# DAIWA CORPORATE ADVISORY LLC X-17A-5 (2021-05-28) — Broker-dealer annual report - Company: DAIWA CORPORATE ADVISORY LLC - Form: X-17A-5 - Filed: 2021-05-28 - Period: 2021-03-31 - Accession: 0001272515-21-000002 - CIK: 1272515 - File #: 8-66273 - Material weakness: No - Auditor: KPMG LL - Auditor location: New York, NY - Contact: Peter Pacitto - Phone: 2129049488 - Signed by: Peter Pacitto (CFO) Original filing: https://www.sec.gov/Archives/edgar/data/1272515/000127251521000002/publicV2.pdf --- {0}------------------------------------------------ DAIWA CORPORATE ADVISORY LLC (SEC I.D. No. 8Ͳ66273) STATEMENT OF FINANICAL CONDITION AS OF MARCH 31, 2021 AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM \* \* \* \* \* \* \* This report is filed pursuant to Rule 17aͲ5(e)(3) under The Securities Exchange Act of 1934 as a PUBLIC DOCUMENT. {1}------------------------------------------------ # **UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.20549** # burden OMB APPROVAL OMB Number: 3235Ͳ0123 Expires: August 31, 2021 Estimated average hours per response.12.00 | SEC
FILE
NUMBER | |-----------------------| | 8Ͳ66273 | # **ANNUAL AUDITED REPORT FORM XͲ17AͲ5 PART III** ### **FACING PAGE Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17aͲ5 Thereunder** | REPORT
FOR
THE
PERIOD
BEGINNING | 4/1/20 | AND
ENDING | 3/31/21 | | | |----------------------------------------------------------------------------------------------------------------------|----------------------------------------------------|-------------------------------------|---------------------------------|--|--| | | MM/DD/YY | | MM/DD/YY | | | | A.
REGISTRANT
IDENTIFICATION | | | | | | | NAME
OF
BROKERͲDEALER:
DAIWA
CORPORATE
ADVISORY
LLC

| | OFFICIAL
USE
ONLY


| | | | | ADDRESS
OF
PRINCIPAL
PLACE
OF
11th Floor
605
Third
Ave, | BUSINESS:
(Do
not
use
P.O.
Box | No.) |
FIRM
I.D.
NO.
| | | | | (No.
and
street) | | | | | | New
York | NY | | 10171 | | | | (City) | (State) | | (Zip
Code) | | | | NAME
AND
TELEPHONE
NUMBER
OF | PERSON
TO
CONTACT
IN
REGARD | TO
THIS
REPORT | | | | | Peter
Pacitto | | | (212)
904Ͳ9488 | | | | | | | (Area
Code
–
Telephone | | | | | | | Number) | | | | | B.
ACCOUNTANT
IDENTIFICATION | | | | | | INDEPENDENT
PUBLIC
ACCOUNTANT
whose
opinion
is
contained
in
this
Report* | | | | | | | KPMG
LLP | | | | | | | (Name | –
if
individual,
state
last,
first, | middle
name) | | | | | 345
Park
Avenue | New
York | NY | 10154 | | | | (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 | | | | | {2}------------------------------------------------ *\* Claims for exemption from the requirement that the annual report be covered by the opinion of an independent public accountant must be supported by a statement of facts and circumstances relied on as the basis for the exemption.See Section 240.17aͲ5(e)(2)* > **Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.** SEC 1410 (06Ͳ02) {3}------------------------------------------------ #### **TABLE OF CONTENTS** # **This report \*\* contains (check all applicable boxes):** - 7 Report of Registered Independent Public Accounting Firm. - 7 (a) Facing Page. - 7 (b) Statement of Financial Condition. - (c) Statement of Operations. - (d) Statement of Cash Flows. - (e) Statement of Changes in Member's Capital. - (f) Statement of Changes in Liabilities Subordinated to Claims of General Creditors. 7 Notes to Financial Statements. - (g) Computation of Net Capital. - (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3Ͳ3. - (i) Information Relating to the Possession or Control Requirements Under Rule 15c3Ͳ3 (not applicable). - (j) A Reconciliation, including appropriate explanations, of the Computation of Net Capital Under Rule 15c3Ͳ1 and the Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3Ͳ3 (not required). - (k) A Reconciliation between the audited and unaudited Statement of Financial Condition with respect to methods of consolidation (not applicable). - 7 (l) An Affirmation. - (m) A copy of the SIPC Supplemental Report (filed separately). - (n) A report describing any material inadequacies found to exist or found to have existed since the date of the previous audit. (not applicable) *\*\* For conditions of confidential treatment of certain portions of this filing, see section 240.17aͲ5(e)(3).* {4}------------------------------------------------ #### **AFFIRMATION** I, Peter Pacitto affirm that, to the best of my knowledge and belief, the accompanying financial statements and supplemental schedules pertaining to Daiwa Corporate Advisory LLC (the "Company") as of and for the twelve months ended March 31, 2021, are true and correct. I further affirm that neither the Company nor any partner, proprietor, principal officer or director has any proprietary interest in any account classified solely as that of a customer. ĂƐĞĚƵƉŽŶƚŚĞƐƚĂƚĞŵĞŶƚĨƌŽŵŽŵŵŝƐƐŝŽŶƐƚĂĨĨĂŶĚ ĚŝĨĨŝĐƵůƚŝĞƐĂƌŝƐŝŶŐĨƌŽŵŽǀŝĚͲϭϵ͕ǁĞǁŝůůƐƵďŵŝƚƚŚŝƐ ĨŝůŝŶŐǁŝƚŚŽƵƚĂŶŽƚĂƌŝnjĂƚŝŽŶ͘ ![](_page_4_Picture_3.jpeg) Peter Pacitto Chief Financial Officer and Chief Administrative Officer Subscribed to before me this 28th day of May, 2021. {5}------------------------------------------------ Statement of Financial Condition March 31, 2021 | ASSETS | | |------------------------------------------------------------------------|---------------| | Cash and cash equivalents | 23,432,188 | | Security deposits | 767,122 | | Accounts receivable, net of allowance of \$0 |
