OF INDEPENDENT REGISTERED l,UBLlC ACCOlJNTING FIRM FOR THE YEAR ENDED DECEMBER 31, 2022
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### FINANCIAL STATEMENTS DECEMBER 31, 2022
| Report of Independent Registered Pub] ic Accounting Firm | |
|----------------------------------------------------------|-----|
| Statement ofFinancial Condition | 2 |
| Notes to Financial Statements | 3-9 |
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### REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Management and Members of Bay Crest Partners, LLC;
#### **Opinion on the Financial Statement**
We have audited the accompanying statement of financial condition of Bay Crest Partners, LLC {the "Company") as of December 31, 2022, and the related notes (collectively referred to as the "financial statement"). ln our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2022, 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.8'. federal securities !aws aild 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 included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond lo 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 2020.
Whippany, NJ March 28, 2023
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### STATEMENT OF FINANCIAL CONDITION DECEMBER 31, 2022
| ASSETS | |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------|
| Cash and Cash Equivalents | \$
5,093,330 |
| Due from Broker | 2,925,865 |
| Commissions Receivable | 5,970,800 |
| Securities owned at fair value | 1,096,309 |
| Other Assets | 161,320 |
| Receivable from Related Party (Note 7) | 91,000 |
| Total assets | \$
15,338,624 |
| LIABILITIES AND MEMBER'S EQUITY
Liabilities:
Accounts Payable and Accrued Expenses (Note 7)
Soft Dollar Payables (Note 2)
Total liabities | \$
8,786,875
611,276
9,398,151 |
| Member's Equity (Note 5) | 5,940,473 |
| Total liabilities and member's equity | \$
15,338,624 |
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#### NOTES TO THE l<"[NANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2022
#### Note l - Nature of business
Bay Crest Partners, LLC (The "Company") is a broker-dealer registered with the Securities & Exchange Commission ("SEC'') for U1e year ended December 31, 2022.
Bay Crest Panners, LLC, a limited liability company, is a New York State company formed in 1993 for the purpose of co11ducting brokerage business and it is a member in good standing with both the CFTC and FINRA for the )'ear ended December 31, 2022.
Freedom Holdings Group, LLC, a limited liability company (The "Panlllt") is a New York State company fonned in 2008 and is the JOO% owner of the Company.
The Company operates under the provisions of Paragraph (k)(2)(ii) of Rule l 5c3-3 of the Securities and Exchange Commission und, accordingly, is exempt from the remaining provisions of that rule. Essentially, the requirements of Parngraph (k)(2)(ii) provide that the Company dears all transactions on behalf of customers on a fully disclosed basis with a clearing broker-dea!cr, and promptly transmits all customer funds and securities to the clearing broker-dealer. The clearing broker-dealer curries all the accounts of the customers and maintains und preserves all related books and records as urc customarily kept bya clearing broker-dealer. In addition the Company is exempt from Footnote 74 of!l1e SEC Release No. 34-70073 adopting ammcndmcnts to 17 C. F. R. 240.17a-5 due to the Company not ca!T)ing ofor for custon1ers, does 1101 carry PAB acconnts {as defined under Rule \5c3-3). and does not direclly or indirectly receive. hold, or otherwise owe funds or securities.
#### Note 2 - Summar)' of Signilic1mt Accounting Po lick~
#### aJ Basis of Presentation
The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP")
#### b) O11c from Clcariug Broker
The Company clears all its brokerage transactions through a broker-dealer on a fully disclosed basis. Due from cl~aring broker amount relates to the transactions. The Company monitors the credit standing of tile clearing organization as deemed necessary. Amounts due from broker are considered by management to he fully collectible.
#### c) Revenue Recognition from Contracts with Customers
The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amoum !hat rctlccts the consideration to which lhe entity expects to he en!l!led *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 eontracl, (c) determine the transaction price, (d) allocate the transaction price lo the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a performance obligation. In detennining the transaction pricll, an entity may include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when !11e uncertainty associated with the variable consideration is resolved.
