# MWA FINANCIAL SERVICES INC. X-17A-5 (2022-03-25) — Broker-dealer annual report - Company: MWA FINANCIAL SERVICES INC. - Form: X-17A-5 - Filed: 2022-03-25 - Period: 2021-12-31 - Accession: 0001139077-22-000001 - CIK: 1139077 - File #: 8-53255 - Type: Broker-dealer - Material weakness: No - Auditor: Ernst & Young LLP - Auditor location: Des Moines, IA - Contact: CLINT J POGEMILLER - Phone: 309-558-3101 - Email: clint.pogemiller@modern-woodmen.org - Website: modern-woodmen.org - Signed by: Clint J. Pogemiller (President) Original filing: https://www.sec.gov/Archives/edgar/data/1139077/000113907722000001/mwafsfinstmtsbroadgun.pdf --- {0}------------------------------------------------ ![](_page_0_Picture_0.jpeg) Touching lives. Securing futures.® #### CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION MWA Financial Services, Inc. Years Ended December 31, 2021 and 2020 With Reports of Independent Registered Public Accounting Firm {1}------------------------------------------------ ## **STATES AND EXCHANGE COMMISSION D.C. 20549 REPORTS X-17A-5 FACING** **PART** **UNITED** **Washington,** **FORM** **ANNUAL** **SECURITIES** **A.** APPROVAL Number: Expires: Estimated average burden per response: SECFILE NUMBER OMB OMB hours # **III PAGE Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934** NAMEJanuary FOR THE PERIOD BEGINNING \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ AND ENDING \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ MM/DD/YY MM/DD/YY **REGISTRANT IDENTIFICATION** OF FIRM: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ TYPE OF REGISTRANT (check all applicable boxes): Broker-dealer Security-based swap dealer Major security-based swap participant 1, 2021 December 31, 2021 MWA Financial Services, Inc. **Information** Check FILING here if respondent is also an OTC derivatives dealer ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_(No. | PERSON
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FILING
Illinois | | 61201 | |------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------|---------------------------------------------------------| | | _____________________________________________________________________________________ | | | | | | | | | (Name) | (Area
Code
ñ
Telephone
Number)
B.
ACCOUNTANT
IDENTIFICATION | (Email
Address) | | | Clint
J.
Pogemiller
INDEPENDENT
PUBLIC
ACCOUNTANT | 309-558-3101
whose
reports
are
contained
in | this
filing* | Clint.Pogemiller@modern-woodmen.org | | | | | | | | | _____________________________________________________________________________________ | | | | | | | | Ernst
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LLP | (Name
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Number,
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form | **a currently valid OMB control number.** {2}------------------------------------------------ #### OATH OR AFFIRMATION | I. Clint J. Pogemiller | swear (or affirm) that, to the best of my knowledge and belief, the | | |-------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|---------| | financial report pertaining to the firm of MWA Financial Services, Inc. | | , as of | | December 31 | 2 021 _ , is true and correct. I further swear (or affirm) that neither the company nor any | | | | partner, officer, director, or equivalent person, as the case may be, has any proprietary interest in any account classified solely | | | as that of a customer. | | | | AFAFFEY A COLIAAL | | | GEOFFREY C. SCHOON OFFICIAL SEAL Notary Public - State of Illinois My Commission Expires Jan 11, 2023 Sienatur Title: President #### This filing\*\* contains (check all applicable boxes): - & (a) Statement of financial condition. - □ (b) Notes to consolidated statement of financial condition. - & (c) Statement of income (loss) or, if there is other comprehensive income in the period(s) presented, a statement of comprehensive income (as defined in § 210.1-02 of Regulation S-X). - & (d) Statement of cash flows. - & (e) Statement of changes in stockholders' or partners' or sole proprietor's equity. - □ (f) Statement of changes in liabilities subordinated to claims of creditors. - & (g) Notes to consolidated financial statements. - & (h) Computation of net capital under 17 CFR 240.15c3-1 or 17 CFR 240.18a-1, as applicable. - َ (i) Computation of tangible net worth under 17 CFR 240.18a-2. - � (j) Computation for determination of customer reserve requirements pursuant to Exhibit A to 17 CFR 240.15c3-3. - | (k) Computation for determination of security-based swap reserve requirements pursuant to Exhibit B to 17 CFR 240.15c3-3 or Exhibit A to 17 CFR 240.18a-4, as applicable. - □ (I) Computation for Determination of PAB Requirements under Exhibit A to § 240.15c3-3. - 8 (m) Information relating to possession or control requirements for customers under 17 CFR 240.15c3-3. - | (n) Information relating to possession or control requirements for security-based swap customers under 17 CFR 240.15c3-3(p)(2) or 17 CFR 240.18a-4, as applicable. - മ (o) Reconciliations, including appropriate explanations, of the FOCUS Report with computation of net worth under 17 CFR 240.15c3-1, 17 CFR 240.18a-1, or 17 CFR 240.18a-2, as applicable, and the reserve requirements under 17 CFR 240.15c3-3 or 17 CFR 240.18a-4, as applicable, if material differences exist, or a statement that no material differences exist. - □ (p) Summary of financial data for subsidiaries not consolidated in the statement of financial condition. - & (q) Oath or affirmation in accordance with 17 CFR 240.17a-5, 17 CFR 240.18a-7, as applicable. - | (r) Compliance report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - & (s) Exemption report in accordance with 17 CFR 240.18a-7, as applicable. - O (t) Independent public accountant's report based on an examination of the statement of financial condition. - 8 (u) Independent public accountant's report based on an examination of the financial statements under 17 CFR 240.17a-5, 17 CFR 240.18a-7, or 17 CFR 240.17a-12, as applicable. - | (v) Independent public accountant's report based on an examination of certain statements in the compliance report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - 8 (w) Independent public accountant's report based on a review of the exemption report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - | as applicable. - □ (y) Report describing any material inadequacies found to have existed since the date of the previous audit, or a statement that no material inadequacies exist, under 17 CFR 240.17a-12(k). - മ (z) Other: A copy of the SIPC Supplemental Report - \*\* To request confidential treatment of chis filing, see 17 CFR 240.170-5(e)(3) or 17 CFR 240.18c-7(d)(2), as applicable. {3}------------------------------------------------ ## MWA Financial Services, Inc. Consolidated Financial Statements and Supplemental Information Years Ended December 31, 2021 ## Contents | Report of Independent Registered Public Accounting Firm | | |---------------------------------------------------------------------------------|--| | Consolidated Financial Statements | | | Consolidated Statements of Financial Condition | | | Consolidated Statements of Operations | | | Consolidated Statements of Changes in Stockholder's Equity | | | Consolidated Statements of Cash Flows | | | Notes to Consolidated Financial Statements | | | Supplemental Information | | | Supplemental Schedules: | | | Schedule 1 - Computation of Net Capital Under SEC Rule 15c3-1 | | | Schedule 11 - Computation for Determination of Reserve Requirements Pursuant to | | | Exhibit A of SEC Rule 15c3-2 | | | Schedule III - Information Relating to the Possession or Control Requirements | | | Under SEC Rule 15c3-3 | | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) Ernst & Young LLP Suite 3100 801 Grand Avenue Des Moines, IA 50309-2764 Tel: +1 515 243 2727 ey.com ## Report of Independent Registered Public Accounting Firm To the Shareholder and the Board of Directors MWA Financial Services, Inc. ## Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of MWA Financial Services, Inc. (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in stockholder's equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. #### Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to 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 statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. {5}------------------------------------------------ ![](_page_5_Picture_0.jpeg) #### Supplemental Information The accompanying information contained in Schedules I, II, and III has been subjected to audit procedures performed in conjunction with the audit of the Company's financial statements. Such information is the responsibility of the Company's management. Our audit procedures included determining whether the information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information. In forming our opinion on the information, we evaluated whether such information, including its form and content, is presented in conformity with Rule 17a-5 under the Securities Exchange Act of 1934. