# CRAIG-HALLUM CAPITAL GROUP LLC X-17A-5 (2021-03-31) — Broker-dealer annual report - Company: CRAIG-HALLUM CAPITAL GROUP LLC - Form: X-17A-5 - Filed: 2021-03-31 - Period: 2020-12-31 - Accession: 0001175408-21-000001 - CIK: 1175408 - File #: 8-65407 - Material weakness: No - Auditor: Baker Tilly Virchow Krause, LLP - Auditor location: Minneapolis, MN - Contact: Jeannie L Sonstegard - Phone: 6513434835 - Signed by: Jeannie L Sonstegard (Chief Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/1175408/000117540821000001/Public.pdf --- {0}------------------------------------------------ | | URITC | | | |-----------------------------------------------------------------------------------------------|---------------------------------------------------------------------------|---------|---------------------------------------------------------| | | BROAD OCCUPATION | | OM8 APPROVAL | | | SECURITTES AND EXCHANGE COMMISSION | | OMB Number:
3235-0123 | | | Washington, D.C. 20549 | | August 31, 2020
Explres:
Estimated average burden | | | ANNUAL AUDITED REPORT | | hours per response 12.00 | | | FORM X-17A-5 | | SEC FILE NUMBER | | | PART III | | 8-65407 | | | 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 01/01/2020 | | | MM/DD/YY | | | MM/DD/Y Y | | | | | A. REGISTRANT IDENTIFICATION | | | | | NAME OF BROKER-DEALER: Craig-Hallum Capital Group LLC | | OFFICIAL USE ONLY | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | Firm I.D. No. | | 222 So. Ninth Street, Suite 350 | | | | | | (No. and Street) | | | | Minneapolis | MN | | 55402 | | (City) | (Sisto) | | (Zip Code) | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT
Jaannle Sonstegard | | | 612-334-6359 | | | | | (Area Code Telephone Number) | | | B. ACCOUNTANT IDENTIFICATION | | | | INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report® | | | | | Baker Tilly Virchow Krause LLP | | | | | | (Name - If individual, state last, first, middle name) | | | | 225 South Sixth Street | Minneapolis | MN | 55402 | | (Address) | {City) | (State) | (Zip Code) | | CHECK ONE: | | | | | Certified Public Accountant | | | | | Public Accountant | | | | | | Accountant not resident in United States or any of its possessions. | | | | | FOR OFFICIAL USE ONLY | | | | | | | | | | | | | \*Claims for axemption from the requirement that the annual report be civing of an intependent public accountant nust to supported by a statement of facts and circumstances relied on as the basis for the exemption. See Section 240.170-5(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 O {1}------------------------------------------------ # PUBLIC OATH OR AFFIRMATION #### Jeannte Sonstegard a success ... . . swear (or affirm) that, to the best of my knowledge and belief the accompanying financial statement and supporting schodules permining to the firm of Craig-Hallum Capital Group LLC ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ of December 31 a more and correct. I lure and correct. I further swear (or affirm) that neither the company nor any partner, principal officer or director has any proprietary interest in any account classified solely as that of a customer, except as follows: | | | Signature | |------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|------------------------------------------------| | | Chief Financial Officer | | | | | Title | | Notary Public | | BARBARA J RELLER
Notary Public
Alnnesota | | This report ** contains (check all appliedble boxes): | | My Commission Expires
Jan 31, 2025 | | (a) Facing Page. | | | | (b) 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 (us defined in \$210,1-02 of Regulation S-X). | | | | (d) Statement of Changes in Financial Condition, | | | | (e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. | | | | (1) Statement of Changes in Liabilities Subordinated to Claims of Creditors. | | | | (g) Compulation of Net Capital. | | | | (i) Computation for Determination of Reserve Requirements Pursuant to Rule 15e3-3, | | | | (i) Information Relating to the Possession or Coutrol Requirements Under Rule 15c3-3, | | | | (i) A Reconciliation, including appropriate explanation 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 and unaudited Statements of Financial Condition with respect to methods of
consolidation. | | | | (1) An Oath or Affirmation. | | | | (in) A copy of the SIPC Supplemental Report. | | | | (1) A report describing any material inadequicies found to 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}. {2}------------------------------------------------ Statement of Financial Condition December 31, 2020 (With Report of Independent Registered Public Accounting Firm Thereon) {3}------------------------------------------------ #### **Table of Contents** | | Page | |---------------------------------------------------------|------| | Report of Independent Registered Public Accounting Finn | | | Statement of Financial Condition | 2 | | Notes to Statement of Financial Condition | 3-8 | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) ## Report of Independent Registered Public Accounting Firm To the Member and Board of Governors