7,803,474 | | Property and equipment, net of accumulated depreciation of \$1,059,446 |
704,277 | | Deferred taxes | 6,742,891 | | Current taxes receivable | 2,918,989 | | Goodwill | 28,765,047 | | Lease right of use assets | 8,388,976 | | Prepaid and other assets | 727,486 | | Total assets | 80,250,450 | #### **LIABILITES AND MEMBER'S CAPITAL** | LIABILITES | | |----------------------------------------|----------------| | Accounts payable | 793,542 | | Accrued expenses | 12,814,369 | | Deferred Income | 964,516 | | Lease liabilities | 10,363,441 | | Total liabilities | 24,935,868 | | MEMBER'S CAPITAL | | | Common stock | 75 | | Additional paidͲin capital | 102,441,730 | | Accumulated (deficit) | (47,127,223) | | MEMBER'S CAPITAL | 55,314,582 | | Total liabilities and member's capital |
80,250,450 | | | | See accompanying notes to statement of financial condition {6}------------------------------------------------ Notes to Statement of Financial Condition March 31, 2021 #### **1. ORGANIZATION** Daiwa Corporate Advisory LLC (the "Company"), formerly known as DCS Advisory LLC, is a Delaware limited liability company and provides financial advisory services to clients in connection with mergers, acquisitions, financings, restructurings and other transactions. The Company may also act as a placement agent, arranger, dealerͲmanager and/or underwriter in certain transactions. The Company's clients consist of public and private companies in a variety of industries, including private equity firms. The Company maintains offices in the United States located in New York, California, Washington DC and Illinois. The Company is a whollyͲowned subsidiary of Daiwa Corporate Advisory Holdings Inc. ("Holdings), which is a whollyͲowned subsidiary of Daiwa Capital Markets Americas Holdings Inc. ("Daiwa") as a result of the completion of an acquisition. The Company is a member of the Financial Industry Regulatory Authority ("FINRA") and is a registered brokerͲdealer with the Securities and Exchange Commission (the "SEC"). # **2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** *Use of Estimates* ͲThe preparation of the Company's statement of financial condition in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the statement of financial condition and related disclosures.Actual results could differ materially from these estimates. *Fair Value of Financial Assets and Liabilities*ͲThe carrying value of financial assets and liabilities, including accounts receivable and certain other assets, and accounts payable and accrued expenses approximates their fair value due to the shortͲterm nature of these financial assets and liabilities. {7}------------------------------------------------ Notes to Statement of financial condition March 31, 2021 *Cash and Cash Equivalents*ͲThe Company considers all liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash held at two major U.S. financial institutions. *Fees Receivables* – Receivables are stated net of an allowance of doubtful accounts. The Company generally does not require collateral and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of clients, nonͲpayment risk of clients, historical trends and other information. It is the Company's policy to review all receivables greater than 90 days and record an allowance, if necessary. Credit risk related to fees receivable is dispersed across a large number of clients. Once we consider the receivable uncollectible based on credit worthiness of the client, we chargeͲoff the allowance.The allowance recorded in the statement of financial condition is \$0 as of March 31, 2021. *Property and Equipment*ͲProperty and equipment consists of furniture, fixtures, equipment, leasehold improvements, and computer hardware and software, which are stated at cost. Depreciation is computed using the straightͲline method over the lesser of the estimated useful life or five years of the relevant furniture, fixtures and office equipment, and three years for computer hardware and software. Leasehold improvements are amortized using the straightͲline method over the lesser of the economic useful life of such improvements or the life of the lease. Maintenance and repair costs are charged to expenses as incurred. The Company periodically evaluates the carrying value of property and equipment when events and circumstances suggest that such assets may be impaired and no such indicators were identified during the current year. *LeasesͲ*The Company's operating leases, where the Company is a lessee, include real estate, such as office space, and various types of office equipment. These leases have a weighted average remaining lease term of approximately eight years as of March 31, 2021. The operating lease ROU asset and lease liability were approximately \$8.4 million