# HRC FUND ASSOCIATES, LLC X-17A-5 (2023-02-22) — Broker-dealer annual report - Company: HRC FUND ASSOCIATES, LLC - Form: X-17A-5 - Filed: 2023-02-22 - Period: 2022-12-31 - Accession: 0001383775-23-000001 - CIK: 1383775 - File #: 8-67496 - Type: Broker-dealer - Material weakness: No - Auditor: WithumSmith&Brown, PC - Auditor location: Princeton, NJ - Contact: Scott Daniels - Phone: 212-7514422 - Email: sdaniels@dfppartners.com - Website: dfppartners.com - Signed by: Scott Daniels (Chief Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/1383775/000138377523000001/hrcpublic2022.pdf --- {0}------------------------------------------------ | | UNITED STATES | | | | | | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|---------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|-----------------|--------------------------------------------|--| | SECURITIES AND EXCHANGE COMMISSION | | | | OMB APPROVAL | | | | Washington, D.C. 20549 | | | OMB Number: 3235-0123
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hours per response: 12 | | | | | | ANNUAL REPORTS | | | | | | | FORM X-17A-5 | | | | SEC FILE NUMBER | | | | PART III | | | | 8-67496 | | | | | | FACING PAGE | | | | | | Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934 | | | | | | | | REPORT FOR THE PERIOD BEGINNING | 01/01/2022
MM/DD/YY | AND ENDING | 12/31/2022
MM/DD/YY | | | | | | | A. REGISTRANT IDENTIFICATION | | | | | | NAME OF FIRM: HRC FUND ASSOCIATES LLC | | | | | | | | TYPE OF
REGISTRANT (check all applicable boxes):
☒Broker-dealer
☐Security-based swap
dealer
☐Major security-based swap participant
☐ Check here if respondent is also an OTC derivatives dealer | | | | | | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | | | | | | | | 20th Floor
100 Wall Street – | | | | | | | | (No. and Street) | | | | | | New York | | NY | | 10005 | | | | (City)
PERSON TO CONTACT WITH REGARD TO THIS FILING | | (State) | | | (Zip Code) | | | Scott Daniels | 212-751-4422 | | sdaniels@dfppartners.com | | | | | (Name) | (Area Code – Telephone Number) | | | (Email Address) | | | | | | B. ACCOUNTANT IDENTIFICATION | | | | | | INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing* | | | | | | | | | | WithumSmith&Brown, PC
(Name – if individual, state last, first, middle name) | | | | | | 506 Carnegie Center –
Suite 400 | Princeton | | NJ | | 08540 | | | (Address) | (City) | | (State) | | (Zip Code) | | | 10/08/2003 | | | | | 100 | | | (Date of Registration with PCAOB)(if applicable) | | | | | (PCAOB Registration Number, if applicable) | | | | | | | | | | \* 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 statement of facts and circumstances relied on as the basis of the exemption. See 17 CFR 240.17a-5(e)(1)(ii), if applicable. **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.** {1}------------------------------------------------ - - - - - - - - - - - - - - - - - - - - - - - - - - {2}------------------------------------------------ STATEMENT OF FINANCIAL CONDITION AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 2022 {3}------------------------------------------------ # **CONTENTS** | Independent Auditors' Report | | |----------------------------------|-----| | Financial Statement | | | Statement of Financial Condition | 2 | | Notes to Financial Statement | 3-6 | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) # REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Management and Members of HRC Fund Associates, LLC: #### Opinion on the Financial Statement We have audited the accompanying statement of financial condition of HRC Fund Associates, LLC (the "Company") as of December 31, 2022, and the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. #### Basis for Opinion This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion. We have served as the Company's auditor since 2015. New York, New York February 21, 2023 {5}------------------------------------------------ # **STATEMENT OF FINANCIAL CONDITION** | December 31, 2022 | | |---------------------------------------|-----------------| | | | | ASSETS | | | Cash and cash equivalents | \$
1,345,316 | | Fees receivable | 68,583 | | Fees receivable - affiliate | 78,659 | | Prepaid expenses | 37,754 | | | | | | \$
1,530,312 | | LIABILITIES AND MEMBERS' EQUITY | | | Liabilities | | | Accounts payable and accrued expenses | \$
75,115 | | Due to affliliate | 325,219 | | Taxes payable | 14,127 | | | | | | 414,461 | | Members' equity | 1,115,851 | | | \$
