# MAINLINE SECURITIES LLC X-17A-5 (2020-03-02) — Broker-dealer annual report - Company: MAINLINE SECURITIES LLC - Form: X-17A-5 - Filed: 2020-03-02 - Period: 2019-12-31 - Accession: 0001622967-20-000001 - CIK: 1622967 - File #: 8-69544 - Material weakness: No - Auditor: BDO USA LLP - Auditor location: Philadelphia, PA - Contact: John Adams - Phone: 6108963057 - Signed by: John Adams (Chief Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/1622967/000162296720000001/MLSFinancialsFY19C.pdf --- {0}------------------------------------------------ # Mainline Securities, LLC (A wholly-owned limited liability company of Mainline Investment Partners, LLC) Financial Statements and Supplemental Information December 31, 2019 {1}------------------------------------------------ > Financial Statements and SupplementaL Information December 31, 2019 {2}------------------------------------------------ | C
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2 | The accompanying notes are cm integral part of these financial statements. {10}------------------------------------------------ #### Notes to Financial Statements #### 1 . Organization Mainline Securities, LLC ("Company") was established on August 18, 2014 and is organized under the laws of the state of Delaware. Effective March 28, 2016 the Company registerea as a brokerdealer under the Securities Exchange Act of 1934, as amended. The Company is a member of the Financial Industry Regulatory Authority ("FINRA"). The Company operates under the exemptive provisions of SEC Rute 1 5c3-3k(2)(i). The Company is wholly-owned by Mainline Investment Partners LLC ("MLIP" or "Member"). The primary business of the Company is to provide assistance in capital raises for private placement offerings and with selling of various financial insurance products. ### 2. Summary of Signtficant Accounting Policies The following is a summary of the significant accounting policies apptied by management in the preparation of the accompanying financial statements. #### Estimates The preparatxon of hnanctal statements in conform'ity with accounting principles generally accepted tn the Umted States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabiLities and d'isclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and experises during the reporting period Actual results could differ from those estimates #### Revenue Recognition The Company recogmzes reveriue in accordance with ASU 2014-09, Revenue from Contracts with Customers, wtnch creates a framework for recogmzmg revenue from contracts with customers that fall wtthin its scope This reveriue standard requires that the Company identify contracts with a customer, evaluate performance obligations in the contracts, determine the transaction price, allocate the transaction price to the performance obligations in the contracts and determine'when the performance obligations vvere satisfied to allow revenue recognition. The Company has elected a practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred due to its expectation that the amortization period of the asset otherwise recognized would be less than one year. Disaggregation of revenue by type of service provided can be found on the statement of operations for the year ended December 31, 2019. F3everiues from contracts with customers within the scope of this guidance include: #### Placement Fees The Company enters into placement agreements with sponsors related to private placement of securities which specifies the transaction fees to be paid. Placement fees are ear'ned when an investor is admitted into the issuing entity by the sponsor. Upon this acceptance, the Company has determined that the performance obligation has beeri satisfied and there are no other obligations that the Company needs to fulfill. Payment for the placement fee reveriue is also due upon acceptance or as stated in the terms of the placement agreement. As of December 31, 2019, the Company has extended the offering period with one of its sponsors into 2020. This fixed fee placement is being recognized as revenue on a prorated basis as each closing occurs and any remaining deferred revenue balance related to this non-refundable fee will be recognized as reverii.ie upon expiration of the offering period. The Company has recorded deferred reveriue of {11}------------------------------------------------ ### Notes to Financial Statements 537,500 representing the allocated portion of fees received for placement agreements that have not yet expired as of [)ecember 31, 2019. #### Commission Fees Commission fees earned from the original sale and renewal of universaL life and annuity insurance products are recognized upon the acceptance by the insurance company. Upon the acceptance of the original saLe, the Company has determined that its performance obLigation to provide a quaLified insured candidate has been satisfied and there are no ongoing obligations that the Company is required to fulfill. Renewal fees are variable consideration which are contingent upon the insured etecting to continue costera'ge. The Company does not believe this contingency is in its influence which fully constrains renewal revenues until this uncertainty is resolved. There are no additional performance obligations associated with earning renewal fees. Commission fees are