of Craig-HaUum Capital Group LLC #### **Opinion on the Financial Statement** We have audited the accompanying statement of financial condition of Craig-Hallum Capital Group LLC (the Company) as of December 31 , 2020, and the related notes (collectively referred to as the "statement of financial condition"). In our opinion, the statement of financial condition presents fairly, in all material respects, the financial position of the Company as of December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. #### **Basis for Opinion** The statement of financial condition is the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's statement of financial condition 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 statement of financial condition 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 statement of financial condition, 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 statement of financial condition. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the statement of financial condition. We believe that our audit provides a reasonable basis for our opinion. *S~1~* ll~l/f We have served as the Company's auditor since 2016. Minneapolis, Minnesota March 30, 2021 {5}------------------------------------------------ #### Statement ofFinancial Condition December 31, 2020 #### **Assets** | Cash and cash equivalents | \$
22,608,717 | |---------------------------------------------------------------------------------------------------------------|----------------------| | Receivables from brokers, dealers, and others | 16,123,372 | | Right-of-use assets | 1,317,114 | | Furniture, equipment, and leasehold improvements, at cost (net of
accumulated depreciation of \$1,150,673) | 179,695 | | Deposits with clearing broker | 1,129,196 | | Securities owned: | | | Marketable, at market value | 44,292 | | Not readily marketable, at estimated fair value | 10,883,796 | | Prepaid expenses | 298,324 | | Other receivables | 1,084,293 | | Lease deposits | 80,644 | | Total assets | \$
53,749,443 | | Liabilities and Member's Equity | | | Liabilities: | | | Accrued employee compensation and benefits | \$
21,474,594 | | | | | Lease liability on right-of-use assets | 1,483,118 | | Distributions payable to member | 3,050,000 | | | | | Accounts payable | 566,729 | | Deferred revenues
Subordinated debt | 31 ,750
5,500,000 | | Total liabilities | 32,106,191 | | Member's equity | 21 ,643,252 | | Total liabilities and member's equity | \$
53,749,443 | See accompanying notes to statement of financial condition {6}------------------------------------------------ Notes to Statement of Financial Condition December 31, 2020 #### **(1) Description of Business** Craig-Hallum Capital Group LLC (the Company) is a limited liability company registered as a broker-dealer in securities with the Financial Industry Regulatory Authority, Inc. (FINRA) and the Securities and Exchange Commission (SEC). The Company commenced operations on May 31, 2002. The Company engages in the business of acting as a dealer, market maker, investment banker, and provider of brokerage services with respect to equity and other securities. The Company does not carry securities accounts for customers or perform custodial functions relating to customer securities and, accordingly, is exempt from SEC Rule l 5c3-3. All securities transactions are cleared through a clearing broker on a fully disclosed basis. The Company guarantees to its clearing firm the performance of every customer transaction it introduces to the clearing firm. The Company is a wholly owned subsidiary of Craig-Hallum Holdings LLC (CHH), a limited liability company. ### **(2) Summary of Significant Accounting Policies** #### *(a) Use of Estimates* The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. #### *(b) C"sh mid C"sh Equivlllents* Cash and cash equivalents consist of bank deposits and money market secunttes. The Company considers all highly liquid investments with maturities of less than three months to be cash and cash equivalents. #### *(c) Securities Tr"ns"ctions* The Company records securities transactions and related revenues and expenses on a trade-date basis. Securities owned are stated at market value with related changes in unrealized gains or losses reflected in principal transactions revenues. All securities owned are U.S. equity securities. Market value is generally based on listed market prices. If listed market prices are not available, fair value is determined based on other relevant factors, including broker or dealer price quotations. #### *(d) Furniture, Equipment, "nd Le"sehold Improvements* Depreciation on furniture, fixtures, and equipment is provided using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 7 years. Leasehold improvements on non-right-of-use assets are amortized over the lesser of their estimated useful lives or the term of the applicable leases. The Company reviews for impairment losses when events or facts indicate the carrying amount may not be recoverable. {7}------------------------------------------------ Notes to Statement of Financial Condition December 31, 2020 #### *(e) Income Taxes* The Company is a wholly owned, limited liability company disregarded for federal income tax purposes and does not file its own federal income tax returns. The Company's sole member is CCH, which is taxed as a partnership. The Company's individual items of income, expense, gain and loss are included in the CI-Il-1 partnership tax returns. Accordingly, a provision for income taxes is not presented in its financial statements. CHH does incur immaterial amounts of state franchise taxes; these amounts are charged to operations as incurred. #### *(I) Fair Value Measurements* Fair value measurement accounting standards, ASC 820, establish an authoritative definition of fair value, set out a framework for measuring fair value, and require additional disclosures about fair value measurements. The Company's assets and liabilities are classified using the three-tier fair value hierarchy as summarized below. Level 1 - Valuation is based upon quoted prices for identical instruments traded m active markets. Level 2 - Valuation is determined using other significant observable inputs for identical or similar instruments. Level 3 - Valuation is determined using significant assumptions not observable in the market. The following table summarizes the Company's assets that were accounted for at fair value by level within the fair value hierarchy as of December 31 , 2020: | | | Quoted prices
in active
markets for
identical
assets or
liabiJi ti es
(Levell) | Other
significant
obse1·vable
inputs
(Level 2) | Significant
unobse1·vable
inputs
(Level 3) | Value a t
December 31 ,
2020 | |-----------------------------------------------------------------|---|--------------------------------------------------------------------------------------------------|------------------------------------------------------------|-----------------------------------------------------|------------------------------------| | Cash and cash equivalents | s | 22,608,717 | | | 22,608,71 7 | | Securities owned and securities sold,
not yet purchased, net | | 44,292 | 10,883,796 | | 10,928,088 | The valuation of Level 3 securities held at December 31 , 2020 of \$0 is immaterial to the overall financial statement presentation and consists of private company securities that are not actively traded. {8}------------------------------------------------ Notes to Statement of Financial Condition December 31, 2020 #### **(3) Receivables from Brokers, Dealers, and Others** Amounts receivable from brokers, dealers, and others at December 31 , 2020 consist of the fol lowing: | Receivable from clearing organization | \$
11,344,730 | |---------------------------------------|------------------| | Investment banking receivable | 4,778,642 | | | \$
16,123,372 | Included in the receivables from brokers, dealers, and others are unsettled trading inventory trades. The Company's principal source of short-term financing is provided by the clearing broker from which it can borrow on an uncommitted basis against its trading inventory positions, subject to collateral maintenance requirements. The Company conducts business with brokers and dealers who are members of the major securities exchanges. The Company monitors the credit standing of such brokers and dealers and the market value of collateral and requests additional collateral as deemed appropriate. #### **(4) Securities Owned and Sold, Not Yet Purchased** Marketable securities owned and sold, not yet purchased, consist of trading securities at market value as follows at December 31, 2020: | Securities owned: | | |-------------------------------------|---------------------------------| | Corporate stocks | \$
44,292
===::::::::::== | | Securities sold, not yet purchased: | | | Corporate stocks | \$ ====== | | | | Securities not readily marketable are investment securities (a) that cannot be publicly offered or sold unless registration has been affected under the Securities Act of 1933 or (b) that cannot be offered or sold because of other arrangements, restrictions, or conditions applicable to the securities or to the Company. At December 31, 2020, these securities were valued at \$10,883,796. #### **(5) Commitments and Contingencies** The Company leases office space and various types of equipment under noncancelable leases varying from one to five years, with certain renewal options for like terms. {9}------------------------------------------------ Notes to Statement of Financial Condition December 31, 2020 At December 31, 2020, the Company's future minimum rental commitments based upon the terms (excluding escalation costs) under noncancelable leases, which have an initial or remaining term of one year or more, were as follows: | 2022
2023
2024 | 360,908
371,745 | |----------------------|--------------------| | | | | | | | | 378,545 | | 2025 | 199,397 | | s | 1,672,418 | | Future minimum lease payments
Less future interest payments | \$
1,672,418
----~-~~-
(189,300) | |----------------------------------------------------------------|-------------------------------------------| | Equals present value of future payments | \$