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. We have served as the Company's auditor since 2001. March 23, 2022 {6}------------------------------------------------ ## Consolidated Statements of Financial Condition | | December 31 | | | | |-----------------------------------------------------------------|-------------|--------------|----|--------------| | | | 2021 | | 2020 | | Assets | | | | | | Cash and cash equivalents | S | 4,066,758 | ea | 2,642,088 | | Receivables from brokers, dealers, and others (net of allowance | | | | | | for doubtful accounts of \$9,800 in 2021 and \$8,349 in 2020) | | 1,172,220 | | 918,268 | | Software (net of accumulated amortization of \$72,689 in 2021 | | | | | | and \$39,211 in 2020) | | 237,593 | | 197,639 | | Other assets | | 115,219 | | 118,001 | | Total assets | A | 5,591,790 | S | 3,875,996 | | | | | | | | Liabilities and stockholder's equity | | | | | | Liabilities: | | | | | | Due to Modern Woodmen of America | S | 710,513 | S | 382,771 | | Accounts payable and accrued expenses | | 2,017,469 | | 1,352,429 | | Total liabilities | | 2,727,982 | | 1,735,200 | | | | | | | | Stockholder's equity: | | | | | | Common stock, \$1,000 per share stated value: | | | | | | Authorized shares - 10,000 | | | | | | Issued and outstanding shares - 1,000 | | 1,000,000 | | 1,000,000 | | Additional paid-in capital | | 16,025,000 | | 16,025,000 | | Retained deficit | | (14,161,192) | | (14,884,204) | | Total stockholder's equity | | 2,863,808 | | 2,140,796 | | Total liabilities and stockholder's equity | S | 5,591,790 | ea | 3,875,996 | {7}------------------------------------------------ ## Consolidated Statements of Operations | | | Year Ended December 31 | | |------------------------------------------|---------------|------------------------|--| | | 2021 | 2020 | | | Revenues | | | | | Concession income | \$ 33,043,811 | \$ 25,933,695 | | | Variable product distribution fee income | 330,000 | 330,000 | | | Interest income | 1,580 | 3,539 | | | Field reimbursements | 501,059 | 492,510 | | | Other income | 72,748 | 57,643 | | | Total revenues | 33,949,198 | 26,817,387 | | | Expenses | | | | | Commissions | 27,352,187 | 21,375,189 | | | Licenses and fees | 629,737 | 566,670 | | | Professional fees | 163,336 | 80,974 | | | Salaries and related expenses | 3,974,019 | 3,459,353 | | | Other operating expenses | 1,106,907 | 861,857 | | | Total expenses | 33,226,186 | 26,344,043 | | | Net income | S
723,012 | S
473,344 | | | | | | | {8}------------------------------------------------ ## Consolidated Statements of Changes in Stockholder's Equity | | Common Stock | | Additional | | | |----------------------------------|--------------|-----------|------------|-----------------------------------------------------------|-----------| | | | Stated | Paid-In | Retained | | | | Shares | Value | Capital | Deficit | Total | | | | | | | | | Balance at January 1, 2020 | | | | 1,000 \$1,000,000 \$15,775,000 \$(15,357,548) \$1,417,452 | | | Capital contribution from Modern | | | | | | | Woodmen of America | | | 250.000 | | 250,000 | | Net income | | | | 473,344 | 473.344 | | Balance at December 31, 2020 | 1.000 | 1,000,000 | 16.025.000 | (14,884,204) | 2,140,796 | | Net income | | | | 723.012 | 723,012 | | Balance at December 31, 2021 | 1.000 | | | \$1,000,000 \$16,025,000 \$(14,161,192) \$2,863,808 | | {9}------------------------------------------------ ## Consolidated Statements of Cash Flows | | | Year Ended December 31 | | | |---------------------------------------------------------|---|------------------------|---|-----------| | | | 2021 | | 2020 | | Operating activities | | | | | | Net income | S | 723,012 | S | 473,344 | | Adjustments to reconcile net income to net cash used in | | | | | | operating activities: | | | | | | Amortization expense | | 33,478 | | 5,889 | | Changes in operating assets and liabilities: | | | | | | Receivables from brokers, dealers, and others | | (253,952) | | 64,320 | | Other assets | | 2,782 | | (5,095) | | Due to Modern Woodmen of America | | 327,742 | | 45,645 | | Accounts payable and accrued expenses | | 665,040 | | (228,612) | | Net cash provided by operating activities | | 1,498,102 | | 355,491 | | Investing Activities | | | | | | Purchases of software | | (73,432) | | (174,280) | | Net cash used in investing activities | | (73,432) | | (174,280) | | Financing activities | | | | | | Capital contribution from Modern Woodmen of America | | | | 250,000 | | Net cash provided by financing activities | | | | 250,000 | | | | | | | | Increase in cash and cash equivalents | | 1,424,670 | | 431,211 | | Cash and cash equivalents at beginning of year | | 2,642,088 | | 2,210,877 | | Cash and cash equivalents at end of year | A | 4,066,758 | S | 2.642.088 | {10}------------------------------------------------ ## Notes to Consolidated Financial Statements December 31, 2021 #### 1. Summary of Significant Accounting Policies #### Organization and Basis of Presentation MWA Financial Services, Inc. (the Company), a wholly owned subsidiary of Modern Woodmen of America, was incorporated on February 2, 2001, and began operating as a broker-dealer on October 10, 2001, upon its approval for membership in the Financial Industry Regulatory Authority (FINRA). The Company deals primarily in the sale of non-proprietary mutual fund shares and variable products. The Company clears its securities transactions on a fully disclosed basis through Pershing LLC (the clearing broker). The consolidated financial statements (see Note 2) include the accounts of the Company and its wholly owned subsidiary, MWAGIA, Inc., which is involved in the sale of non-proprietary insurance products. All intercompany accounts and transactions have been eliminated. #### Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. It is possible that actual experience could differ from the estimates and assumptions utilized. #### Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. #### Software Software is stated at cost less accumulated amortization is computed on the straight-line method using an estimated useful life of three years. {11}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) ## 1. Summary of Significant Accounting Policies (continued) ## Deferred Income Taxes Deferred income tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted tax rate. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. The Company evaluates the deferred tax assets for recoverability and establishes a valuation allowance when it is determined that it is more likely than not that some portion or all of the deferred tax assets will not be realized. ## Fair Value Measurements and Disclosures Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. Fair value is defined as the price that the Company would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market for the investment. It is the Company's policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in ASC 820. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The three-tier hierarchy of inputs is summarized below: - · Level 1 quoted prices in active markets for identical investments - · Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) - · Level 3 significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments) {12}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 1. Summary of Significant Accounting Policies (continued) Cash and cash equivalents are reported at fair value on a recurring basis and include money market instruments. Fair values of these cash and cash equivalents may be determined using public quotations, when available, which are reflected in Level 1. When public quotations are not available, because of the highly liquid nature of these assets, carrying amounts may be used to approximate fair values, which are reflected in Level 2. The Company used Level 1 valuation techniques to measure fair value of cash and cash equivalents of \$4,066,758 and \$2,642,088 during the years ended December 31, 2021 and 2020, respectively. The Company did not have any fair value Level 2 or Level 3 assets or liabilities at December 31, 2021 and 2020. Transfers between fair value hierarchy levels are recognized at the beginning of the reporting period. The Company did not have any transfers between levels during the years ended December 31, 2021 and 2020. #### Adoption of New Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires financial assets to be presented at the net amount expected to be collected. ASU 2016-13 is effective for financial statements issued for annual periods beginning after December 15, 2019 with early adoption permitted. The Company has concluded upon adoption of ASU 2016-13 on January 1, 2020 that there was no material impact on the financial statements. {13}------------------------------------------------ #### Notes to Consolidated Financial Statements (continued) #### 2. Business Segments The company has two segments based on the two separate entities, MWA Financial Services, Inc. and MWAGIA, Inc. All revenues are from customers located in the United States of America with no revenue from transactions with other operating segments. Selected summarized financial data as of December 31, 2021 for each segment is as follows: | | MWA Financial
Services, Inc. | | MWAGIA,
Inc. | Elimination | Consolidated | | |-----------------------------|---------------------------------|------------------------|--------------------|-----------------|------------------|--| | Revenue | | | | | | | | Concessions income | S | 30,592,709 | \$ 2,451,102 | S | \$ 33,043,811 | | | Variable product | | | | | | | | distribution fee | | 330,000 | | | 330,000 | | | Interest income | | 1,309 | 271 | | 1,580 | | | Field reimbursements | | 201,059 | | | 501,059 | | | Equity in net income of | | | | | | | | wholly owned subsidiary | | 123,295 | | (123,295) | | | | Other income | | | 72,748 | | 72,748 | | | Total revenues | | 31,548,372 | 2,524,121 | (123,295) | 33,949,198 | | | Expenses | | | | | | | | Commissions | | 25,620,587 | 1,731,600 | | 27,352,187 | | | Licenses and fees | | 614,832 | 14,905 | | 629,737 | | | Professional fees | | 146,548 | 16,788 | | 163,336 | | | Salaries & related expenses | | 3,427,759 | 546,260 | | 3,974,019 | | | Income tax expense | | 20,592 | 4,623 | | 25,215 | | | Other operating expenses | | 995,042 | 86,650 | | 1,081,692 | | | Total expenses | | 30,825,360 | 2,400,826 | | 33,226,186 | | | Net income (loss) | S | 723,012 | ર્ભને
123,295 | \$ (123,295) | સ્ત્ર
723,012 | | | Revenue from external | | | | | | | | customers | S | 17,980,166 | ക
2,523,850 | ਦੇ ਰ | \$ 20,504,016 | | | Total assets | ಕಾ | | S | A | ea
5,591,790 | | | Total liabilities | | 5,092,152
