# IMPERIAL CAPITAL, LLC X-17A-5 (2021-04-01) — Broker-dealer annual report - Company: IMPERIAL CAPITAL, LLC - Form: X-17A-5 - Filed: 2021-04-01 - Period: 2020-12-31 - Accession: 0001104659-21-045321 - CIK: 1044199 - File #: 8-50397 - Material weakness: No - Auditor: BDO - Contact: Richard Genovese - Phone: 310-246-3608 - Signed by: Mark Martis (CFO) Original filing: https://www.sec.gov/Archives/edgar/data/1044199/000110465921045321/full.pdf --- {0}------------------------------------------------ # Imperial Capital, LLC Statement of Financial Condition December 31, 2020 Public Document {1}------------------------------------------------ # Imperial Capital, LLC Statement of Financial Condition December 31, 2020 ## Public Document {2}------------------------------------------------ # Imperial Capital, LLC ## Contents | Facing page to Form X-17A-5 | 2A | |---------------------------------------------------------|-------| | Affirmation of Chief Financial Officer | 2B-2C | | Report of Independent Registered Public Accounting Firm | 3 | | Statement of Financial Condition | ব | | Notes to Statement of Financial Condition | 5-15 | {3}------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ## ANNUAL AUDITED REPORT FORM X-17A-5 PART III OMB APPROVAL OMB Number: 3235-0123 Expires: August 31, 2020 Estimated average burden hours per response........12.00 | SEC FILE NUMBER | |-----------------| | 18-50397 | # 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 January 1, 2020 - AND ENDING December 31, 2020
MM/DD/YY
MM/DD/YY | | | | | |--------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------|---------|--------------------------------------------------|--| | | A. REGISTRANT IDENTIFICATION | | | | | NAME OF BROKER-DEALER: Imperial Capital, LLC | | | OFFICIAL USE ONLY | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.)
10100 Santa Monica Blvd., Suite 2400 | | | FIRM I.D. NO. | | | | (No. and Street) | | | | | Los Angeles | CA | | 90067 | | | (City) | (State) | | (Zip Code) | | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT
Richard Genovese | | | (310) 246-3608
(Area Code - Telephone Number) | | | INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report*
BDO USA, LLP | B. ACCOUNTANT IDENTIFICATION | | | | | | (Name - if individual, state last, first, middle name) | | | | | 515 S. Flower St., 47th Floor | Los Angeles | CA | 90071 | | | (Address) | (City) | (State) | (Zip Code) | | | CHECK ONE:
V
Certified Public Accountant
Public Accountant
Accountant not resident in United States or any of its possessions. | | | | | | FOR 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 facts and circumstances relied on as the basis for the exemption. See Section 240.17a-5(e)(2) > Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. SEC 1410 (06-02) {4}------------------------------------------------ ### OATH OR AFFIRMATION I, Mark Martis, swear (or affirm) that, to the best of my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of Imperial Capital, LLC, as of December 31, 2020, are true and correct. I further swear (or affirm) that neither the company nor any partner, proprietor, principal officer or director has any proprietary interest in any account classified solely as that of a customer, except as follows: None Signature Chief Financial Officer Title See attached notary jurat certificate Notary Public This report \*\* contains (check all applicable boxes): - (a) Facing Page. - (b) Statement of Financial Condition. - (c) Statement of Income (Loss). - (d) Statement of Changes in Financial Condition. - (e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. - (f) Statement of Changes in Liabilities Subordinated to Claims of Creditors. - (g) Computation of Net Capital. - (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3-3. - (i) Information Relating to the Possession or Control Requirements Under Rule 15c3-3. - (j) A Reconciliation, including appropriate explanation of the Computation of Net Capital Under Rule 15c3-1 and the Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3-3. - (k) A Reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods of consolidation. - (l) An Oath or Affirmation. - (m) A copy of the SIPC Supplemental Report. - (n) A report describing any material inadequacies found to exist or found to have existed since the date of the previous audit. \*\*For conditions of confidential treatment of certain portions of this filing, see section 240.17a-5(e)(3). {5}------------------------------------------------ | State of California
County of I x, Angeles
Subscribed and sworn to (or affirmed) before me on this '<
day of March 2021, by Mark Mark
proved to me on the basis of satisfactory evidence to be the
person(s) who appeared before me.