1,483,118
=============== | ASU No. 2016-02 requires leases to be recorded as a right-of-use asset on the statement of financial condition along with a lease liability for both capital and operating leases. The Company had five operating leases that have been capitalized as right-of-use assets during 2020. As of December 31, 2020, the rightof-use assets and corresponding lease liabilities are as follows: | | Right-of-use asset | Lease liability | |---------|--------------------|-------------------| | Lease 1 | \$
825,958 | \$
(1,012,864) | | Lease 2 | 467,903 | (444,815} | | Lease 3 | 11,338 | (13,421) | | Lease 4 | 7,845 | (8,046) | | Lease 5 | 4,070 | (3,972) | | | \$
1,317,114 | \$
(1,483,118) | {10}------------------------------------------------ Notes to Statement of Financial Condition December 31, 2020 #### **(6) Employee Benefit Plan** The Company maintains a 40 I (k) profit sharing plan (the Plan) for which the Company is the plan sponsor and administrator. The Plan is administered under a written plan and trust agreement, with Charles Schwab Bank as the trustee. The Plan covers substantially all employees. #### (7) **Financial Instruments with Off-Balance-Sheet Risk** In the ordinary course of business, the Company's securities activities involve execution, settlement, and financing of various securities transactions as principal and agent. These activities may expose the Company to credit and market risks in the event customers, other brokers and dealers, banks, depositories, or clearing organizations are unable to fulfill contractual obligations. Such risks may be increased by volatile trading markets. The Company clears all transactions for its customers on a fully disclosed basis with a clearing firm that carries all customer accounts and maintains related records. Nonetheless, the Company is liable to the clearing firm for the transactions of its customers. These acLiviLies may expose Lhe Company lo off-balance-sheet risk in lhe event counlerparly is unable to fulfill its contractual obligations. #### **(8) Regulatory Requirements** The Company is subject to the net capital requirements of the FINRA and Uniform Net Capital requirements of the SEC under Rule l 5c3-l. The FINRA and SEC requirements also provide that equity capital may not be withdrawn or cash distributions paid if certain minimum net capital requirements are not met. At December 31., 2020, the Company had net capital of approximately \$12,337,634, including \$5,500,000 of qualified subordinated debt, which together was \$10,662,762 in excess of the amount required to be maintained at that date. The ratio of aggregate indebtedness to net capital was 203.63 %. The Company is exempt from Rule 15c3-3 of the SEC under paragraph (k)(2)(ii) of that rule. Under this exemption, the "Compulalion for Determination of Reserve Requirements" and "Information Relating to the Possession or Control Requirements" are not required. #### **(9) Related-Party Transactions** The Company declared and distributed \$7,235,389 to the Member for the year ended December 31, 2020, including a distribution payable of \$3,050,000 as of December 31, 2020. On December 9, 2020 the Company entered into three temporary subordinated loan agreements from three Members of CHH. FINRA approved the three temporary subordinated loans in the form of SL-31 Ts. These temporary subordinated loans were made directly to the Company by the three Members of CHH and bore interest at a rate of I 0% per annum, plus a 2% service fee. The proceeds from the lenders were used to meet certain regulatory capital requirements needed to joint book-run a SPAC IPO which traded on December 11 , 2020. On January 25, 202 l, the Company repaid \$5,500,000 of subordinated debt, plus interest and fees totaling \$177,808. {11}------------------------------------------------ Notes to Statement of Financial Condition December 31, 2020 #### **(10) Subsequent Events** The Company has evaluated subsequent events through the date these financial statements were available to be issued, which was March 30, 2021. On January 8, 2021, the Company entered into seven temporary subordinated loan agreements totaling \$11,300,000. FINRA approved the seven temporary subordinated loans in the fom1 of SL-31 T's. These temporary loans were made directly to the Company by six Members of CHH and one Friend of the Company. The loans bore interest at a rate of 10% per annum plus a 2% service fee. The proceeds from the lenders were used to meet certain regulatory capital requirements needed to joint book-run a SPAC IPO which traded on January 12, 2021. On February 22, 2021, the Company repaid \$11,300,000 of subordinated debt, plus interest and fees totaling \$365,315. On February 19, 2021 the CHH's Board of Governors determined it was in the best interest of the Company to raise additional capital. So, on February 22, 202 I, CHH contributed \$ I I ,000,000 of capital into the Company. The capital was raised by offering current Members of CRH a preferred non-voting unit with a 10% rate of return. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.