# MONARCH CAPITAL GROUP, LLC X-17A-5 (2020-02-28) — Broker-dealer annual report
- Company: MONARCH CAPITAL GROUP, LLC
- Form: X-17A-5
- Filed: 2020-02-28
- Period: 2019-12-31
- Accession: 0001090020-20-000001
- CIK: 1090020
- File #: 8-51911
- Material weakness: No
- Auditor: Berkower LLC
- Auditor location: Iselin, NJ
- Contact: Edward Cohen
- Phone: 2035576070
- Signed by: Michael Potter (Chief Executive Officer)
Original filing: https://www.sec.gov/Archives/edgar/data/1090020/000109002020000001/public.pdf
---
{0}------------------------------------------------
#### STATEMENT OF FINANCIAL CONDITION STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 2019 DECEMBER 31, 2019
> PUBLIC PUBLIC
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UNITED STATES OMB APPROVAL SECURITIESANDEXCHANGECOMMISSION OMB Number: 3235-0123 Washington, D.C. 20549 Expires: August 31, 2020 UNITEDSTATES OMB APPROVAL SECURlTlESANDEXCHANGECOMMISSION OMB Number: 3235-0123 Washington, D.C. 20549 Expires: August 31, 2020
Estimated average burden Estimated average burden
# ANNUAL AUDITED REPORT hoursperresponse...... 12.00 F0TECH): 1ll7lA-5 SEC FILE NUMBER ANNUAL AUDITED REPORT hoursperresponse...... 12.00 F0FIE-(IR): 1' I7IA-5 SEC FILE NUMBER
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FACING PAGE Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a-5 Thereunder FACING PAGE Information Required ofBrokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of1934 and Rule l7a-5 Thereunder
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| A.
A. | IDENTIFICATION
REGISTRANT
REGISTRANT
IDENTIFICATION | | |
| Monarch
OF
NAME
BROKER-DEALER:
Monarch
NAME
BROKER-DEALER:
OF | Capital
Group,
Capital
Group | LLC
LLC
, | OFFICIAL
USE
ONLY
OFFICIAL
USE
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| ADDRESS
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| Avenue,
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, | | | |
| | (No.
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and
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| New
York
York
New | NY
NY | | 10110
10110 |
| (City)
(City) | (State)
(State) | | (Zip
Code)
(Zip
Code) |
| NAME
AND
TELEPHONE
NUMBER
OF
NAME
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NUMBER
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Michael Potter
Michael
Potter | IN
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808-4380
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808-4380 |
| | | | (Area
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| B.
B. | IDENTIFICATION
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ACCOUNTANT
IDENTIFICATION | | |
| INDEPENDENT
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| Berkower
Berkower
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\*C[aimsfor exemptionfrom the requirement that the annual report be covered by the opinion ofan independentpublic accountant must be supported by a statement offacts and circumstances relied on as the basisfor the exemption. See Section 240.1 7a—5(e)(2) \*Claimsfor exemptionfrom the requirement that the annual report be covered by the opinion ofan independentpublic accountant must be supported by a statement offacts and circumstances relied on as the basisfor the exemption. See Section 240.1 7a-5(e)(2)
Potential persons who are to respond to the collection of information contained in this form are not required to respond SEC 1410 (1 1'05) unless the form displays a currently valid OMB control number. Potential persons who are to respond to the collection of information contained in this form are not required to respond SEC 1410 (1 1'05) unless the form displays a currently valid OMB control number.