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The Company enters into contracts with customers with respect to the execution services provided to customers. Customers arc charged a commission each time they enter into a buy or sell transaction. Commissions and related clearing charges arc recorded on a trade date basis because that is when the underlying financial instrument and countcrpartics arc identified, pricing is agreed upon and risks of ownership transfer to the customer.
The Company also permits certain customers to allocate a portion of their commissions to pay for research and other services provided by third party vendors ("soft dollar arrangements"). Soft dollar commissions and related expenses arc recorded when the Company pays an invoice on behalf of its customer.
Contract assets arise when the revenue associated with the contract is recognized prior to the Company's unconditional right to receive payment under a contract with a c;ustomcr (i.e., unbilled receivable) and arc derecognized when it becomes a receivable or the cash is received. There arc no contract assets as of January 1 ,2022 and December 31, 2022.
The Company records placement revenues (which may be in cash and/or securities) at the point in time the placement is complete and the amounts are reasonably determinable and deemed collectible as there arc no significant actions which the Company needs to take subsequent to this date and the purchaser obtains the control and benefit ofthc market offering at that point.
Contract liabilities arise when customers remit contractual cash payments in advance of the Company satisfying its performance obligations under the contact and arc derccognized when the revenue associated with the contact is recognized when the performance obligation is satisfied.
There arc no contract liabilities as of January 1 ,2022 and December 31,,2022.
Other revenue is comprised primarily of trading revenue is not within the scope of ASC 606 since the transactions relate to fianncial instruments and arc within the scope of ASC 825, 11 Financial Instruments. 11
The Company's outstanding accounts receivable balance as of January I, 2022 was \$5,970,800
Disaggregation of revenue, for the year ended December 31, 2022, can be found on the accompanying Statement of Operations. The Company recognizes revenue to depict the transfer of promised goods or services to customers in statement of operations.
The Company segregates its cash in accordance with all regulations and there is a deposit in the soil,dollar bank account account totalling \$349,532 on December 31, 2022.
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#### d) Income Taxes
Income taxes are not payable by, or provided for, the Company. Members arc ta,,;cd individually on their share of the Company earnings for federal and state income tax purposes. The accompany financial statements have been adjusted to provide unicorpo'rated business tax based on Company income, if applicable.
The Company accrued NYC UBT Tax on all premises that are deemed commercial property in NYC. The Company is a single member limited liability company, and is treated as a disregarded entity for federal income tax reporting purposes. 'The Internal Revenue Code ("!RC") provides that any income or loss is passed through to the ultimate beneficial individual member for federal, state, and certain local income taxes. Accordingly, the Company has not provided for income taxes. Management confinns that no election was made as of the date of the financial statements for the Company to be taxed, as a corporation. The Parent is taxed as a partnership and files a conso!odated return.
The Company is a single member limited liability company and accordingly, no provision has h<;en made in the accompanying financial statement for any federal, state, or city income taxes, The Company's sole member is subject to New York City Unincorporated Business Tax ("UBT"), but the Company is a disregarded entity for tax purposes. All revenue and expenses retain their character and pass directly to the Parent's income tax returns. Based on an analysis of the operations of the Broker Dealer a UBT tax accrual was required,
At December 31, 2022, management has determined tharthe Company had no uncertain tax positions that would require fi.ntincial statement recognition. The-determination will always be subject to ongoing-reevaluatioh as facts and circumstances may require. The Company's tax preparers reviewed the Company's tax position and the results from operations and as a result of this review, the Company has determined there were no uncertain tax positions.
#### c) Conccntration(s) of Cash Balances
n1e Company has significant cash balances at financial institutions which throughout the year rcgulal)' exceed the federally insured limit of \$250,000. Any loss incurred or lack of access to such funds could have a significa111 adverse impact on the Company's financial condition , results of operations, and cash flows.
#### Cash and Cash Equivalents
The Company considers demand deposited money market funds to be cash equivalents.
#### g) Risks and Uncertainties
On March !2,, 2023 Signature Bank became insolvent. State regulators closed the bank and the Federal Deposit Insurance Corporation (FDIC) was appointed as its receiver. The Company held deposits with this bank. As a result of the actions by the FDJC the Company's insured and uninsured deposits have been restored.