2,228,344 | 840,874
499,638 | (341,236) | 2,727,982 | | | Total stockholders' equity | S | 2,863,808 | S
341,236 | ದಿ
(341,236) | 2,863,808
ದಿ | | {14}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 2. Business Segments (continued) Selected summarized financial data as of December 31, 2020 for each segment is as follows: | | | MWA Financial
Services, Inc. | | MWAGIA,
Inc. | | Elimination | | Consolidated | |------------------------------|---|---------------------------------|------|-----------------|----|--------------|---|---------------| | Revenue | | | | | | | | | | Concessions income | S | 23,592,993 | A | 2,340,702 | S | | | \$ 25,933,695 | | Variable product | | | | | | | | | | distribution fee | | 330,000 | | | | | | 330,000 | | Interest income | | 3,229 | | 310 | | | | 3,539 | | Field reimbursements | | 492,510 | | | | | | 492,510 | | Other income | | | | 57,643 | | | | 57,643 | | Total revenues | | 24,418,732 | | 2,398,655 | | | | 26,817,387 | | Expenses | | | | | | | | | | Commissions | | 19,628,143 | | 1,747,046 | | | | 21,375,189 | | Licenses and fees | | 551,811 | | 14,859 | | | | 566,670 | | Professional fees | | 62,836 | | 18,138 | | | | 80.974 | | Salaries & related expenses | | 2,883,086 | | 576,267 | | | | 3,459,353 | | Equity in net loss of wholly | | | | | | | | | | owned subsidiary | | 47,275 | | | | (47,275) | | | | Income tax expense | | 14,952 | | 3,400 | | | | 18,352 | | Other operating expenses | | 757,285 | | 86,220 | | | | 843,505 | | Total expenses | | 23,945,388 | | 2,445,930 | | (47,275) | | 26,344,043 | | Net income (loss) | S | 473,344 | ਦੇ ਰ | (47,275) | ea | 47,275 | S | 473,344 | | Revenue from external | | | | | | | | | | customers | ક | 13,927,929 | A | 2,398,654 | S | | | \$ 16,326,583 | | Total assets | S | 3,624,433 | S | 469,504 | | \$ (217,941) | A | 3,875,996 | | Total liabilities | | 1,483,637 | | 251,563 | | | | 1,735,200 | | Total stockholders' equity | S | 2.140.796 | S | 217.941 | | \$ (217.941) | S | 2.140.796 | {15}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 3. Revenues from Contracts with Customers The following table provides a disaggregation of revenue from contracts with customers by revenue type and a reconciliation to total revenues in the consolidated statements of operations: | | Year ended December 31, | | | |--------------------------------------------------------|-------------------------|---------------|--| | | 2021 | 2020 | | | Revenue | | | | | Policy concessions | \$ 19,557,184 | \$ 16,269,865 | | | Mutual fund concessions | 12.390.837 | 8,749,735 | | | Field reimbursements | 201.059 | 492.510 | | | Brokerage equity concessions | 464.120 | 598,213 | | | Variable product distribution fee | 330.000 | 330,000 | | | Investment advisory fees | 631,670 | 315,882 | | | Total revenues from contracts with customers | 33,874,870 | 26,756,205 | | | Interest income | 1.580 | 3.539 | | | Other income | 72,748 | 57,643 | | | Revenues as included in the consolidated statements of | | | | | operations | \$ 33,949,198 | \$ 26,817,387 | | The following discussions describe the nature, timing and uncertainty of revenues and cash flows arising from the Company's contracts. #### Policy concessions The Company has entered into agreements with several organizations to sell variable and fixed annuties as well as medical, dental, long term care, disability, disability income, and accidental death insurance to its customers. The Company's performance obligations are for the initial sale of a policy and subsequent ongoing servicing of the policies. The Company receives consideration daily, weekly and monthly and recognizes revenue for these commissions when amounts are known. The Company does not recognize revenue for these fees until amounts are known as the revenue the Company will be entitled to is highly uncertain and susceptible to factors outside of the Company's control. Such factors include length of time policies remain active and the amount of additional premiums paid by the policy holder. {16}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) ## 3. Revenues from Contracts with Customers (continued) #### Mutual fund concessions The Company has entered into agreements with several organizations to sell mutual funds to its customers. The related performance obligation is the successful sale of the mutual fund assets. The Company will recognize mutual fund sales commission revenues at the point in time the performance obligation has been satisfied, which is the trade date. #### Field reimbursements The Company has entered into agreements with the registered representatives that sell the Company's products. The Company charges those registered representatives fees to be properly licensed and registered with FINRA and any other states or regulatory authorities. The Company will recognize field reimbursement revenues at the point in time the performance obligation has been satisfied, which is the date the fee is charged. #### Brokerage equity concessions The Company has entered into agreements with Pershing LLC to sell equity investments to its customers. The related performance obligation is the successful sale of the equity assets. The Company will recognize equity sales commission revenues at the point in time the performance obligation has been satisfied, which is the date the fee is charged. #### Variable product distribution fee The Company has entered into agreements with Modern Woodmen of America to sell its variable annuity to its customers. The related performance obligation is the successful sale, subsequent ongoing servicing and monitoring of the variable annuity assets. The Company will recognize variable product distribution fee revenues at the point in time the performance obligation has been satisfied, which is monthly. {17}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 3. Revenues from Contracts with Customers (continued) #### Investment advisory fees The Company has entered into agreements with several organizations to earn fees for servicing investment advisory accounts of its customers. The related performance obligation is the servicing of the assets, including processing purchases and sales. The Company receives asset based fees quarterly for satisfying the performance obligations, and are based on a percentage of the net assets maintained. The Company does not recognize revenue for these fees until amounts are known as the revenue the Company will be entitled to is highly uncertain and susceptible to factors outside of the Company's control. Such factors include market value of assets under management and the length of time investors hold their accounts. Costs to fulfill the contracts with customer include commissions paid to agents for sales and servicing of the related assets and insurance products. These costs are related to performance obligations already satisfied and are expensed when incurred. #### 4. Transactions With Customers For transactions in which the Company, through the clearing broker, extends credit to customers, the Company seeks to control the risks associated with these activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company and the clearing broker monitor required margin levels daily and, pursuant to such guidelines, request customers to deposit additional collateral or reduce securities positions when necessary. The Company has agreed to indemnify the clearing broker for any losses that it may sustain from the customer accounts introduced by the Company. At December 31, 2021, there were no amounts to be indemnified to the clearing broker for these customer accounts. {18}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 5. Income Taxes The Company and its subsidiary file consolidated income tax returns, including only their own operations, since the ultimate parent company, Modern Woodmen of America, is a tax-exempt fraternal benefit society. At December 31, 2021, the Company had a tax net operating loss carryover of \$13,310,363. The tax net operating losses carryover of \$13,179,856 arising in 2002 through 2017 may be carried forward until 2022 through 2037. The tax net operating loss of \$130,507 arising in 2018 does not have an expiration date. The net operating loss carryover represents the only significant temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes at December 31, 2021 and 2020. Management has established a valuation allowance for the full amount of the related net deferred tax assets of \$2,795,176 and \$2,963,340 at December 31, 2021 and 2020, respectively, because of the uncertainty of future income necessary for its ultimate realization. The Company has analyzed all material tax provisions under the guidance of ASC 740, Income Taxes Related to the Accounting for Uncertainty in Income Tax, and has determined that there are no tax benefits that should not be recognized as of December 31, 2021 or 2020. There are no unrecognized tax benefits that would affect the effective tax rates. The Company does not believe it would be subject to any penalties or interest relative to any open tax years and, therefore, has not accrued any such amounts. The Company files U.S. federal income tax returns and income tax returns in various state jurisdictions. The 2018 through 2021 U.S. federal tax years are subject to income tax examination by tax authorities. The Company classifies any interest and penalties (if applicable) as income tax expense in the financial statements. {19}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 6. Net Capital Requirements The Company is subject to the uniform net capital requirements of the SEC under Rule 15c3-1. The SEC's requirements provide that equity capital may not be withdrawn or cash dividends paid if certain minimum net capital requirements are not met, and that the ratio of aggrogate indebtedness to net capital as defined therein shall not exceed 15 to 