{2}------------------------------------------------
#### OATH OR AFFIRMATION OATH OR AFFIRMATION
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{3}------------------------------------------------
### REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Sole Member of Monarch Capital Group, LLC To the Sole Member of Monarch Capital Group, LLC
#### Opinion on the Financial Statement Opinion on the Financial Statement
We have audited the accompanying statement of financial condition of Monarch Capital Group, LLC (the "Company") as of December 31, 2019 and the related notes (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, 2019 in conformity with accounting principles generally accepted in the United States of America. We have audited the accompanying statement of financial condition of Monarch Capital Group, LLC (the "Company") as of December 31,2019 and the related notes (collectively referred to asthe "Financial Statement"). In our opinion, the Financial Statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
#### Basis for Opinion Basis for Opinion
This Financial Statement is the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's Financial Statement based on ouraudit. 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 US. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. This Financial Statement is the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's Financial Statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities andExchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require thatwe 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 to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Financial Statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Financial Statement. We believe that our audit provides a reasonable basis for our opinion. We 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 ofthe Financial Statement, 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 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 2018. We have served as the Company's auditor since 2018.
Zia/WM M93¢e M
Berkower LLC Berkower LLC
lselin, New Jersey February 27,2020 lselin, New Jersey February 27, 2020
{4}------------------------------------------------
#### STATEMENT OF FINANCIAL CONDITION STATEMENT OF FINANCIAL CONDITION
#### DECEMBER 31, 2019 DECEMBER 31, 2019
#### ASSETS ASSETS
| Cash
Cash
and
and
cash
cash
equivalents
equivalents | \$1,400,627
1,400,627
\$ |
|------------------------------------------------------------------------------------------------|--------------------------------|
| from
Receivable
clearing
broker
Receivable
from
clearing
broker | 28,663
28,663 |
| Securities
owned,
at
market
value
Securities
owned,
market
value
at | 33,768
33,768 |
| Advisory
Advisory
fees
fees
receivable
receivable | 2,000
2,000 |
| of
of
Right
asset
asset
Right
use
use | 340,356
340,356 |
| Other
Other
assets
assets | 15,720
15,720 |
| TOTAL
TOTAL
ASSETS
ASSETS | \$1,821,134
\$1,821,134 |
#### LIABILITIES AND MEMBER'S EQUITY LIABILITIES AND MEMBER'S EQUITY
| LIABILITIES
LIABILITIES | |
|----------------------------------------------------------------------------------------------------------|------------------------------|
| Accrued
expenses
and
other
liabilities
Accrued
and
other
liabilities
expenses | 59,453
59,453
\$
\$ |
| parent
Due
to
Due
parent
to | 112,631
112,631 |
| Lease
liability
Lease
liability | 340,356
340,356 |
| | |
| TOTAL
TOTAL
LIABILITIES
LIABILITIES | 512,440
512,440 |
| MEMBER'S
EQUITY
MEMBER'S
EQUITY | 1,308,694
1,308,694 |
| LIABILITIES
MEMBER'S
MEMBER'S
EQUITY
EQUITY
TOTAL
TOTAL
LIABILITIES
AND
AND | \$1,821,134
\$1,821,134 |
The accompanying notes are an integral part of this statement. The accompanying notes are an integral part of this statement.
{5}------------------------------------------------
#### NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS
#### FOR THE YEAR ENDED DECEMBER 31, 2019 FOR THE YEAR ENDED DECEMBER 31, 2019
#### 1. ORGANIZATION AND NATURE OF BUSINESS 1. ORGANIZATION AND NATURE OF BUSINESS
Monarch Capital Group, LLC (the "Company") was organized under the Limited Liability Company Law of the State of New York in March 1999. The Company is a registered broker-dealer with the Securities and Exchange Commission and the Financial Industry Regulatory Authority. In this capacity, it executes agency transactions for its customers and forwards all such transactions to Pershing, LLC ("Pershing") the Company's clearing agent, on a fully disclosed basis. In addition, the Company provides advisory services and originates, places, and acts as an agent for private equity, public offerings and bond securities. The Company is a wholly-owned subsidiary of Monarch Holdings, LLC. ("Holdings"). Monarch Capital Group, LLC (the "Company") was organized under the Limited Liability Company Law of the State of New York in March 1999. The Company is a registered broker-dealer with the Securities and Exchange Commission and the Financial Industry Regulatory Authority. In this capacity, it executes agency transactions for its customers and forwards all such transactions to Pershing, LLC ("Pershing") the Company's clearing agent, on a fully disclosed basis.In addition, the Company provides advisory services and originates, places, and acts as an agent for private equity, public offerings and bond securities. The Company is a wholly-owned subsidiary of Monarch Holdings, LLC. ("Holdings").