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#### h) Fair·Value Measurements
The Company carries i(s investments at fair value. ASC 820, Fair Value Measurements and Disclosure, defines fair value as the price that would be 1"1--cClved to sell an asset or paid to transfer a liability (i.e. the "exit price") in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hieracrhy for inputs used in measuring fair value that maximizes the use of obcrvablc inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.
The folr value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 - Fair value derived from unadjusted quoted prices of identical assets in active markets,
Level 2 - Fair value derived from quoted prices of similar assets in active markets, quoted prices for identical or similar assets in markets that are not active and model driven valuations in which all significant inputs are observable in active markets.
Level 3 -Fair value derived from inputs which are not obcrvablc in markets.
#### i) Use of Estim,1tcs
Tlic preparation of financial statements in conformity with U.S GMP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontigcnt assets and liabilities at the date of the financial statements and the reported amounts of revenues aud expenses during the reporting period. Actual rnsuhs could differ from those estimates.
#### j) Subsequent Events
The Company has evaluated events and transactions that occurred etween January l, 2023 and March 28, 2023 which is the date of the financial statements were available to be isucd, for possihlc disclosure aiJd recognition in the financial stalemelits. There-arc no 1naterial subsequent events to report.
#### k) Soft Dollars
The Company has soft dnllar arrangements and commission sharing agreements with customers that fall within the safe harbor provisions of Rule 28(e) of the Secutities Act of 1934. ln these arrangements and agreements, the Company agrees to pay for negotiated amounts ofthird-parLy research services on behalf of customers based on commissions th~ Company will cam for execution of brokerage transactions or revenue from direct sales.
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#### Note 3 - Markertable Securities Owned
The following table represents the Company's fair value hierarchy for those asets and liabilities measured at fair value on a recuITing basis as at December 31, 2022,
Marketa bk securities consist of securities at quoted market values, as illustrated below;
Securitic~ HdMarkets identical assets | Significant Other
Observable Inputs | Signil1cant
Unobcrvablc inputs |
| | Total | | (Level I) | (Level 2) | (Level 3) |
| Equities | \$ | 49,600 Food & Beverages | \$
49,600 | -
\$ | -
\$ |
| Equities | \$ | 96,677 Services | 96,677
\$ | | |
| Equities | \$ 251,650 Energy | | \$ 251,650 | | |
| Equities | \$ 265.531 Financial | | \$ 265,53 ! | | |
| Equities | \$ | 152,385 Healthcare | \$
97,923 | | \$ 54,462 |
| Equities | \$ | 34,893 Consumer | \$
34,893 | | |
| Equities | | \$ 245,573 Technology | \$ 245,573 | | |
| Equities | \$1,096,309 | | \$1,041.847 | | \$ 54,462 |
| | | | | | |
#### Note 4 - Fair Vnluc Measurements - Level 3
During the year ended December 31,2022, the Company received common shares in a private company for investment banking *I* advisory sef\•ices. The Company utilized a market approach; subject company transaction method that calculates the implied total value ofan enterprise by accounting for all share class rights and preferences, as of the dale of the latest financing, In order to determine the value of the company's shares, the private company recently closed round of financing was used, whereby the Company sold shares of Class B Preferred for \$2.91 per share. The tota! equity value implied by this transaction was then apf!licd in the context ofan option pricing model to detenninc the value of each class of the private company's shares, The Company determined !he fair value to be \$1, 10 per common share. The company distributed 80% of the common shares awarded to the employees that were directly associated with the transaction,
| Inputs | |
|----------------------------------------------------------|--------------------------------------------|
| | (Initial Measurement)
December 31, 2022 |
| Risk-free interest rate | 2.73% |
| Expected term remaining (years) | J |
| Volatility used in model | 100% |
| Share price | 2.91 |
| Fully Marketable value | 2 |
| Discount for lack ofmarkctabi!ity | 45% |
| | Non Marketable Security |
| Fair Value as of December 3 !. 2021 | \$ |
| Initial measurement on December 12. 2022 | 272,3)0 |
| Level 3 Securities transfer of compensation to employees | {217,848) |
| Fair Value as of December 31, 2022 | 54,462 |
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#### Note 5 - Profit Sharing
T11e Company maintains a defined contribution plan covering substantially all employees. The Company contributes annually at the discretion ofmanagemcnl. The Company's maximum contribution is·5% oflhe eligible compensation. There was no profit sharing contribution for 2022. Tht're,was no balance outstanding as of December 31, 2022.