1. At December 31, 2021, the Company had net defined capital of \$1,985,223, which was \$1,836,667 in excess of the required net capital of \$148,556 at that date. At December 31, 2021, the Company's ratio of aggregate indebtedness to net capital was 1.12 to 1. Various other regulatory agencies may impose additional capital requirements. Under the clearing arrangement with the clearing broker, the Company is also required to maintain certain minimum levels of net capital and comply with other financial ratio requirements. At December 31, 2021, the Company was in compliance with all such requirements. The Company is exempt from maintaining a special reserve bank account under Rule 15c3-3(k)(2)(ii). ## 7. Related-Party Transactions The Company's variable product distribution fee income relates to services performed in connection with the distribution of the variable annuity of Modern Woodmen of America, its parent. Modern Woodmen of America compensated the Company at the rate of \$27,500 per month under a distribution agreement that commenced in June 2001 and was amended in 2010 and 2017. Concessions income derived from proprietary variable product transactions, which were substantially distributed in commissions to representatives selling those products, totaled \$12,612,543 and \$10,160,803, respectively, in 2021 and 2020. Substantially all of the Company's operating expenses represent allocations from, or payments by, Modern Woodmen of America, which are then reimbursed by the Company. During 2021 and 2020, total net expenses reimbursed to Modern Woodmen of America were \$3,922,849 and \$3,373,839, respectively. This includes the cost of the Company's employees and the allocated costs of their participation in various qualified employee benefit plans covering substantially all employees and sponsored by Modern Woodmen of America. Separate plan information disaggregated by the subsidiary company is not available on the components of pension cost or on the funded status of the defined-benefit pension plan. {20}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 7. Related-Party Transactions (continued) During 2020, Modern Woodmen of America contributed capital of \$250,000, respectively, to the Company. The future operation of the Company is dependent upon such continued capital contributions until consistent profitable operations can be achieved. #### 8. Allowance for Credit Losses The Company records an allowance for credit losses. Management evaluated current market conditions warranted using historical losses as well as rating agency provided forecasted default rates to estimate the current year provision for expected credit losses. A roll forward of the allowance for credit losses is as follows: | Balance at January 1, 2020 | S | | |--------------------------------------|---|-------| | Provision for expected credit losses | | 8,349 | | Balance at December 31, 2020 | | 8.349 | | Provision for expected credit losses | | 1.451 | | Balance at December 31, 2021 | S | 9,800 | There were no write-offs charged against the allowance or recoveries collected in 2021. #### 9. Commitments and Contingencies #### Regulatory Matters In the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or otherwise subject to their inquiry. These matters could result in censures, fines, penalties or other sanctions. Management believes the outcome of any resulting actions will not be material to the Company's Statement of Financial Condition. However, the Company is unable to predict the outcome or the timing of the ultimate resolution of these matters or the potential fines, penalties or injunctive or other equitable relief, if any, that may result from these matters. {21}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### Indemnifications In the normal course of business, the Company enters into contracts that contain a variety of representations which provide general indemnifications. The Company's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the Company that have not yet occurred. However, based on experience, the Company expects the risk of loss to be remote. {22}------------------------------------------------ Supplemental Information {23}------------------------------------------------ ## Schedule I – Computation of Net Capital Under SEC Rule 15c3-1 December 31, 2021 ## Computation of Net Capital | 1. Total ownership equity from Statement of | | | | | | |----------------------------------------------------------------------------------------------------------|---|---------|---|---------|--------------| | Financial Condition | | | | | \$ 2,863,808 | | 2. Deduct ownership equity not allowable for net
capital | | | | | | | 3. Total ownership equity qualified for net capital | | | | | 2,863,808 | | 4. Add: | | | | | | | A. Liabilities subordinated to claims of general
creditors allowable in computation of net
capital | | | | | | | B. Other (deductions) or allowable credits | | | | | | | 5. Total capital and allowable subordinated
liabilities | | | | | 2,863,808 | | 6. Deductions and/or charges: | | | | | | | A. Total nonallowable assets from Statement of | | | | | | | Financial Condition (Notes B and C): | | | | | | | 1. Investment in subsidiary | S | 341,236 | | | | | 2. Prepaid expenses and other receivables | | 518,953 | ക | 860,189 | | | B. Secured demand note deficiency | | | | | | | C. Commodity futures contracts and spot
commodities - proprietary capital charges | | | | | | | D. Other deductions and/or charges | | | | | 860.189 | | 7. Other additions and/or allowable credits | | | | | | | 8. Net capital before haircuts on securities | | | | | | | positions | | | | | 2,003,619 | {24}------------------------------------------------ Schedule I - Computation of Net Capital Under SEC Rule 15c3-1 (continued) ## Computation of Net Capital (continued) | 9. Haircuts on securities computed, where | | | |---------------------------------------------|--------|--------------| | applicable, pursuant to 15c3-1(f) : | | | | A. Contractual securities commitments | S | | | B. Subordinated securities borrowings | | | | C. Trading and investment securities: | | | | 1. Exempted securities | | | | Debt securities
2. | | | | 3.
Options | | | | 4. Other securities | 18,396 | | | D. Undue concentration | | | | E. Other | | 18,396 | | 10.
Net capital | | \$ 1,985,223 | #### Computation of Basic Net Capital Requirement | 11. Minimum net capital required (6-2/3% of line 19) Note (A) | \$ 148,556 | |---------------------------------------------------------------|------------| | 12. Minimum dollar net capital requirement of reporting | | | broker or dealer and minimum net capital requirement of | | | subsidiaries computed in accordance with Note (A) | 50,000 | | 13. Net capital requirement (greater of line 11 or 12) | 148,556 | | 14. Excess net capital (line 10 less 13) | 1,836,667 | | 15. Net capital less greater of 10% of line 19 or 120% of | | | line 12 | 1,762,389 | | | | #### Computation of Aggregate Indebtedness 16. Total A.I. liabilities from Statement of Financial Condition: Part A · Accounts payable and accrued expenses \$ 1,671,232 · Due to Modern Woodmen of America 557,112 2,228,344 {25}------------------------------------------------ ## Schedule I - Computation of Net Capital Under SEC Rule 15c3-1 (continued) ## Computation of Aggregate Indebtedness (continued) #### 17. Add: | A. Drafts for immediate credit | S | | | |-------------------------------------------------------------------------------------------|---|---|-----------| | B. Market value of securities borrowed for which no | | | | | equivalent value is paid or credited | | | | | C. Other unrecorded amounts | | S | | | 18. Deduct: Adjustment based on deposits in Special Reserve | | | | | Bank Accounts | | | | | 19. Total aggregate indebtedness | | | 2,228,344 | | 20. Percentage of aggregate indebtedness to net capital (line 19
÷ by line 10) | | | 112-25% | | 21. Percentage of debt to debt equity total computed in
accordance with Rule 15c3-1(d) | | | | ## Notes - (A) The minimum net capital requirement should be computed by adding the minimum dollar net capital requirement of the reporting broker-dealer and, for each subsidiary to be consolidated, the greater of: - 1. Minimum dollar net capital requirement, or - 2. 6-2/3% of aggregate indebtedness or 2% of aggregate debits if alternative method is used - (B) Do not deduct the value of securities borrowed under subordination agreements or secured demand notes covered by subordination agreements not in satisfactory form and the market values of memberships in exchanges contributed for use of company (contrary to item 1740) and partners' securities which were included in non-allowable assets. - (C) For reports filed pursuant to paragraph (d) of Rule 17a-5, respondent should provide a list of material nonallowable assets. There were no differences between the computation of net capital under Rule 15(c)3-1 included in this audited report and the computation included in the Company's corresponding unaudited Form X-17A-5 Part IIA filing submitted to the FINRA on January 24, 2022. {26}------------------------------------------------ ## Schedule II – Computation for Determination of Reserve Requirements Pursuant to Exhibit A of SEC Rule 15c3-3 December 31, 2021 | Exemptive Provision | | |-------------------------------------------------------------------------------------------------------------------------------------------------------|---| | 22. If an exemption from Rule 15c3-3 is claimed,
identify below the section upon which such
exemption is based (check one only): | | | A. (k)(1) - Limited business (mutual funds and/or
variable annuities only) | | | B. (k)(2)(i) - "Special Account for the Exclusive
Benefit of Customers" maintained | | | C. (k)(2)(ii) - All customer transactions cleared through
another broker-dealer on a fully disclosed basis.