and \$10 million, respectively, as of March 31, 2021. {8}------------------------------------------------ Notes to Statement of financial condition March 31, 2021 *Goodwill and Other Intangible Assets* – The Company does not amortize goodwill, but tests it annually for impairment, or sooner when circumstances indicate an impairment may exist, using a quantitative approach. The Company may elect to perform a qualitative assessment. The Company performed a Step 1 analysis according to ASC 350 to determine whether the fair value of the reporting unit is less than its carrying amount.Intangible assets with definite useful lives are amortized over their useful lives to their residual values. *Income Taxes –* Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as the estimated future tax consequences attributable to net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the yearsin which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company's results of operations are included in the consolidated federal and certain combined state and local income tax returns filed by the Parent. In accordance with the tax sharing agreement, the Parent allocates to the Company its proportionate share of the consolidated federal and combined state and local tax liabilities on a separateͲcompany basis. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained in accordance to ASC 740, Income Taxes. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Interest and penalties recognized are classified as income tax expense. {9}------------------------------------------------ Notes to Statement of financial condition March 31, 2021 #### *Newly Adopted Accounting Pronouncements* In June 2016, the FASB issued ASU No. 2016Ͳ13, Financial InstrumentsͲCredit Losses (Topic 326)Ͳ Measurement of Credit Losses on Financial Instruments ("ASU 2016Ͳ13"). This ASU changes how companies measure credit losses on most financial instruments, including accounts receivable. Companies will be required to estimate lifetime expected credit losses, which is generally expected to result in earlier recognition of credit losses. The Company adopted this standard effective on April 1, 2020 under a modified retrospective approach. The cumulative effect of adopting this ASU had no impact on retained earnings. There have been no additional accounting pronouncements issued that are expected to have or could have a material impact on our financial position. # **3. GOODWILL** The Company performed a goodwill impairment test with respect to estimating the Fair Value of the Company in March 2021. As part of the annual impairment analysis, the Company's estimated future cash flows declined in the context of the current macroeconomic environment. As a result, the Company recorded an impairment charge of \$300,000 and a \$81,534 pertaining to the associated deferred tax effect calculated using the simultaneous equation as required by ASU 2017Ͳ04 which the company has adopted . The changes in the carrying amount of goodwill for the year ended March 31, 2021 are as follows: | Balance
as
of
March
31,
2020 | \$
29,146,581 | |---------------------------------------------|------------------| | Accumulated
impairment
losses |
(381,534) | | Balance
as
of
March
31,
2021 | \$
28,765,047 | #### **4. SECURITY DEPOSITS** Each of the longͲterm leases for the Company's offices in the United States required a security deposit. The Company has provided a cash deposit or fully cash collateralized letter of credit through a major financial institution in the United States to each of the landlords in connection with the respective office leases. No amounts have been drawn under any of the letters of credit. Total security deposits at March 31, 2021 were \$767,122. A portion of the security deposits will be reduced at various times throughout the applicable lease period with the final reductions arising no later than sixty days after the applicable lease expiration date. {10}------------------------------------------------ Notes to Statement of financial condition March 31, 2021 #### **5. PROPERTY AND EQUIPMENT** As of March 31, 2021, property and equipment consist of the following: | Furniture
and
fixtures | \$
101,18
4 | |---------------------------------------------|-------------------| | Computer
and
software |
495,419 | | Leasehold
improvements |
1,167,12
0 | | Less:
Accumulated
depreciation
and | 1,763,723 | | amortization |
(1,059,446) | | Property
and
equipment,
net | \$
704,277 | # **6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES** As of March 31, 2021, accounts payable and accrued expenses consist of the following: | Accrued
compensation
and
benefits | \$
12,828,153 | |--------------------------------------------|------------------| | Accrued
professional
fees |
180,000 | | Others |