In the normal course of its business, the Company enters into financial transactions where the risk of potential loss due to changes in market (market risk) or failure of the other party to the transaction to perform (counterparty risk) exceeds the amounts recorded forthe transaction. In the normal course of its business, the Company enters into financial transactions where the risk of potential loss due to changes in market (market risk) or failure of the otherparty to the transaction to perform (counterparty risk) exceeds the amounts recorded for the transaction.
The Company's policy is to continuously monitor its exposure to market and counterparty risk through the use of a variety of financial, position and credit exposure reporting and control procedures. In addition, the Company has a policy of reviewing the credit standing of each broker-dealer, clearing organization, customer and/or other counterparty with which it conducts business. The Company's policy is to continuously monitor its exposure to market and counterparty risk through the useof a variety of financial, position and credit exposure reporting and control procedures. In addition, the Company hasa policy of reviewing the credit standing of each broker-dealer, clearing organization, customer and/or other counterparty with which it conducts business.
The Company introduces its customer transactions to Pershing with whom it has a correspondent relationship forexecution and clearance in accordance with the terms of a clearance agreement. In connection therewith, the Company has agreed to indemnify Pershing for losses that the clearing broker may sustain related to the Company's customers. As of December 31, 2019, amounts were owed to the clearing broker by these customers, which were in connection with normal, delivery-against-payment, cashaccount transactions. After December 31, 2019, all amounts related to such transactions were received from customers. Securities purchased by customers in connection with those transactions are held by the clearing broker as collateral for the amounts owed. The Company introduces its customer transactions to Pershing with whom it has a correspondent relationship for execution and clearance in accordance withthe terms of a clearance agreement. In connection therewith, the Company has agreed to indemnify Pershing for losses that the clearing broker may sustain related to theCompany's customers. As of December 31, 2019, amounts were owed to the clearing broker by these customers, which were in connection with normal, delivery—against-payment, cashaccount transactions. After December 31, 2019, all amounts related to such transactions were received from customers. Securities purchased by customers in connection with those transactions are held by the clearing broker as collateral for the amounts owed.
#### 2. SIGNIFICANT ACCOUNTING POLICIES 2. SIGNIFICANT ACCOUNTING POLICIES
The Company maintains its books and records on an accrual basis in accordance with accounting principles generally accepted in the United States of America The Company maintains its books and records on an accrual basis in accordance with accounting principles generally accepted in the United States of America
{6}------------------------------------------------
### NOTES TO FINANCIAL STATEMENTS (continued) NOTES TO FINANCIAL STATEMENTS (continued)
#### FOR THE YEAR ENDED DECEMBER 31, 2019 FOR THE YEAR ENDED DECEMBER 31, 2019
# 2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
which require management to make estimates and assumptions in determining the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, Actual results could differ from these estimates. which require management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, Actual results could differ from these estimates.
#### Revenue recognition Revenue recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), as subsequently amended that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most recent current revenue recognition guidance, including industryspecific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance also specifies the accounting for certain incremental costs of obtaining a contract, and costs to fulfilla contract with a customer. The Company has elected the modified method (i.e., cumulative method) which did not result in a cumulative-effect adjustment at the date of adoption. The implementation of this new standard had no material impact on the Company's financial statements for the year ended December 31, 2019. In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), as subsequently amended that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most recent current revenue recognition guidance, including industryspecific guidance. The core principle of the revenue modelis that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance also specifies the accounting for certain incremental costs of obtaining a contract, and costs to fulfill a contract with a customer. The Company has elected the modified method (i.e., cumulative method) which did not result in a cumulative-effect adjustment at the date of adoption. The implementation of this new standard had no material impact on the Company's financial statements for the year ended December 31, 2019.