1,530,312 | {6}------------------------------------------------ # **NOTES TO FINANCIAL STATEMENTS** ### **1. Nature of business and summary of significant accounting policies** #### *Nature of Business* HRC Fund Associates, LLC (the "Company") is a broker-dealer registered with the Securities and Exchange Commission ("SEC"). The Company is also a member of the Financial Industry Regulatory Authority ("FINRA"). The Company's operations consist of acting as a placement agent (or finder) for hedge funds and similar private investment funds and marketing agent for registered mutual funds. The Company markets these mutual funds exclusively to other registered broker-dealers and financial consultants and does not transact any wholesale or retail sales of mutual fund shares. The Company is registered as a broker-dealer in 44 states and has one office located in New York City. ### *Basis of Presentation* The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). #### *Cash Equivalents* The Company considers its investments in a short-term money market account to be cash equivalents. ### *Fees Receivable* The Company carries its fees receivable at cost less an allowance for credit losses. The Company follows the guidance in Accounting Standards Codification ("ASC") Topic 326, *Financial Instruments – Credit Losses* ("ASC 326"). ASC 326 applies to certain financial assets measured at amortized cost by requiring a current expected credit loss ("CECL") methodology to estimate expected credit losses over the entire life of the financial asset to be recorded at inception or purchase. The allowance for credit losses is based on the Company's expectation of the collectability of financial instruments carried at amortized cost, including fees receivable utilizing the CECL framework. The Company considers factors such as historical experience, credit quality, age of balances and current and future economic conditions that may affect the Company's expectation of the collectability in determining the allowance for credit losses. The Company's expectation is that the credit risk associated with fees receivable is not significant until they are 90 days past due on the contractual arrangement and expectation of collection in accordance with industry standards. On a periodic basis, the Company evaluates its fees receivable and establishes an allowance for credit losses. Fees receivable are written off when management determines the fees are not collectible. Management does not believe that an allowance is required as of December 31, 2022. {7}------------------------------------------------ # **NOTES TO FINANCIAL STATEMENTS** # **1. Nature of business and summary of significant accounting policies (continued)** #### *Revenue Recognition* ASC Topic 606, *Revenue from Contracts with Customers*, is the revenue recognition guidance that requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires an entity to follow a five step model as follows: (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a performance obligation. Disaggregation of revenue can be found on the statement of operations for the year ended December 31, 2022 by type of revenue streams. The Company's principle sources of revenue are derived from marketing fees. The revenue recognition guidance does not apply to revenue associated with financial instruments, interest income and expense, leasing and insurance contracts. The following is a description of marketing fees. The Company enters into arrangements with pooled investments (funds) or other managed accounts to distribute shares to investors. The Company may receive marketing fees paid by the fund up front or over time or a combination thereof. The Company believes that its performance obligation is the sale of securities to investors and, as such, this is fulfilled on the trade date. Any fixed amounts are recognized on the trade date, and variable amounts are recognized to the extent it is probable that a significant revenue reversal will not occur once the uncertainty is resolved. For variable amounts, as the uncertainty is dependent on the value of the shares at future points in time as well as the length of time the investor remains in the fund, both of which are highly susceptible to factors outside the Company's influence, the Company does not believe that it can overcome this constraint until the market value of the fund and the investor activities are known, which are usually quarterly. ## *Income Taxes* The Company is a limited liability company and treated as a partnership for income tax reporting purposes. The Internal Revenue Code provides that any income or loss is passed through to the members for federal and state income tax purposes. Accordingly, the Company has not provided for federal or state income taxes. The Company, however, is subject to the New York City Unincorporated Business Tax. At December 31, 2022, management has determined that the Company had no uncertain tax positions that would require financial statement recognition. This determination will always be subject to ongoing reevaluation as facts and circumstances may require. Generally, the Company is no longer subject to income tax examinations by major taxing authorities for years before 2018. #### *Pass-Through Entity Tax* The