599,758 | | | \$13,607,911 | {11}------------------------------------------------ Notes to Statement of financial condition March 31, 2021 #### **7. RELATED PARTY TRANSACTIONS** The Company entered into a Business Alliance with Daiwa Securities Capital Markets Co. Ltd. ("DSCM") and Daiwa Capital Markets America Inc. ("Daiwa CM America"). The purpose of the Business Alliance with DSCM is to increase crossͲborder investment banking opportunities for the Company, DSCM and its related parties, as well as their respective clients. Pursuant to the Business Alliance, the Company provides services to Daiwa parties. Information services means the continuous research and analysis and the provision of information, with respect to and not limited to, acquisition or investment opportunities, acquisition criteria and industry information, in each case using services. In 2017, DCMAH acquired Signal Hill Holdings and Sagent Holdings Inc which were subsequently merged to form the Company.In connection with the acquisitions, a portion of the merger consideration will be paid in installments to employees of the Company, and retention bonuses will be paid to key employees of the Company, subject to their remaining employed by the Company. These mergerͲrelated payments are being accrued by the Company and contributed to the Company by Daiwa. Pursuant to the Transaction, the Company and the Daiwa Parties collaborate to provide services to certain clients. In connection with any such collaboration, client billing responsibility is assigned to either the Company or the Daiwa Parties, which creates either a receivable or payable for the Company with the Daiwa Parties when client billings arise. In addition, pursuant to certain secondment agreements between the Company, the Daiwa Parties and certain Company employees, the Company is reimbursed by the Daiwa Parties for certain employee benefits and related administrative costs. Receivable from and payable to relates parties are recorded gross, by entity, and do not bear interest. Receivables from and payables to related parties represent advisory fees, ongoing support costs and vendor outͲofͲpocket expenses. {12}------------------------------------------------ Notes to Statement of financial condition March 31, 2021 #### **8. LEASES** *Operating Leases*ͲThe Company leases both longͲterm and shortͲterm office space at various locations in the United States pursuant to operating leases expiring at various times through December 2028. As of March 31, 2021, the future minimum payments under these operating leases are as follows: | | Lease | payments | |----------------------------------------------------------|-------|------------------| | FYE
3/31/22 | | \$
1,749,903 | | FYE
3/31/23 | |
1,568,842 | | FYE
3/31/24 | |
1,453,768 | | FYE
3/31/25 | |
1,508,500 | | FYE
3/31/26 | |
1,508,500 | | Thereafter | |
4,144,320 | | Total
future
lease
payments | | 11,933,833 | | Less
imputed
interest
(based
on
weightedͲ | | | | average
discount
rate
of
3.82%) | | (1,570,392) | | | | | | Lease
liability
| | \$10,363,441
| | | | | The imputed interest is calculated based on the incremental borrowing rate. *LitigationͲ*In the normal course of business, the Company may be named as a defendant in various lawsuits and may be involved in certain investigations and proceedings. Some of these matters may involve claims of substantial amounts. It is the opinion of management, after consultation with its counsel, that there are no matters pending against the Company that could have a material adverse effect on the statement of financial condition of the Company at March 31, 2021. {13}------------------------------------------------ Notes to Statement of financial condition March 31, 2021 #### **9. FAIR VALUE OF FINANCIAL INSTRUMENTS** The Company applies the provisions of ASC 820, Fair Value Measurements and Disclosures, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability. ASC 820 establishes a hierarchy that categorizes financial instruments, based on the priority of the inputs to the valuation technique into the following threeͲlevels: - Level 1ͲUnadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. - Level 2ͲQuoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly; and - Level 3ͲValuations that require inputs that are both unobservable and significant to the fair value measurement. At March 31, 2021, cash and cash equivalents amount to \$23,432,188, are maintained with a major commercial bank in the United States and are classified as level 1.There were no financial instruments reported at fair value classified as level 2 or level 3 as of March 31, 2021. # **10. INCOME TAXES** The significant components of the Company's net deferred tax assets included in other assets in the accompanying statement of financial condition at March 31, 2021 are as follows: | Deferred tax assets: | | |-------------------------------------------------|-----------------| | Goodwill | \$
2,841,504 | | Lease liabilities | 2,485,248 | | Bonus - deferred compensation | 1,974,304 | | AMT credit and net operating loss carryforward | 763,396 | | Mandates and pipeline | 738,892 | | Deferred revenue | 123,398 | | Total gross deferred tax assets | 8,926,742 | | Valuation allowance | — | | Deferred tax assets, net of valuation allowance | 8,926,742 | | Deferred tax liabilities: | | | ROU assets | (2,011,754) | | Depreciation | (172,097) | | Gross deferred tax liabilities | (2,183,851) | | Total deferred tax assets | \$