The recognition and measurement of revenue is based on the assessment of individual contract terms. Significant judgment is required to determine whether performance obligations are satisfied at a point in time or over time; how toallocate transaction prices where multiple performance obligations are identified; when to recognize revenue based on the appropriate measure of the Company's progress under the contract; and whether constraints on variable consideration should be applied due to uncertain future events. The recognition and measurement of revenue is based on the assessment of individual contract terms. Significant judgment is required to determine whether performance obligations are satisfied at a point in time or over time; how to allocate transaction prices where multiple performance obligations are identified; when to recognize revenue based on the appropriate measure of the Company's progress under the contract; and whether constraints on variable consideration should be applied due to uncertain future events.
#### Commissions Commissions
Brokerage commissions: The Company buys and sells securities on behalf of its customers. Each time a customer enters into a buy or sell transaction, the Company charges a commission. Commissions and related clearing expenses are recorded on the trade date (the date the Company fills the trade order by finding and contracting with a counterparty and confirms the trade with the customer). The Company believes that the performance obligation is satisfied on the 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 customer. Brokerage commissions: The Company buys and sells securities on behalf of its customers. Each time a customer enters into a buy or sell transaction, the Company charges a commission. Commissions and related clearing expenses arerecorded on the trade date (the date the Company fills the trade order by finding and contracting with a counterparty and confirms the trade withthe customer). The Company believes that the performance obligation is satisfied on the trade datebecause 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 customer.
{7}------------------------------------------------
### NOTES TO FINANCIAL STATEMENTS (continued) NOTES TO FINANCIAL STATEMENTS (continued)
## FOR THE YEAR ENDED DECEMBER 31, 2019 FOR THE YEAR ENDED DECEMBER 31, 2019
# 2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
#### Investment Banking Investment Banking
Underwriting fees: The Company underwrites securities for business entities that want to raise funds through a sale of securities. Revenues are earned from feesarising from securities offerings in which the Company acts as an underwriter. Revenue is recognized on the trade date (the date on which the Company purchases the securities from the issuer) for the portion the Company is contracted to buy. The Company believes that the trade date is the appropriate point in time to recognize revenue forsecurities underwriting transactions as there are no significant actions which the Company needs to take subsequent to this date and the issuer obtains the control and benefit of the capital markets offering at that point. Underwriting fees: The Company underwrites securities for business entities that want to raise funds through a sale of securities. Revenues are earned from fees arising from securities offerings in which the Company acts as an underwriter. Revenue is recognized on the trade date (thedate on which the Company purchases the securities from the issuer) for the portion the Company is contracted to buy. The Company believes that the trade dateis the appropriate point in time to recognize revenue for securities underwriting transactions as there are no significant actions which the Company needs to take subsequent to this date and the issuer obtains the control and benefit of the capital markets offering at that point.
Underwriting costs that are deferred under the guidance in FASB ASC 940-340-25-3 are recognized in expense at the time the related revenues are recorded. In the event that transactions are not completed and the securities are not issued, the Company immediately expenses those costs. Underwriting costs that are deferred under the guidance in FASB ASC 940-340-25-3 are recognized in expense at the time the related revenues arerecorded. In the event that transactions are not completed and the securities are not issued, the Company immediately expenses those costs.