MICHAEL SCOTT MCCAIN
Notary Public - California
Los Angeles County
Commission # 2292557
Comm. Expires Jun 11, 2023 | A notary public or other officer completing this
certificate verifies only the identity of the individual
who signed the document to which this certificate
is attached, and not the truthfillness, accuracy, or
validity of that document. | |---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | | | | | | | | | {6}------------------------------------------------ ![](_page_6_Picture_0.jpeg) #### Report of Independent Registered Public Accounting Firm To the Managing Member of Imperial Capital, LLC Los Angeles, California #### Opinion on Financial Statement We have audited the accompanying statement of financial condition of Imperial Capital, LLC (the "Broker-Dealer") as of December 31, 2020, 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 Broker-Dealer at December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. #### Basis for Opinion This financial statement is the responsibility of the Broker-Dealer's management. Our responsibility is to express an opinion on the Broker-Dealer'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 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 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 Broker-Dealer's auditor since 1997. Los Angeles, California March 31, 2021 {7}------------------------------------------------ Statement of Financial Condition {8}------------------------------------------------ | December 31, | | |--------------|--| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | See the accompanying notes to the financial statements. {9}------------------------------------------------ ### Cash and Cash Equivalents ### Valuation of Investments ### Fair Value Hierarchy {10}------------------------------------------------ The hierarchy is broken down into three levels based on the transparency of inputs as follows: Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Level 2 - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but are traded less frequently, derivative instruments whose fair values have been derived using a model where inputs to the model are directly observable in the market and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Level 3 - Instruments that have little to no pricing observability as of the reported date. These financial instruments are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. ### Valuation Process for Financial Instruments The availability of observable inputs can vary from product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the extent the valuation is based on models or inputs that are less observable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments 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, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company's own assumptions are set to reflect those that market participants would use in pricing the asset at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. The Company has investments that are restricted as to when the security can be sold and the investments have limited liquidation preferences. The Company values these investments using an implied discount rate for lack of marketability that ranges from 10.0% to 13.8%. The investments are publicly traded and the Company determines the discount rate based on the quoted market price compared to the initial underwriting price. These investments are shown as Level 3. Cash and Cash Equivalents, Accounts Receivable and Accounts Payable and Accrued Liabilities - The carrying amounts of cash and cash equivalents, accounts receivables and accounts payable and accrued liabilities approximates fair value due to the short-term nature of these instruments. Exchange-Traded Equity Securities -Exchange-traded equity securities are generally valued based on quoted prices from the exchange and are generally categorized within Level 1 of the fair value hierarchy. To the extent these securities are actively traded, valuation adjustments are not applied. Equity securities not traded on an exchange or reported in a trade reporting system and securities that {11}------------------------------------------------ ### Prepaid and Other Assets ### Equipment, furniture, leasehold improvements and software ### Recently Adopted Accounting Guidance {12}------------------------------------------------ ### Goodwill ### Impairment of Long-Lived Assets ### Use of Estimates ### COVID-19 and Liquidity {13}------------------------------------------------ #### 2. Cash and Cash Equivalents Cash equivalents include highly liquid investments with original maturities of three months or less. Additionally, the Company maintains a clearing deposit with Pershing LLC to satisfy the requirement under its clearing agreement. This entire deposit is held in a cash account. The clearing deposit can only be returned to the Company if the clearing agreement is terminated, or if Pershing determines that the deposit is no longer required. In such event, the clearing deposit would be returned to the Company within 30 days. The following are financial instruments that are cash and cash equivalents as of December 31, 2020: | December 31. | | 2020 | |------------------------------------------------------------------|-------|------------| | Cash held at Pershing, LLC, including money market of \$720,579 | ਦੇ | 9.209.324 | | Cash in banks | | 12,333,805 | | Cash in bank held in segregated account for exclusive benefit of | | | | customers - restricted | | 158.493 | | Clearing cash deposit held at Pershing, LLC - restricted | | 250,006 | | | | | | l otal | સ્ત્ર | 21.951.628 | #### 3. Investments The following table presents the Company's investments recorded at fair value as of December 31, 2020 based upon the fair value hierarchy in accordance with accounting guidance issued by the FASB on fair value measurements: | | Fair Value Hierarchy | | | | | | | | |---------------------------------------------------------------------------------------------------------------------|----------------------|-----------|---------|---|--------------------------------------|--|-----------------|--| | Investments | Level 1 | | Level 2 | | Level 3 | | Total | | | Assets