#### Note 6 - Financial Statements with OIT-Balance Sheet Credit Risk
As a securities broker, the Company is cngacd in buying and selling securities for a diverse group of institutional and individual investors. The Company introduces these transactions for clearance to another broker-dealer on a fnliy disclosed basis.
The Company's exposure to credit risk associated with nou-pcrformancc of customers in fulfilling their contractual obligations pursuant to securities trausactions can be directly impacted by volatile trading markets which may impair customer's ability to honor their obligations to the-Company, and the Company's ability to liqudate the collateral at an amount equal to the original contractual amount. The agreement between the Company and its clearing broker provides that the Company is obligated to assume any exposure related to such uon-performancc by its customers. The Company records trading in securities and the related expenses on a trade-date basis.
The Company ~eeks to control the aforementioned risks by requiring customers to maintain margin collateral with tl1e clearing broker in compliance with various regnlatory requirements and the clearing brokc:t's internal guidelines. The Company monitors its customers actively be reviewing information it receives from its cleariug br6ker on a daily basis, and requiring customers to deposit additional collateral, or reduced positions, where necessary.
Effective Jauuary !, 2020, the Company adopted ASC Topic 326, Financial Instruments - Credit Losses ("ASC 326"). ASC 326 impacts the impaimient model for certain fiuancial assets measured at amortized cost by requiring a current expected credit loss ("CECI.") methodology to estimate expected credit losses over the entire life of the financial asset, recorded at inception or purchase. Under the accounting codification, the Company has the ability to determine there are no expected credit losses in certain circumstances.
#### Fees Reteivable
Fees receivable are carried at the amounts billed to customers, net ofan allowance for credit losses. which is an estimate for credit losses based on a review of all outstanding amounts.
#### Allowaucc fo1· Creliit Losses
The Company identifies fees receivable carried at amortized cost as impacted by new guidance. ASC 326 specifies that the Company adopt the new guidance prospectively hy means ofa cumulative-effect adjustment to'thc opening retained earnings as oflhe beginning of the first reporting period effective. The Company believes there is no impact to opening member's equity upon adoption of ASC 326.
The allowance of credit losses is based on the Company's cxpcc1ation of the colectibility of financial instrnmcms carried at ammortized cost. includiug fees rccei,·able ntilizing tile CECL framework. The Company considers factors such as historical experience. credit qualily, age ofbat!anccs, and current and futmc cc,momic conditions that may affect the Company's expectation of tile collectibility in detcnnining the allowance for credit losses. The Company's expectatiou is that the credit risk associated with fees receivables is not significant until they arc 90 days past due on the contractual arrangement and expectation of collection in accordance with industry standards Management does 1101 believe that an allowance is required as of December 31, 2022.
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#### Note 7 - Related Party Transactions
For the year ended December 31, 2022 the Company paid service fees in the amount of\$4, 175,000 to Freedom Holdings, LLC, for general operating expenses of the hlllding company in addition to guarenteed paymenl~ to partners. As ofDecemlmr 31, 2022, the Company lrns two current outstanding loans to two employees of the Compally in the anmunt of \$91,000. These are to be paid back to the Company at its sole discretion. These loans were granted on Dcccmlmr 1 & December 2. 2022.
#### Note 8 - Net Capll:11 Requirement
The Company is subject to the Securities and Exchange Commission Unifonn Net Capital Rule (15c3-I) which requires the maintenance ofminimu111 net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 1506%, At December 31, 2022 the Company had Ncl Capital of\$3,034,973 which was \$2,,!08,029 in excess of its required net capital of\$626,543. The Company's net capital ratio was 309%.
#### 1':utc *9* - Subsequent Ennis
The Company evaluated subsequent events and transactions that occurred after the balance·shect date up to March 28, 2023, the date the financial statements were available to be is~ued and has concluded that all such events, that would require recognition or disclosure have been recognized or disclosed,
'
Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.