M&A advisory fees: The Company provides advisory services on mergers and acquisitions (M&A). Revenue for advisory arrangements is generally recognized at the point in time that performance under the arrangement is completed (the closing date of the transaction) or the contract is cancelled. However, for certain contracts, revenue is recognized over time foradvisory arrangements in which the performance obligations are simultaneously provided by the Company and consumed by the customer. In some circumstances, significant judgment is needed to determine the timing and measure of progress appropriate for revenue recognition under a specific contract. Retainers and other fees received from customers prior to recognizing revenue are reflected as contract liabilities. At December 31, 2018, all amounts were immaterial. M&A advisory fees: The Company provides advisory services onmergers and acquisitions (M&A). Revenue for advisory arrangements is generally recognized at the point in timethat performance under the arrangement is completed (the closing date of the transaction) orthe contract is cancelled. However, for certain contracts, revenue is recognized over time for advisory arrangements in which the performance obligations are simultaneously provided by the Company and consumed by thecustomer. In some circumstances, significant judgment is needed to determine the timing and measure of progress appropriate for revenue recognition under a specific contract. Retainers and other fees received from customers prior to recognizing revenue are reflected as contract liabilities. At December 31, 2018, all amounts were immaterial.
Investment advisory fees: The Company provides investment advisory services on a daily basis. The Company believes the performance obligation for providing advisory services is satisfied over time because the customer is receiving and consuming the benefits as they are provided by the Company. Fee arrangements are based on a percentage applied to the customer's assets under management. Fees are received quarterly and are recognized as revenue at that time as they relate specifically to the services provided in that period, which are distinct from the services provided in other penods. - Investment advisory fees: The Company provides investment advisory services on a daily basis. The Company believes the performance obligation for providing advisory services is satisfied over time because the customer is receiving and consuming the benefits as they are provided by the Company. Fee arrangements are based on a percentage applied to the customer's assets under management. Fees are received quarterly and are recognized as revenue at that time as they relate specifically to the services provided in that period, which are distinct from the services provided in other periods. -
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# NOTES TO FINANCIAL STATEMENTS (continued) NOTES TO FINANCIAL STATEMENTS (continued)
# FOR THE YEAR ENDED DECEMBER 31, 2019 FOR THE YEAR ENDED DECEMBER 31, 2019
# 2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Security transactions and financing with the clearing broker are classified as operating activities on the statement of cash flows since this is the Company's principal business. Security transactions and financing withthe clearing broker are classified as operating activities on the statement of cash flows since this is the Company's principal business.
Fair Value - Definition and Hierarchy Fair Value - Definition and Hierarchy
Fair value is defined as the price that would be received 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. Fair value is defined as the price that would be received 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.
In determining fair value, the Partnership uses various valuation approaches. A fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs are to be used when available. The fair value hierarchy is categorized into three levels based on the inputs as follows: In determining fair value, the Partnership uses various valuation approaches. A fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs are to be used when available. The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Partnership has the ability to access. Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Partnership has the ability to access.
Level 2 - Valuations based on inputs, other than quoted prices included in Level 1 that are observable either directly or indirectly. Level 2 -Valuations based on inputs, other than quoted prices included in Level 1 that are observable either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Level 3 - Valuations based on inputs that are unobservable andsignificant to the overall fair value measurement.
Fair value is a market-based measure, based on assumptions of prices and inputs considered from the perspective of a market participant that are current as of the measurement date, rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Partnership's own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. Fair value is a market-based measure, based on assumptions of prices and inputs considered from the perspective of a market participant that are current as of the measurement date, rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Partnership's own assumptions are set to reflect those that market participants would usein pricing the assetor liability at the measurement date.
The availability of valuation techniques and observable inputs can vary from investment to investment and are affected by a wide variety of factors, including the type of investment, whether the investment is new and not yet established in the marketplace, The availability of valuation techniques and observable inputs can vary from investment to investment and are affected by a wide variety of factors, including the type of investment, whether the investment is new and not yet established in the marketplace,
{9}------------------------------------------------
# NOTES TO FINANCIAL STATEMENTS (continued) NOTES TO FINANCIAL STATEMENTS (continued)
# FOR THE YEAR ENDED DECEMBER 31, 2019 FOR THE YEAR ENDED DECEMBER 31, 2019
# 2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
the liquidity ofmarkets, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Because of the inherent uncertainty ofvaluation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the investments existed. Accordingly, the degree of judgment exercised by the Partnership in determining fair value is greatest for investments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement. the liquidity of markets, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are lessobservable or unobservable in the market, the determination of fair value requires more judgment. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the investments existed. Accordingly, the degree of judgment exercised by the Partnership in determining fair value is greatest for investments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement.