Common and preferred stocks and warrants
Corporate bonds
Limited liability company measured at NAV* | ಕಾ | 39.822 \$ | | - | = \$ 1,809,060 \$ 1,848,882
4.842 | | 4.842
71.466 | | | Total | સ્ત્ર | 39.822 \$ | | | - \$ 1,813,902 \$ 1,925,190 | | | | \*Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. This amount is included in the table so fair value of the investment of Financial Condition is reconciled. {14}------------------------------------------------ | | | Common and
Preferred
Stocks and
Warrants | | Corporate
Bonds | | Total | |-----------------------------------------|-------|---------------------------------------------------|---|--------------------|----|-------------------------| | Beginning balance as of January 1, 2020 | ಳಿ | 30.000 | ಕ | 4.598 | ಕಿ | 34.598 | | Unrealized gains (Iosses), net | | 27.275 | | 244 | | 27.519 | | Purchases (sales), net | | 1.751.785 | | | | 1,751,785 | | Ending balance as of December 31, 2020 | ਦੇ ਹੋ | 1 809 060 | | | | 4 842 \$ 1 813 902 | December 31, 2020 | Description | Fair Value | Unfunded
Commitments | Redemption
Frequency | Redemption
Notice Period | |-------------|------------|-------------------------|-------------------------|-----------------------------| | | | | | | {15}------------------------------------------------ #### Level 3 Valuation Techniques The following table summarizes the Company's Level 3 fair value valuation techniques as of December 31, 2020: | Assets (at fair value) | | Fair value at
December 31, 2020 | Valuation technique | Unobservable Inputs | |---------------------------------------------|-------|------------------------------------|------------------------------------------------------------------------------------------------------------------------|---------------------------------------| | Common and preferred
stocks and warrants | ക | 1.809,060 | Indication pricing from
3rd party services, cost
method and future value
based on corporate
announcements. | Discount for lack of
marketability | | Corporate bonds | | 4.842 | Indication pricing from
3rd party services,
corporate actions and
cost method. | Lack of marketability. | | Total Level 3 | લ્ત્ર | 1,813,902 | | | ### 4. Quantitative Disclosures for Derivative Financial Instruments Used for Trading Purposes The Company may obtain warrants in the ordinary course of its business. Unrealized gains or losses on these derivative contracts are recognized as a component of investment and principal transactions. The Company does not apply hedge accounting as defined in guidance issued by the FASB on accounting for derivative instruments and hedging activities, as all financial instruments are marked to market with changes in fair values reflected in earnings. Therefore, the disclosures required are generally not applicable with respect to these financial instruments. ### 5. Equipment, Furniture, Leasehold Improvements and Software Equipment, furniture, leasehold improvements and software have the following useful lives and are composed of the following at December 31, 2020: | 2020 | |------------| | | | 4,430,587 | | 5,701,277 | | 1,082,093 | | 311.565 | | 11,525,522 | | 7.475.326 | | 4,050,196 | | | {16}------------------------------------------------ #### 6. Subordinated Borrowings Imperial Capital, LLC entered into a credit agreement with a bank for a revolving note and cash subordination agreement (the Subordinated Debt Facility) which was amended on March 11, 2020 that provides for borrowings under a line of credit of up to \$17,500,000 through March 11, 2021. In March 2021, the Company's subordinated borrowings was amended and extended until March 11, 2022. The note bears interest at prime plus 25 basis points and payments on the unused line of credit are made monthly at a rate of 0.25%. The Subordinated Debt Facility constitutes a satisfactory subordinated agreement under Appendix D to Rule 15c3-1 under the Securities Exchange Act of 1934, as amended. As of December 31, 2020, no amounts were outstanding under the Subordinated Debt Facility. #### Leases 7. All of the Company's existing lease arrangements are operating leases. The Company records an operating lease ROU asset and corresponding operating lease liabilities on its balance sheet, representing an obligation to make lease payments for operating leases, measured on a discounted basis. The Company measures its ROU assets and lease liabilities at the present value of future lease payments using the incremental borrowing rate as the discount rate. The incremental borrowing rate ranged from 2.29% to 6.15% that varies depending on the office location, and the weighted average discount rate is 5.34% at December 31, 2020. The Company elects to not separate lease components and non-lease components. As of December 31, 2020, ROU assets totaling \$16.7 million consists of six operating leases for office space. These operating leases may include optional renewal periods and the Company has concluded that operating lease extensions will not be exercised. The Company has lease agreements for office spaces under non-cancellable operating lease agreements in various locations. The operating leases include fixed and variable rental payments. Variable payments increase over time at pre-determined dates based on various factors as defined in the operating leases. Future minimum rental payments due under the operating leases at December 31, 2020 are as follows. | Years ending December 31, | Amount | |----------------------------------------|------------------| | 2021 | ക
4,407,494 | | 2022 | 4,357,779 | | 2023 | 4,232,745 | | 2024 | 4,303,093 | | 2025 | 2,316,488 | | 2026 and thereafter | 3,672,805 | | Total minimum operating lease payments | 23,290.404 | | Less imputed interest | 3,605,388 | | | | | Operating lease liability | ಕೆ