Name of clearing firm: Pershing LLC | X | | D. (k)(3) - Exempted by order of the Commission | | {27}------------------------------------------------ ## Schedule III - Information Relating to the Possession or Control Requirements under SEC Rule 15c3-3 December 31, 2021 #### Exemptive Provision The Company is exempt from SEC Rule 15c3-3 as it relates to the possession and control requirements under paragraph (k)(2)(ii) of that rule. {28}------------------------------------------------ ![](_page_28_Picture_0.jpeg) Touching lives. Securing futures.® #### CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION MWA Financial Services, Inc. Years Ended December 31, 2021 and 2020 With Reports of Independent Registered Public Accounting Firm {29}------------------------------------------------ ## **STATES AND EXCHANGE COMMISSION D.C. 20549 REPORTS X-17A-5 FACING** **PART** **UNITED** **Washington,** **FORM** **ANNUAL** **SECURITIES** **A.** APPROVAL Number: Expires: Estimated average burden per response: SECFILE NUMBER OMB OMB hours # **III PAGE Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934** NAMEJanuary FOR THE PERIOD BEGINNING \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ AND ENDING \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ MM/DD/YY MM/DD/YY **REGISTRANT IDENTIFICATION** OF FIRM: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ TYPE OF REGISTRANT (check all applicable boxes): Broker-dealer Security-based swap dealer Major security-based swap participant 1, 2021 December 31, 2021 MWA Financial Services, Inc. **Information** Check FILING here if respondent is also an OTC derivatives dealer ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_(No. | PERSON
TO
CONTACT
WITH
Rock
Island | REGARD
TO
THIS
FILING
Illinois | | 61201 | |------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------|---------------------------------------------------------| | | _____________________________________________________________________________________ | | | | | | | | | (Name) | (Area
Code
ñ
Telephone
Number)
B.
ACCOUNTANT
IDENTIFICATION | (Email
Address) | | | Clint
J.
Pogemiller
INDEPENDENT
PUBLIC
ACCOUNTANT | 309-558-3101
whose
reports
are
contained
in | this
filing* | Clint.Pogemiller@modern-woodmen.org | | | | | | | | _____________________________________________________________________________________ | | | | | | | | | Ernst
&
Young
LLP | (Name
ñ
if
individual,
state
last,
first,
and
middle
_____________________________________________________________________________________ | name) | | | (Address)
801
Grand
Avenue
(Date
of
Registration
with
PCAOB)(if | (City)
_____________________________________________________________________________________
Des
Moines
FOR
OFFICIAL
USE
ONLY
applicable) | (State)
Iowa
(PCAOB
Registration | (Zip
Code)
50309
Number,
if
applicable) | | | | | | | October
20,
2003 | | 42 | | | Claims
for
exemption
from
the | requirement
that
the
annual
reports
be
covered
by | the
reports
of
an | independent
public | | *
accountant
must
be
supported
by
a
CFR
240.17a-5(e)(1)(ii),
if
applicable.
Persons
who
are
to
respond
to
the | statement
of
facts
and
circumstances
relied
on
collection
of
information
contained
in
thisform | as
the
basis
of
the
are
not
required
to | exemption.
See
17
respond
unlessthe
form | **a currently valid OMB control number.** {30}------------------------------------------------ #### OATH OR AFFIRMATION | I. Clint J. Pogemiller | swear (or affirm) that, to the best of my knowledge and belief, the | | |-------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|---------| | financial report pertaining to the firm of MWA Financial Services, Inc. | | , as of | | December 31 | 2 021 _ , is true and correct. I further swear (or affirm) that neither the company nor any | | | | partner, officer, director, or equivalent person, as the case may be, has any proprietary interest in any account classified solely | | | as that of a customer. | | | | AFAFFEY A COLIAAL | | | GEOFFREY C. SCHOON OFFICIAL SEAL Notary Public - State of Illinois My Commission Expires Jan 11, 2023 Sienatur Title: President #### This filing\*\* contains (check all applicable boxes): - & (a) Statement of financial condition. - □ (b) Notes to consolidated statement of financial condition. - & (c) Statement of income (loss) or, if there is other comprehensive income in the period(s) presented, a statement of comprehensive income (as defined in § 210.1-02 of Regulation S-X). - & (d) Statement of cash flows. - & (e) Statement of changes in stockholders' or partners' or sole proprietor's equity. - □ (f) Statement of changes in liabilities subordinated to claims of creditors. - & (g) Notes to consolidated financial statements. - & (h) Computation of net capital under 17 CFR 240.15c3-1 or 17 CFR 240.18a-1, as applicable. - َ (i) Computation of tangible net worth under 17 CFR 240.18a-2. - � (j) Computation for determination of customer reserve requirements pursuant to Exhibit A to 17 CFR 240.15c3-3. - | (k) Computation for determination of security-based swap reserve requirements pursuant to Exhibit B to 17 CFR 240.15c3-3 or Exhibit A to 17 CFR 240.18a-4, as applicable. - □ (I) Computation for Determination of PAB Requirements under Exhibit A to § 240.15c3-3. - 8 (m) Information relating to possession or control requirements for customers under 17 CFR 240.15c3-3. - | (n) Information relating to possession or control requirements for security-based swap customers under 17 CFR 240.15c3-3(p)(2) or 17 CFR 240.18a-4, as applicable. - മ (o) Reconciliations, including appropriate explanations, of the FOCUS Report with computation of net worth under 17 CFR 240.15c3-1, 17 CFR 240.18a-1, or 17 CFR 240.18a-2, as applicable, and the reserve requirements under 17 CFR 240.15c3-3 or 17 CFR 240.18a-4, as applicable, if material differences exist, or a statement that no material differences exist. - □ (p) Summary of financial data for subsidiaries not consolidated in the statement of financial condition. - & (q) Oath or affirmation in accordance with 17 CFR 240.17a-5, 17 CFR 240.18a-7, as applicable. - | (r) Compliance report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - & (s) Exemption report in accordance with 17 CFR 240.18a-7, as applicable. - O (t) Independent public accountant's report based on an examination of the statement of financial condition. - 8 (u) Independent public accountant's report based on an examination of the financial statements under 17 CFR 240.17a-5, 17 CFR 240.18a-7, or 17 CFR 240.17a-12, as applicable. - | (v) Independent public accountant's report based on an examination of certain statements in the compliance report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - 8 (w) Independent public accountant's report based on a review of the exemption report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - | as applicable. - □ (y) Report describing any material inadequacies found to have existed since the date of the previous audit, or a statement that no material inadequacies exist, under 17 CFR 240.17a-12(k). - മ (z) Other: A copy of the SIPC Supplemental Report - \*\* To request confidential treatment of chis filing, see 17 CFR 240.170-5(e)(3) or 17 CFR 240.18c-7(d)(2), as applicable. {31}------------------------------------------------ ## MWA Financial Services, Inc. Consolidated Financial Statements and Supplemental Information Years Ended December 31, 2021 ## Contents | Report of Independent Registered Public Accounting Firm | | |---------------------------------------------------------------------------------|--| | Consolidated Financial Statements | | | Consolidated Statements of Financial Condition | | | Consolidated Statements of Operations | | | Consolidated Statements of Changes in Stockholder's Equity | | | Consolidated Statements of Cash Flows | | | Notes to Consolidated Financial Statements | | | Supplemental Information | | | Supplemental Schedules: | | | Schedule 1 - Computation of Net Capital Under SEC Rule 15c3-1 | | | Schedule 11 - Computation for Determination of Reserve Requirements Pursuant to | | | Exhibit A of SEC Rule 15c3-2 | | | Schedule III - Information Relating to the Possession or Control Requirements | | | Under SEC Rule 15c3-3 | | {32}------------------------------------------------ ![](_page_32_Picture_0.jpeg) Ernst & Young LLP Suite 3100 801 Grand Avenue Des Moines, IA 50309-2764 Tel: +1 515 243 2727 ey.com ## Report of Independent Registered Public Accounting Firm To the Shareholder and the Board of Directors MWA Financial Services, Inc. ## Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of MWA Financial Services, Inc. (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in stockholder's equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. #### Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to 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 statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. {33}------------------------------------------------ ![](_page_33_Picture_0.jpeg) #### Supplemental Information The accompanying information contained in Schedules I, II, and III has been subjected to audit procedures performed in conjunction with the audit of the Company's financial statements. Such information is the responsibility of the Company's management. Our audit procedures included determining whether the information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information. In forming our opinion on the information, we evaluated whether such information, including its form and content, is presented in conformity with Rule 17a-5 under the Securities Exchange Act of 1934. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. We have served as the Company's auditor since 2001. March 23, 2022 {34}------------------------------------------------ ## Consolidated Statements of Financial Condition | | December 31 | | | | |-----------------------------------------------------------------|-------------|--------------|----|--------------| | | | 2021 | | 2020 | | Assets | | | | | | Cash and cash equivalents | S | 4,066,758 | ea | 2,642,088 | | Receivables from brokers, dealers, and others (net of allowance | | | | | | for doubtful accounts of \$9,800 in 2021 and \$8,349 in 2020) | | 1,172,220 | | 918,268 | | Software (net of accumulated amortization of \$72,689 in 2021 | | | | | | and \$39,211 in 2020) | | 237,593 | | 197,639 | | Other assets | | 115,219 | | 118,001 | | Total assets | A | 5,591,790 | S | 3,875,996 | | | | | | | | Liabilities and stockholder's equity | | | | | | Liabilities: | | | | | | Due to Modern Woodmen of America | S | 710,513 | S | 382,771 | | Accounts payable and accrued expenses | | 2,017,469 | | 1,352,429 | | Total liabilities | | 2,727,982 | | 1,735,200 | | | | | | | | Stockholder's equity: | | | | | | Common stock, \$1,000 per share stated value: | | | | | | Authorized shares - 10,000 | | | | | | Issued and outstanding shares - 1,000 | | 1,000,000 | | 1,000,000 | | Additional paid-in capital | | 16,025,000 | | 16,025,000 | | Retained deficit | | (14,161,192) | | (14,884,204) | | Total stockholder's equity | | 2,863,808 | | 2,140,796 | | Total liabilities and stockholder's equity | S | 5,591,790 | ea | 3,875,996 | {35}------------------------------------------------ ## Consolidated Statements of Operations | | | Year Ended December 31 | | |------------------------------------------|---------------|------------------------|--| | | 2021 | 2020 | | | Revenues | | | | | Concession income | \$ 33,043,811 | \$ 25,933,695 | | | Variable product distribution fee income | 330,000 | 330,000 | | | Interest income | 1,580 | 3,539 | | | Field reimbursements | 501,059 | 492,510 | | | Other income | 72,748 | 57,643 | | | Total revenues | 33,949,198 | 26,817,387 | | | Expenses | | | | | Commissions | 27,352,187 | 21,375,189 | | | Licenses and fees | 629,737 | 566,670 | | | Professional fees | 163,336 | 80,974 | | | Salaries and related expenses | 3,974,019 | 3,459,353 | | | Other operating expenses | 1,106,907 | 861,857 | | | Total expenses | 33,226,186 | 26,344,043 | | | Net income | S
723,012 | S
473,344 | | | | | | | {36}------------------------------------------------ ## Consolidated Statements of Changes in Stockholder's Equity | | Common Stock | | Additional | | | |----------------------------------|--------------|-----------|------------|-----------------------------------------------------------|-----------| | | | Stated | Paid-In | Retained | | | | Shares | Value | Capital | Deficit | Total | | | | | | | | | Balance at January 1, 2020 | | | | 1,000 \$1,000,000 \$15,775,000 \$(15,357,548) \$1,417,452 | | | Capital contribution from Modern | | | | | | | Woodmen of America | | | 250.000 | | 250,000 | | Net income | | | | 473,344 | 473.344 | | Balance at December 31, 2020 | 1.000 | 1,000,000 | 16.025.000 | (14,884,204) | 2,140,796 | | Net income | | | | 723.012 | 723,012 | | Balance at December 31, 2021 | 1.000 | | | \$1,000,000 \$16,025,000 \$(14,161,192) \$2,863,808 | | {37}------------------------------------------------ ## Consolidated Statements of Cash Flows | | Year Ended December 31 | | | | |---------------------------------------------------------|------------------------|-----------|------|-----------| | | 2021 | | 2020 | | | Operating activities | | | | | | Net income | S | 723,012 | S | 473,344 | | Adjustments to reconcile net income to net cash used in | | | | | | operating activities: | | | | | | Amortization expense | | 33,478 | | 5,889 | | Changes in operating assets and liabilities: | | | | | | Receivables from brokers, dealers, and others | | (253,952) | | 64,320 | | Other assets | | 2,782 | | (5,095) | | Due to Modern Woodmen of America | | 327,742 | | 45,645 | | Accounts payable and accrued expenses | | 665,040 | | (228,612) | | Net cash provided by operating activities | | 1,498,102 | | 355,491 | | Investing Activities | | | | | | Purchases of software | | (73,432) | | (174,280) | | Net cash used in investing activities | | (73,432) | | (174,280) | | Financing activities | | | | | | Capital contribution from Modern Woodmen of America | | | | 250,000 | | Net cash provided by financing activities | | | | 250,000 | | | | | | | | Increase in cash and cash equivalents | | 1,424,670 | | 431,211 | | Cash and cash equivalents at beginning of year | | 2,642,088 | | 2,210,877 | | Cash and cash equivalents at end of year | A | 4,066,758 | S | 2.642.088 | {38}------------------------------------------------ ## Notes to Consolidated Financial Statements December 31, 2021 #### 1. Summary of Significant Accounting Policies #### Organization and Basis of Presentation MWA Financial Services, Inc. (the Company), a wholly owned subsidiary of Modern Woodmen of America, was incorporated on February 2, 2001, and began operating as a broker-dealer on October 10, 2001, upon its approval for membership in the Financial Industry Regulatory Authority (FINRA). The Company deals primarily in the sale of non-proprietary mutual fund shares and variable products. The Company clears its securities transactions on a fully disclosed basis through Pershing LLC (the clearing broker). The consolidated financial statements (see Note 2) include the accounts of the Company and its wholly owned subsidiary, MWAGIA, Inc., which is involved in the sale of non-proprietary insurance products. All intercompany accounts and transactions have been eliminated. #### Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. It is possible that actual experience could differ from the estimates and assumptions utilized. #### Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. #### Software Software is stated at cost less accumulated amortization is computed on the straight-line method using an estimated useful life of three years. {39}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) ## 1. Summary of Significant Accounting Policies (continued) ## Deferred Income Taxes Deferred income tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted tax rate. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. The Company evaluates the deferred tax assets for recoverability and establishes a valuation allowance when it is determined that it is more likely than not that some portion or all of the deferred tax assets will not be realized. ## Fair Value Measurements and Disclosures Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. Fair value is defined as the price that the Company would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market for the investment. It is the Company's policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in ASC 820. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The three-tier hierarchy of inputs is summarized below: - · Level 1 quoted prices in active markets for identical investments - · Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) - · Level 3 significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments) {40}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 1. Summary of Significant Accounting Policies (continued) Cash and cash equivalents are reported at fair value on a recurring basis and include money market instruments. Fair values of these cash and cash equivalents may be determined using public quotations, when available, which are reflected in Level 1. When public quotations are not available, because of the highly liquid nature of these assets, carrying amounts may be used to approximate fair values, which are reflected in Level 2. The Company used Level 1 valuation techniques to measure fair value of cash and cash equivalents of \$4,066,758 and \$2,642,088 during the years ended December 31, 2021 and 2020, respectively. The Company did not have any fair value Level 2 or Level 3 assets or liabilities at December 31, 2021 and 2020. Transfers between fair value hierarchy levels are recognized at the beginning of the reporting period. The Company did not have any transfers between levels during the years ended December 31, 2021 and 2020. #### Adoption of New Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires financial assets to be presented at the net amount expected to be collected. ASU 2016-13 is effective for financial statements issued for annual periods beginning after December 15, 2019 with early adoption permitted. The Company has concluded upon adoption of ASU 2016-13 on January 1, 2020 that there was no material impact on the financial statements. {41}------------------------------------------------ #### Notes to Consolidated Financial Statements (continued) #### 2. Business Segments The company has two segments based on the two separate entities, MWA Financial Services, Inc. and MWAGIA, Inc. All revenues are from customers located in the United States of America with no revenue from transactions with other operating segments. Selected summarized financial data as of December 31, 2021 for each segment is as follows: | | MWA Financial
Services, Inc. | | MWAGIA,
Inc. | Elimination | Consolidated | | |-----------------------------|---------------------------------|------------------------|--------------------|-----------------|------------------|--| | Revenue | | | | | | | | Concessions income | S | 30,592,709 | \$ 2,451,102 | S | \$ 33,043,811 | | | Variable product | | | | | | | | distribution fee | | 330,000 | | | 330,000 | | | Interest income | | 1,309 | 271 | | 1,580 | | | Field reimbursements | | 201,059 | | | 501,059 | | | Equity in net income of | | | | | | | | wholly owned subsidiary | | 123,295 | | (123,295) | | | | Other income | | | 72,748 | | 72,748 | | | Total revenues | | 31,548,372 | 2,524,121 | (123,295) | 33,949,198 | | | Expenses | | | | | | | | Commissions | | 25,620,587 | 1,731,600 | | 27,352,187 | | | Licenses and fees | | 614,832 | 14,905 | | 629,737 | | | Professional fees | | 146,548 | 16,788 | | 163,336 | | | Salaries & related expenses | | 3,427,759 | 546,260 | | 3,974,019 | | | Income tax expense | | 20,592 | 4,623 | | 25,215 | | | Other operating expenses | | 995,042 | 86,650 | | 1,081,692 | | | Total expenses | | 30,825,360 | 2,400,826 | | 33,226,186 | | | Net income (loss) | S | 723,012 | ર્ભને
123,295 | \$ (123,295) | સ્ત્ર
723,012 | | | Revenue from external | | | | | | | | customers | S | 17,980,166 | ക
2,523,850 | ਦੇ ਰ | \$ 20,504,016 | | | Total assets | ಕಾ | | S | A | ea
5,591,790 | | | Total liabilities | | 5,092,152
2,228,344 | 840,874