Fair Value — Valuation Techniques and Inputs Fair Value — Valuation Techniques and Inputs
Investments in securities and securities sold short that are freely tradable and are listed on major securities exchanges are valued at their last reported sales price as of the valuation date. Investments in securities and securities sold short that are freely tradable and are listed on major securities exchanges are valued at their last reported sales price as of the valuation date.
Many over-the-counter ("OTC") contracts have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that the marketplace participants are willing to pay for an asset. Ask prices represent the lowest price that the marketplace participants are willing to accept for an asset. For securities whose inputs are based on bid-ask prices, the Partnership's valuation policies do not require that fair value always be a predetermined point in the bid-ask range. The Partnership's policy for securities traded in the OTC markets and listed securities for which no sale was reported on that date are generally valued at their last reported "bid" price. Many over-the-counter ("OTC") contracts have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that the marketplace participants are willing to pay for an asset. Ask prices represent the lowest price that the marketplace participants arewilling to accept for an asset. For securities whose inputs arebased on bid-ask prices, the Partnership's valuation policies do not require that fair value always be a predetermined point in the bid-ask range. The Partnership's policy for securities traded in the OTC markets and listed securities for which no sale was reported on that date are generally valued at their last reported "bid" price.
To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy. Securities traded on inactive markets or valued by reference to similar instruments are generally categorized in Level 2 of the fair value hierarchy To the extent these securities are actively traded and valuation adjustments are not applied, they arecategorized in Level 1 of the fair value hierarchy. Securities traded on inactive markets or valued by reference to similar instruments are generally categorized in Level 2 of the fair value hierarchy
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# NOTES TO FINANCIAL STATEMENTS (continued) NOTES TO FINANCIAL STATEMENTS (continued)
# FOR THE YEAR ENDED DECEMBER 31, 2019 FOR THE YEAR ENDED DECEMBER 31, 2019
### 3. FAIR VALUE MEASUREMENTS 3. FAIR VALUE MEASUREMENTS
The Partnership's assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy as described in the Partnership's significant accounting policies in Note 1. The following table presents information about the Partnership's assets and liabilities measured at fair value as of December 31, 2019: The Partnership's assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy as described in the Partnership's significant accounting policies in Note 1. The following table presents information about the Partnership's assets and liabilities measured at fair value as of December 31, 2019:
| (atfair
fair
Assets
Assets
value)
value)
(at | Level
Level
1
1 | Level
Level | 2
2 | Level
Level | 3
3 | Total
Total |
|----------------------------------------------------------------------------------------------------------|--------------------------|----------------|--------|----------------|--------|----------------------|
| Investments
Investments
securities
securities
in
in
stock
Common
Common
stock | \$33,768
\$33,768 | \$
\$ | 0
0 | \$
\$ | 0
0 | \$33,768
\$33,768 |
# 4. PROVISION FOR INCOME TAXES 4. PROVISION FOR INCOME TAXES
The Company is recognized as a single member Limited Liability Company (an "LLC") by the Internal Revenue Service. As such, it is treated as a disregarded entity and is not subject to income taxes. The Company's income or loss is reportable by its Parent on its tax return. However, the Company is subject to New York City Unincorporated Business Tax and, a \$700 provision is included on the statement of income. The Company is recognized as a single member Limited Liability Company (an "LLC") by the Internal Revenue Service. As such, it is treated as a disregarded entity and is not subject to income taxes. The Company's income or loss is reportable by its Parent on its tax return. However, the Company is subject to New York City Unincorporated Business Tax and, a \$700 provision is included on the statement of income.