19,685,016 | As of December 31, 2020, the weighted-average remaining lease term for all operating leases is 4.3 years which expire through October 2027. {17}------------------------------------------------ For the year ended December 31, 2020, operating lease liabilities and right of use assets were increased for new non-cash leases by \$153,409. Additionally, in connection with two operating office leases, the Company is required under the terms of the leases to maintain letters of credit with a bank acceptable to the landlords, totaling \$3.0 million. As of December 31, 2020, there have been no amounts drawn under the letters of credit. ## 8. Commitments and Contingencies ### Legal Matters The Company is, from time to time, involved in legal proceedings, regulatory actions, claims and litigation arising in the ordinary course of business. These matters are not expected to have a material adverse effect upon the Company's financial statements. ### Indemnification Agreements Under its Limited Liability Company Agreement, the Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director's serving in such capacity, that require it, subject to certain exceptions, to indemnify the officers and directors to the fullest extent authorized or permitted by its Limited Liability Company Agreement and Delaware Law. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. There are no known contingent liabilities associated with these indemnification agreements as of December 31, 2020. The Company has agreed to indemnify its clearing broker for losses that it may sustain from the client accounts introduced by the Company. As of December 31, 2020, there were no amounts to be indemnified to the Clearing Broker for these accounts. #### 9. Transactions with Affiliates The Company has income and expense transactions with employees and certain affiliates. Included in the Statement of Financial Condition are the following related party transactions: ### Statement of Financial Condition | Receivables from Affiliates | 135.926 | |-----------------------------|---------| | Pavables to Affiliates | 391 248 | | | | The Company provides services to affiliates and other related parties. Such service reimbursements or payables are included in the Statement of Financial Condition as indicated in the table above. #### Defined Contribution Plan 10. The Company maintains a 401(k) plan. Participation in this plan is available to all full-time employees employed by the Company for six months or longer. Employees may contribute up to a maximum employee contribution of \$19,500. For participants age 50 and above, the contribution limit for additional catch-up contributions was \$6,500. The Company generally matches 2% of the employees' compensation (up to the federal compensation limit). The Company may increase this match at its discretion. The Company's match is 100% vested upon contribution by the Company. {18}------------------------------------------------ #### 11. Net Capital Requirements The Company is a registered U.S. broker-dealer that is subject to the Uniform Net Capital Rule (SEC Rule 15c3-1 or the Net Capital Rule) administered by the SEC, which, under the alternate method, requires net capital to be not less than the greater of \$250,000 or two percent of aggregate debit items computed in accordance with the formula for reserve requirements pursuant to SEC Rule 15c3-3. At December 31, 2020, the Company had net capital of \$8,353,213 which was \$8,102,132 in excess of the required net capital. The Company follows SEC guidance, "Treatment of Operating Leases under Rule 15c3-1" when transitioning to the new leasing standard. Accordingly, the Company adopts the following accounting policy for computing net capital: When computing net capital, the Company cannot add back an operating lease asset to offset an operating lease liability unless the asset and the liability arise from the same operating lease; and the amount of the asset as to each lease may not exceed the liability on the balance sheet arising from that lease. This rule also requires the Company to notify and sometimes obtain approval from the SEC for significant withdrawals of capital. Additionally, the Company may be prohibited from expanding its business or paying dividends if resulting net capital falls below the regulatory limit. #### Off Balance Sheet Risk 12. In the normal course of business, the Company executes, as agent or principal, transactions on behalf of clients. If the transactions do not settle because of failure to perform by either the client or the counterparty, the Company may be obligated to discharge the obligation of the nonperforming party and, as a result, may incur a loss if the market value of the securities is different from the contract amount of the transaction. The Company does not anticipate nonperformance by clients or counterparties in the above situation. The Company's policy is to monitor its market exposure and counterparty risk. In addition, the Company has a policy of reviewing, as considered necessary, the credit standing of each client with which it conducts business. Additionally, the Company is subject to credit risk if the clearing broker is unable to repay the balance in the Company's accounts. The Company is a market maker for public corporations representing a wide variety of industries. The Company selects companies in which it makes a market based on a review of the current market activity and also to facilitate trading activity of its own clients. Market making activities may result in concentrations of securities, which may expose the Company to additional off-balance sheet risk. The Company enters into various transactions involving derivative financial instruments. These financial instruments include primarily options and warrants. Options are purchased and sold as a hedge against risk on existing securities or for speculative purposes. Stock purchase warrants are occasionally received from corporate finance clients as part of the overall structured fee for services performed and are therefore, subject to varying degrees of market risk is substantially dependent upon the value of the underlying financial instrument and is affected by market forces such as volatility and changes in interest rates. {19}------------------------------------------------ ### Computation for Determination of Reserve Requirements under Rule 15c3-3 of the Securities and Exchange Commission ### Information Relating to Possession or Control Requirements under Rule 15c3-3 of the Securities and Exchange Commission Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.