6,742,891 | {14}------------------------------------------------ Notes to Statement of financial condition March 31, 2021 The valuation allowance represents the portion of the Company's deferred tax assets for which it is more likely than not that the benefit of such items will not be realized. Management believes that the realization of the net deferred tax asset of \$6,742,891 at March 31, 2021 is more likely than not based on expectations of future taxable income. At March 31, 2021 the Company had Net Operating Loss Carryforwards(NOL's) of \$112,676 in states in which the Company no longer has a tax filing obligation with a full valuation allowance recorded. Management believesthere is only a remote probability that new customers will be engaged in these particular states. Therefore, the Company wrote off the deferred tax asset and the corresponding valuation allowance in respect to such net operating losses. Income taxes receivable from affiliates of \$2,918,989 are included in current tax receivable on the Statement of Financial Condition as of March 31, 2021. Major taxing jurisdictions for the Company and tax years for each that remain subject to examination are as follows: | U.S.
FederalMarch | 31,
2018
and
later | |-----------------------------|--------------------------------------| |
New
York
State | March
31,
2016
and
later | |
New
York
City
| March
31,
2017
and
later | As of March 31, 2021, the Company determined that it has no material uncertain tax positions, interest or penalties as defined within ASC 740, and accordingly, management has concluded that no additional ASC 740 disclosures are required. The Company does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within the next 12 months. #### **11. CONCENTRATIONS** ## Major Clients At March 31, 2021, the accounts receivable balance was \$7,803,474, one client represented 64% of the Company receivable balance. {15}------------------------------------------------ Notes to Statement of financial condition March 31, 2021 #### Cash and Cash Equivalents and Security Deposit Concentrations The Company maintains cash and cash equivalent balances, including security deposits, with major commercial banks in the United States. From time to time, the Company maintains cash and cash equivalents balances in excess of federally insured amounts. The Company performs periodic evaluations of the relative credit standing of these financial institutions. # **12. NET CAPITAL REQUIREMENT** The Company is subject to the SEC Uniform Net Capital Rule 15c3Ͳ1(a)(1)(ii) (the "Alternative Standard") which requires that the Company maintain minimum net capital, as defined, of \$250,000 or 2 percent of aggregate debit items computed in accordance with the formula for Determination of Reserve Requirements for Brokers and Dealers, whichever is greater. At March 31, 2021 the Company had net capital of \$6,881,328, which was in excess of its statutory requirement by \$6,631,328. The Company does not carry customer accounts and does not otherwise hold funds or securities for, or owe money or securities to customers and, accordingly, is exempt from SEC Rule 15c3Ͳ3. The Company is also filing an Exemption Report because the Company's other business activities contemplated by Footnote 74 of the SEC Release No. 34Ͳ70073 adopting amendments to 17 C.F.R. § 240.17aͲ5 are limited to: (a) Receiving transactionͲbased compensation for identifying potential merger and acquisition opportunities for clients; (b) Private placements of securities, and the Company (1) did not directly or indirectly receive, hold, or otherwise owe funds or securities for or to customers, (other than money or other consideration received and promptly transmitted in compliance with paragraph (a) or (b)(2) of Rule 15c2Ͳ4 and/or funds received and promptly transmitted for effecting transactions via subscriptions on a subscription way basis where the funds are payable to the issuer or its agent and not to the Company);. (2) did not carry accounts of or for customers; and (3) did not carry PAB accounts (as defined in Rule 15c3Ͳ3) throughout the most recent fiscal year without exception. {16}------------------------------------------------ Notes to Statement of financial condition March 31, 2021 #### **13. SUBSEQUENT EVENTS** The Company has evaluated subsequent events from the statement of financial condition date through May 28th, 2021, the date at which the statement of financial condition was available to be issued and determined that there are no other items to recognize or disclose. The spread of COVIDͲ19 has had a significant impact on the global economy and while it is reasonably possible that the virus could have an effect on Company's operations, the specific impact is not readily determinable as of the date of the statement of financial condition. The statement of financial condition does not include any adjustments that might result from the outcome of this uncertainty. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.