FASB provides guidance for how uncertain tax positions should be recognized, measured, disclosed and presented in the financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained "when challenged" or "when examined" by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense and liability in the current year. The tax years that remain subject to examination are 2016, 2017, 2018 and 2019. For the year ended December 31, 2019 management has determined that there are no material uncertain income tax positions. FASB provides guidance for how uncertain tax positions should be recognized, measured, disclosed and presented in the financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are"more-Iikely-than-not" of being sustained "when challenged" or "when examined" by the applicable tax authority. Tax positions not deemed to meet the more-Iikely—than-not threshold would be recorded as a tax benefit or expense and liability in the current year. The tax years that remain subject to examination are 2016, 2017, 2018 and 2019. For the year ended December 31, 2019 management has determined that there are no material uncertain income tax positions.
### 3. PROVISION FOR INCOME TAXES (continued) 3. PROVISION FOR INCOME TAXES (continued)
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in portfolio maintenance fees, if assessed. No interest expense or penalties have been assessed forthe period ended December 31, 2019. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in portfolio maintenance fees, if assessed. No interest expense or penalties have been assessed for the period ended December 31, 2019.
{11}------------------------------------------------
# NOTES TO FINANCIAL STATEMENTS (continued) NOTES TO FINANCIAL STATEMENTS (continued)
# FOR THE YEAR ENDED DECEMBER 31, 2019 FOR THE YEAR ENDED DECEMBER 31, 2019
### 4. RELATED PARTY TRANSACTION 4. RELATED PARTY TRANSACTION
The Company has an agreement with the Parent in which certain overhead expenses incurred by the Parent are allocated to the Company for its appropriate share. In addition, 100% reimbursement is made to the Parent for expenses directly related to the Company. Included in the statement of income, in the respective accounts, is \$309,788 forexpenses related to this agreement. The Company has an agreement with the Parent in which certain overhead expenses incurred by the Parent are allocated to the Company for its appropriate share. In addition, 100% reimbursement is made to theParent for expenses directly related to the Company. Included in the statement of income, in the respective accounts, is \$309,788 for expenses related to this agreement.
### 5. CASH AND CASH EQUIVALENTS 5. CASH AND CASH EQUIVALENTS
The Company maintains cash with financial institutions. Funds deposited with a single bank are insured up to \$250,000 in the aggregate by the Federal Deposit Insurance Corporation ("FDIC"). Deposits with a single brokerage institution are insured up to \$500,000 per customer, including up to \$250,000 for cash deposits, by the Securities Investor Protection Corp. ("SIPC"). The Company considers all highly liquid instruments purchased with a maturity date of three months or less when purchased to be cash equivalents. Cash and cash equivalents include \$1,377,541 being held in money market funds. The Company maintains cash withfinancial institutions. Funds deposited with a single bank are insured up to \$250,000 in the aggregate by the Federal Deposit Insurance Corporation ("FDIC"). Deposits with a single brokerage institution are insured up to \$500,000 per customer, including up to \$250,000 for cash deposits, by theSecurities Investor Protection Corp. ("SIPC"). The Company considers all highly liquid instruments purchased with a maturity date of three months or less when purchased to be cash equivalents. Cash and cash equivalents include \$1,377,541 being held in money market funds.
#### 6. SECURITIES OWNED, AT MARKET VALUE AND PLACEMENT FEES 6. SECURITIES OWNED, AT MARKET VALUE AND PLACEMENT FEES
In its normal course of business, the Company receives restricted securities and warrants as fees for advisory services from various clients. The Company expects to continue to receive restricted securities and/or warrants, representing the right to purchase equity, in companies for which advisory services are provided as recurring fee based revenue. At December 31, 2019, management determines the market value of the restricted securities and warrants, based upon historical costs for non-publicly traded companies and exercise value where stock market quotations exist for publicly traded companies. At December 31, 2019, the Company held no restricted securities. In its normal course of business, the Company receives restricted securities and warrants as fees for advisory services from various clients. The Company expects to continue to receive restricted securities and/or warrants, representing the right to purchase equity, in companies for which advisory services areprovided as recurring fee based revenue. At December 31, 2019, management determines the market value of the restricted securities and warrants, based upon historical costs for non-publicly traded companies and exercise value where stock market quotations exist for publicly traded companies. At December 31, 2019, the Company held no restricted securities.