499,638 | (341,236) | 2,727,982 | | | Total stockholders' equity | S | 2,863,808 | S
341,236 | ದಿ
(341,236) | 2,863,808
ದಿ | | {42}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 2. Business Segments (continued) Selected summarized financial data as of December 31, 2020 for each segment is as follows: | | | MWA Financial
Services, Inc. | | MWAGIA,
Inc. | | Elimination | | Consolidated | | |------------------------------|---|---------------------------------|------|-----------------|----|--------------|---|---------------|--| | Revenue | | | | | | | | | | | Concessions income | S | 23,592,993 | A | 2,340,702 | S | | | \$ 25,933,695 | | | Variable product | | | | | | | | | | | distribution fee | | 330,000 | | | | | | 330,000 | | | Interest income | | 3,229 | | 310 | | | | 3,539 | | | Field reimbursements | | 492,510 | | | | | | 492,510 | | | Other income | | | | 57,643 | | | | 57,643 | | | Total revenues | | 24,418,732 | | 2,398,655 | | | | 26,817,387 | | | Expenses | | | | | | | | | | | Commissions | | 19,628,143 | | 1,747,046 | | | | 21,375,189 | | | Licenses and fees | | 551,811 | | 14,859 | | | | 566,670 | | | Professional fees | | 62,836 | | 18,138 | | | | 80.974 | | | Salaries & related expenses | | 2,883,086 | | 576,267 | | | | 3,459,353 | | | Equity in net loss of wholly | | | | | | | | | | | owned subsidiary | | 47,275 | | | | (47,275) | | | | | Income tax expense | | 14,952 | | 3,400 | | | | 18,352 | | | Other operating expenses | | 757,285 | | 86,220 | | | | 843,505 | | | Total expenses | | 23,945,388 | | 2,445,930 | | (47,275) | | 26,344,043 | | | Net income (loss) | S | 473,344 | ਦੇ ਰ | (47,275) | ea | 47,275 | S | 473,344 | | | Revenue from external | | | | | | | | | | | customers | ક | 13,927,929 | A | 2,398,654 | S | | | \$ 16,326,583 | | | Total assets | S | 3,624,433 | S | 469,504 | | \$ (217,941) | A | 3,875,996 | | | Total liabilities | | 1,483,637 | | 251,563 | | | | 1,735,200 | | | Total stockholders' equity | S | 2.140.796 | S | 217.941 | | \$ (217.941) | S | 2.140.796 | | {43}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 3. Revenues from Contracts with Customers The following table provides a disaggregation of revenue from contracts with customers by revenue type and a reconciliation to total revenues in the consolidated statements of operations: | | Year ended December 31, | | | | |--------------------------------------------------------|-------------------------|---------------|--|--| | | 2021 | 2020 | | | | Revenue | | | | | | Policy concessions | \$ 19,557,184 | \$ 16,269,865 | | | | Mutual fund concessions | 12.390.837 | 8,749,735 | | | | Field reimbursements | 201.059 | 492.510 | | | | Brokerage equity concessions | 464.120 | 598,213 | | | | Variable product distribution fee | 330.000 | 330,000 | | | | Investment advisory fees | 631,670 | 315,882 | | | | Total revenues from contracts with customers | 33,874,870 | 26,756,205 | | | | Interest income | 1.580 | 3.539 | | | | Other income | 72,748 | 57,643 | | | | Revenues as included in the consolidated statements of | | | | | | operations | \$ 33,949,198 | \$ 26,817,387 | | | The following discussions describe the nature, timing and uncertainty of revenues and cash flows arising from the Company's contracts. #### Policy concessions The Company has entered into agreements with several organizations to sell variable and fixed annuties as well as medical, dental, long term care, disability, disability income, and accidental death insurance to its customers. The Company's performance obligations are for the initial sale of a policy and subsequent ongoing servicing of the policies. The Company receives consideration daily, weekly and monthly and recognizes revenue for these commissions when amounts are known. The Company does not recognize revenue for these fees until amounts are known as the revenue the Company will be entitled to is highly uncertain and susceptible to factors outside of the Company's control. Such factors include length of time policies remain active and the amount of additional premiums paid by the policy holder. {44}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) ## 3. Revenues from Contracts with Customers (continued) #### Mutual fund concessions The Company has entered into agreements with several organizations to sell mutual funds to its customers. The related performance obligation is the successful sale of the mutual fund assets. The Company will recognize mutual fund sales commission revenues at the point in time the performance obligation has been satisfied, which is the trade date. #### Field reimbursements The Company has entered into agreements with the registered representatives that sell the Company's products. The Company charges those registered representatives fees to be properly licensed and registered with FINRA and any other states or regulatory authorities. The Company will recognize field reimbursement revenues at the point in time the performance obligation has been satisfied, which is the date the fee is charged. #### Brokerage equity concessions The Company has entered into agreements with Pershing LLC to sell equity investments to its customers. The related performance obligation is the successful sale of the equity assets. The Company will recognize equity sales commission revenues at the point in time the performance obligation has been satisfied, which is the date the fee is charged. #### Variable product distribution fee The Company has entered into agreements with Modern Woodmen of America to sell its variable annuity to its customers. The related performance obligation is the successful sale, subsequent ongoing servicing and monitoring of the variable annuity assets. The Company will recognize variable product distribution fee revenues at the point in time the performance obligation has been satisfied, which is monthly. {45}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 3. Revenues from Contracts with Customers (continued) #### Investment advisory fees The Company has entered into agreements with several organizations to earn fees for servicing investment advisory accounts of its customers. The related performance obligation is the servicing of the assets, including processing purchases and sales. The Company receives asset based fees quarterly for satisfying the performance obligations, and are based on a percentage of the net assets maintained. The Company does not recognize revenue for these fees until amounts are known as the revenue the Company will be entitled to is highly uncertain and susceptible to factors outside of the Company's control. Such factors include market value of assets under management and the length of time investors hold their accounts. Costs to fulfill the contracts with customer include commissions paid to agents for sales and servicing of the related assets and insurance products. These costs are related to performance obligations already satisfied and are expensed when incurred. #### 4. Transactions With Customers For transactions in which the Company, through the clearing broker, extends credit to customers, the Company seeks to control the risks associated with these activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company and the clearing broker monitor required margin levels daily and, pursuant to such guidelines, request customers to deposit additional collateral or reduce securities positions when necessary. The Company has agreed to indemnify the clearing broker for any losses that it may sustain from the customer accounts introduced by the Company. At December 31, 2021, there were no amounts to be indemnified to the clearing broker for these customer accounts. {46}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 5. Income Taxes The Company and its subsidiary file consolidated income tax returns, including only their own operations, since the ultimate parent company, Modern Woodmen of America, is a tax-exempt fraternal benefit society. At December 31, 2021, the Company had a tax net operating loss carryover of \$13,310,363. The tax net operating losses carryover of \$13,179,856 arising in 2002 through 2017 may be carried forward until 2022 through 2037. The tax net operating loss of \$130,507 arising in 2018 does not have an expiration date. The net operating loss carryover represents the only significant temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes at December 31, 2021 and 2020. Management has established a valuation allowance for the full amount of the related net deferred tax assets of \$2,795,176 and \$2,963,340 at December 31, 2021 and 2020, respectively, because of the uncertainty of future income necessary for its ultimate realization. The Company has analyzed all material tax provisions under the guidance of ASC 740, Income Taxes Related to the Accounting for Uncertainty in Income Tax, and has determined that there are no tax benefits that should not be recognized as of December 31, 2021 or 2020. There are no unrecognized tax benefits that would affect the effective tax rates. The Company does not believe it would be subject to any penalties or interest relative to any open tax years and, therefore, has not accrued any such amounts. The Company files U.S. federal income tax returns and income tax returns in various state jurisdictions. The 2018 through 2021 U.S. federal tax years are subject to income tax examination by tax authorities. The Company classifies any interest and penalties (if applicable) as income tax expense in the financial statements. {47}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 6. Net Capital Requirements The Company is subject to the uniform net capital requirements of the SEC under Rule 15c3-1. The SEC's requirements provide that equity capital may not be withdrawn or cash dividends paid if certain minimum net capital requirements are not met, and that the ratio of aggrogate indebtedness to net capital as defined therein shall not exceed 15 to 1. At December 31, 2021, the Company had net defined capital of \$1,985,223, which was \$1,836,667 in excess of the required net capital of \$148,556 at that date. At December 31, 2021, the Company's ratio of