Tax Cuts and Job Act of 2017 limited an individual's state and local tax deduction to \$10,000, and states have been exploring pass-through entity tax workarounds in response. In November 2020, the Internal Revenue Service gave guidance to allow state tax deductions at the pass-through entity level and opened the floodgates to more states enacting pass-through entity taxes. Each state's workaround is unique and creates complexities in the entity's accounting for the pass-through entity tax ("PTET"). {8}------------------------------------------------ # **NOTES TO FINANCIAL STATEMENTS** # **1. Nature of business and summary of significant accounting policies (continued)** There is currently no authoritative guidance on how to account for the PTET in GAAP basis financial statements. The first decision is whether a state's PTET paid by the entity, based on the laws and regulations of each specific jurisdiction, is attributable to the owners or attributable to the entity. If attributable to the owners, the transaction would be accounted for as a transaction with an owner (i.e., accounted for as an equity transaction). If attributable to the entity, the transaction would be accounted for under ASC Topic *740, Income Taxes*, similar to other income-based taxes. In addition, disclosure of the entity's PTET election and the related accounting policy should be included in the footnotes of the financial statement for as long as such election is in effect. New York State enacted the Pass-Through Entity Tax Act ("PTET") effective for tax years beginning on or after January 1, 2021. PTET allows pass-through entities to elect to pay the New York State tax due on the members' share of net income of the Company. The Company has chosen to make the election for the year ended December 31, 2022. ### *Use of Estimates* The preparation of financial statements in conformity with GAAP requires the Company's management to make estimates and assumptions that affect the amounts disclosed in the financial statements. Actual results could differ from those estimates. # *Service Agreement* Pursuant to a service agreement, an affiliate of the Company provides various services and other operating assistance to the Company. The agreement provides for professional services, physical premises, utilities, and the use of fixed assets, travel, insurance, subscriptions, taxes, personnel, and other general and administrative services. At December 31, 2022, the amount due to the affiliate for fees pursuant to the service agreement was approximately \$325,000. An affiliate of the Company provides bookkeeping, accounting, tax preparation and compliance services. At December 31, 2022 approximately \$16,000 was due to the affiliate for such services and is included in accounts payable and accrued expenses on the statement of financial condition. {9}------------------------------------------------ # **NOTES TO FINANCIAL STATEMENTS** #### **2. Related party transactions** #### *Major Customer* Fees earned from an affiliated customer accounted for 94% of the marketing fees earned in 2022 and 53% of the fees receivable at December 31, 2022. #### **3. Net capital requirement** The Company, is subject to the SEC Uniform Net Capital Rule 15c3-1. This rule requires the maintenance of minimum net capital and that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1 and that equity capital may not be withdrawn if the resulting net capital ratio would exceed 10 to 1. At December 31, 2022, the Company's net capital was approximately \$931,000, which was approximately \$903,000 in excess of its minimum requirement of approximately \$28,000. ### **4. Exemption from Rule 15c3-3** The Company is exempt from the Securities and Exchange Commission Rule 15c3-3, as it does not hold customer funds or perform safekeeping for customer securities. #### **5. Income taxes** The Company recorded income tax expense of approximately \$5,600 for New York City UBT for the year ended December 31, 2022 in the accompanying financial statements. As of December 31, 2022, the Company had a receivable of \$6,400 included in prepaid expenses on the accompanying statement of financial condition relative to current "PTET" taxes. There is a \$14,100 income tax payable on the statement of financial condition. # **6. Concentrations of credit risk** The Company maintains its cash balances in various financial institutions, which at times may exceed federally insured limits. These balances are insured by the Federal Deposit Insurance Corporation for up to \$250,000 per institution. The Company is subject to credit risk should these financial institutions be unable to fulfill their obligation. ### **7. Subsequent events** There are no other subsequent events which require disclosure in the notes to the financial statements. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.