#### 7. COMMITMENTS AND CONTINGENT LIABILITIES 7. COMMITMENTS AND CONTINGENT LIABILITIES
The Company had no underwriting commitments, or contingent liabilities at December 31, 2019 or during the year then ended. The Company had no underwriting commitments, or contingent liabilities at December 31, 2019 or during the year then ended.
On October 10, 2019, the Parent renewed its original lease term to commence on December 1, 2019 and end on May 31, 2021. The monthly rent under this agreement is \$20,227, which is charged to the Company. As such, it has been determined by the Company this is an embedded lease under the provisions of ASC 842. On October 10, 2019, the Parent renewed its original lease term to commence on December 1, 2019 and end on May31, 2021. The monthly rent under this agreement is \$20,227, which is charged to the Company. As such, it has been determined by the Company this is an embedded lease under the provisions of ASC 842.
{12}------------------------------------------------
# NOTES TO FINANCIAL STATEMENTS (continued) NOTES TO FINANCIAL STATEMENTS (continued)
# FOR THE YEAR ENDED DECEMBER 31, 2019 FOR THE YEAR ENDED DECEMBER 31, 2019
As of December 31, 2019, future minimum lease rental payments are payable as follows: As of December 31, 2019, future minimum lease rental payments are payable as follows:
| Period
ending
December
31
December
Period
ending
31 | commitment
Lease
commitment
Lease | |
|--------------------------------------------------------------------------|--------------------------------------------|--------------------|
| 2020
2020 | \$
\$ | 240,998
240,998 |
| May
May
, 2021
, 2021
31
31 | \$
\$ | 103,047
103,047 |
| | \$
\$ | 344,045
344,045 |
Discount rate used to calculate the present value of its future lease payments to recognize lease liability: 1.61% Discount rate used to calculate the present value of its future lease payments to recognize lease liability: 1.61%
### 8. LIABILITIES SUBORDINATED TO THE CLAIMS OF GENERAL CREDITORS 8. LIABILITIES SUBORDINATED TO THE CLAIMS OF GENERAL CREDITORS
As of December 31, 2019, the Company had not entered into any subordinated loans agreements. As of December 31, 2019, the Company had not entered into any subordinated loans agreements.
### 9. NET CAPITAL REQUIREMENTS 9. NET CAPITAL REQUIREMENTS
The Company is subject to the Securities and Exchange Commission's Net Capital Rule 15c3-1, which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. At December 31, 2019, the Company had net capital of \$1,258,358 which exceeded the minimum requirement of \$250,000 by \$1,008,358. The Company's ratio of aggregate indebtedness to net capital ratio was .137 to 1. The Company is subject to the Securities and Exchange Commission's Net Capital Rule 1503-1, which requires themaintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. At December 31, 2019, the Company had net capital of \$1 ,,258,358 which exceeded the minimum requirement of \$250,000 by \$1,008,358. The Company's ratio of aggregate indebtedness to net capital ratio was .137 to 1.
# 10. RULE 15C3-3 10. RULE 1503-3
The Company is exempt from theprovisions of Rule 15c3-3 under paragraph (k)(2)(ii) in that the Company carries no customer accounts. The Company is exempt from the provisions of Rule 1503-3 under paragraph (k)(2)(ii) in that the Company carries no customer accounts.
# 11. SUBSEQUENT EVENTS 11. SUBSEQUENT EVENTS
Events have been evaluated through the date that these financial statements were available to be issued, and no events have been identified which require identification. Events have been evaluated through the date that these financial statements were available to be issued, and no events have been identified which require identification.
Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.