aggregate indebtedness to net capital was 1.12 to 1. Various other regulatory agencies may impose additional capital requirements. Under the clearing arrangement with the clearing broker, the Company is also required to maintain certain minimum levels of net capital and comply with other financial ratio requirements. At December 31, 2021, the Company was in compliance with all such requirements. The Company is exempt from maintaining a special reserve bank account under Rule 15c3-3(k)(2)(ii). ## 7. Related-Party Transactions The Company's variable product distribution fee income relates to services performed in connection with the distribution of the variable annuity of Modern Woodmen of America, its parent. Modern Woodmen of America compensated the Company at the rate of \$27,500 per month under a distribution agreement that commenced in June 2001 and was amended in 2010 and 2017. Concessions income derived from proprietary variable product transactions, which were substantially distributed in commissions to representatives selling those products, totaled \$12,612,543 and \$10,160,803, respectively, in 2021 and 2020. Substantially all of the Company's operating expenses represent allocations from, or payments by, Modern Woodmen of America, which are then reimbursed by the Company. During 2021 and 2020, total net expenses reimbursed to Modern Woodmen of America were \$3,922,849 and \$3,373,839, respectively. This includes the cost of the Company's employees and the allocated costs of their participation in various qualified employee benefit plans covering substantially all employees and sponsored by Modern Woodmen of America. Separate plan information disaggregated by the subsidiary company is not available on the components of pension cost or on the funded status of the defined-benefit pension plan. {48}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### 7. Related-Party Transactions (continued) During 2020, Modern Woodmen of America contributed capital of \$250,000, respectively, to the Company. The future operation of the Company is dependent upon such continued capital contributions until consistent profitable operations can be achieved. #### 8. Allowance for Credit Losses The Company records an allowance for credit losses. Management evaluated current market conditions warranted using historical losses as well as rating agency provided forecasted default rates to estimate the current year provision for expected credit losses. A roll forward of the allowance for credit losses is as follows: | Balance at January 1, 2020 | S | | |--------------------------------------|---|-------| | Provision for expected credit losses | | 8,349 | | Balance at December 31, 2020 | | 8.349 | | Provision for expected credit losses | | 1.451 | | Balance at December 31, 2021 | S | 9,800 | There were no write-offs charged against the allowance or recoveries collected in 2021. #### 9. Commitments and Contingencies #### Regulatory Matters In the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or otherwise subject to their inquiry. These matters could result in censures, fines, penalties or other sanctions. Management believes the outcome of any resulting actions will not be material to the Company's Statement of Financial Condition. However, the Company is unable to predict the outcome or the timing of the ultimate resolution of these matters or the potential fines, penalties or injunctive or other equitable relief, if any, that may result from these matters. {49}------------------------------------------------ ## Notes to Consolidated Financial Statements (continued) #### Indemnifications In the normal course of business, the Company enters into contracts that contain a variety of representations which provide general indemnifications. The Company's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the Company that have not yet occurred. However, based on experience, the Company expects the risk of loss to be remote. {50}------------------------------------------------ Supplemental Information {51}------------------------------------------------ ## Schedule I – Computation of Net Capital Under SEC Rule 15c3-1 December 31, 2021 ## Computation of Net Capital | 1. Total ownership equity from Statement of | | | | | | |----------------------------------------------------------------------------------------------------------|---|---------|---|---------|--------------| | Financial Condition | | | | | \$ 2,863,808 | | 2. Deduct ownership equity not allowable for net
capital | | | | | | | 3. Total ownership equity qualified for net capital | | | | | 2,863,808 | | 4. Add: | | | | | | | A. Liabilities subordinated to claims of general
creditors allowable in computation of net
capital | | | | | | | B. Other (deductions) or allowable credits | | | | | | | 5. Total capital and allowable subordinated
liabilities | | | | | 2,863,808 | | 6. Deductions and/or charges: | | | | | | | A. Total nonallowable assets from Statement of | | | | | | | Financial Condition (Notes B and C): | | | | | | | 1. Investment in subsidiary | S | 341,236 | | | | | 2. Prepaid expenses and other receivables | | 518,953 | ക | 860,189 | | | B. Secured demand note deficiency | | | | | | | C. Commodity futures contracts and spot
commodities - proprietary capital charges | | | | | | | D. Other deductions and/or charges | | | | | 860.189 | | 7. Other additions and/or allowable credits | | | | | | | 8. Net capital before haircuts on securities | | | | | | | positions | | | | | 2,003,619 | {52}------------------------------------------------ Schedule I - Computation of Net Capital Under SEC Rule 15c3-1 (continued) ## Computation of Net Capital (continued) | 9. Haircuts on securities computed, where | | | |---------------------------------------------|--------|--------------| | applicable, pursuant to 15c3-1(f) : | | | | A. Contractual securities commitments | S | | | B. Subordinated securities borrowings | | | | C. Trading and investment securities: | | | | 1. Exempted securities | | | | Debt securities
2. | | | | 3.
Options | | | | 4. Other securities | 18,396 | | | D. Undue concentration | | | | E. Other | | 18,396 | | 10.
Net capital | | \$ 1,985,223 | #### Computation of Basic Net Capital Requirement | 11. Minimum net capital required (6-2/3% of line 19) Note (A) | \$ 148,556 | |---------------------------------------------------------------|------------| | 12. Minimum dollar net capital requirement of reporting | | | broker or dealer and minimum net capital requirement of | | | subsidiaries computed in accordance with Note (A) | 50,000 | | 13. Net capital requirement (greater of line 11 or 12) | 148,556 | | 14. Excess net capital (line 10 less 13) | 1,836,667 | | 15. Net capital less greater of 10% of line 19 or 120% of | | | line 12 | 1,762,389 | | | | #### Computation of Aggregate Indebtedness 16. Total A.I. liabilities from Statement of Financial Condition: Part A · Accounts payable and accrued expenses \$ 1,671,232 · Due to Modern Woodmen of America 557,112 2,228,344 {53}------------------------------------------------ ## Schedule I - Computation of Net Capital Under SEC Rule 15c3-1 (continued) ## Computation of Aggregate Indebtedness (continued) #### 17. Add: | A. Drafts for immediate credit | S | | | |-------------------------------------------------------------------------------------------|---|---|-----------| | B. Market value of securities borrowed for which no | | | | | equivalent value is paid or credited | | | | | C. Other unrecorded amounts | | S | | | 18. Deduct: Adjustment based on deposits in Special Reserve | | | | | Bank Accounts | | | | | 19. Total aggregate indebtedness | | | 2,228,344 | | 20. Percentage of aggregate indebtedness to net capital (line 19
÷ by line 10) | | | 112-25% | | 21. Percentage of debt to debt equity total computed in
accordance with Rule 15c3-1(d) | | | | ## Notes - (A) The minimum net capital requirement should be computed by adding the minimum dollar net capital requirement of the reporting broker-dealer and, for each subsidiary to be consolidated, the greater of: - 1. Minimum dollar net capital requirement, or - 2. 6-2/3% of aggregate indebtedness or 2% of aggregate debits if alternative method is used - (B) Do not deduct the value of securities borrowed under subordination agreements or secured demand notes covered by subordination agreements not in satisfactory form and the market values of memberships in exchanges contributed for use of company (contrary to item 1740) and partners' securities which were included in non-allowable assets. - (C) For reports filed pursuant to paragraph (d) of Rule 17a-5, respondent should provide a list of material nonallowable assets. There were no differences between the computation of net capital under Rule 15(c)3-1 included in this audited report and the computation included in the Company's corresponding unaudited Form X-17A-5 Part IIA filing submitted to the FINRA on January 24, 2022. {54}------------------------------------------------ ## Schedule II – Computation for Determination of Reserve Requirements Pursuant to Exhibit A of SEC Rule 15c3-3 December 31, 2021 | Exemptive Provision | | | | | |---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|--|---|--| | | 22. If an exemption from Rule 15c3-3 is claimed,
identify below the section upon which such
exemption is based (check one only): | | | | | | A. (k)(1) - Limited business (mutual funds and/or
variable annuities only) | | | | | | B. (k)(2)(i) - "Special Account for the Exclusive
Benefit of Customers" maintained | | | | | | C. (k)(2)(ii) - All customer transactions cleared through
another broker-dealer on a fully disclosed basis.
Name of clearing firm: Pershing LLC | | X | | | | D. (k)(3) - Exempted by order of the Commission | | | | {55}------------------------------------------------ ## Schedule III - Information Relating to the Possession or Control Requirements under SEC Rule 15c3-3 December 31, 2021 #### Exemptive Provision The Company is exempt from SEC Rule 15c3-3 as it relates to the possession and control requirements under paragraph (k)(2)(ii) of that rule. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.