a specified percentage of the commission schedule with the carrier and payments are timely receivrA from the customer. During 2019, the Company recognized approximately 59,000 of renewal commission income from past performance obligations. #### Income Taxes The Company is a single-member Limited Liability Company ("SMLLC") and is treated as a disregarded entity pursuant to Treasury Regulation 301.7701-3 for federal income tax purposes. Generally, disregarded entities are not subject to entity-level federal or state income taxation and, as such, the Company does not provide for income taxes under FASB ASC 740, "Income Taxes". The Company's taxable income is reported in the tax return of its single member, MLIP. Based upon its evaluation, the Company has concluded that there are no sigrnficant uncertain income tax positions relevant in the )urisdictions vvhere it is required to file mcome tax returris requiring recogmtion in the statement of financial condit'ion Management momtors proposed and issued tax law, regulations and cases to determine the potential impact to uncertain income tax positions At December 31, 2019, management had not identified any potential subsequent events that wou(d have a material impact on unrecogmzed mcome tax benefrts The Company believes its tax status as a pass through entity would be sustained under Federal, state, or local income tax examination. The Company is subject to examination by taxing authorities in various jurisdictions. The operi tax years subject to examination vary by jurisdiction but in genercil are the preceding three years. The Company is not currently under examination by any taxing authority. #### Recent Accounting Pronouncements On January 1, 2019, the Company adopted ASU 2016-02 Leases, using the modified retrospective method to recognize the right of use asset and lease Liability reLated to the operating lease for office space. The Company elected the package of practical expedients permitted under the transition guidance which allowed the company to carryforward the historical lease classification. The Company wiLL not record an operating (ease right-of-use ("ROU") asset and corresponding lease liability for leases with an initial term of twelve months or less and recognizes lease experise for these leases as incurred over the lease term. The Company does not have a public credit rating and as such used a corporate yield consistent with tenant undetwriting for a commensurate company {12}------------------------------------------------ #### Notes to Financial Statements and term of its lease as its incremental borrowing rate in determining the present value of lease payments. Lease expense is recognized on a straight-line basis over the Lease term. The Company's lease arrangement does not have lease and non-lease components which are accounted for separately. Adoption of this standard resulted in recording a right of use asset and liabiLity of approximately 517,000 based on the present value of lease payments over the lease term. As of December 31, 2019, approximately 55,236 of the Company's operating lease ROU asset had been amortized (see Note 5). In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326)." The updated guidance requires the recognition of credit losses on financial instruments based on an estimate of expected losses, replacing the incurred loss model in the prior guidance. We will adopt the updated accounting guidance prospectively in the first quarter of 2020. The Company does not expect this accounting guidance to have a material impact on its results of operations o'r financial position. ### 3. Liquidity The Company has evatuated the guidance in ASC 205-40 "Going Concern". The Company's financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business at least beyond a year from the date the financial statements are issued. The Company has gerieratea net losses since its inception in 2014 and has reported a net loss of '3116,321 and net cash utilized in operating activities 'of 597,057 for the year ended December 31, 2019, all of which are indicators of a potential going concern uncertainty. The Company is attempting to improve operations and gerierate sufficient revenue to attain profitability; however, the Company's short term operating results may not be sufficient to meet the Company's operating obligations through March 2, 2021. To address the Company's potential operating shortrall, the Company intends to accept additional capital contributions from its Member'. In Feb-ruary 2020, the Company received a 545,000 capital contribution from its Member. While the long-term ability of the Company to continue to operate as a going concern is dependent upon the Company's ability to further implement its business plan and generate sufficient revenue to attarn profitability, management 's plan to accept additional capital contributions from its Member has alleviated the substantial doubt about the Company's ability to continue as a going concern within one year from the date of issuance of these financial statements. ### 4, Concentrations #### Cash Balances The Company maintains its cash in a bank account which, at times, may exceed federally insured limits. The Company mitigates this risk by only depositing funds with a major institution and has not experienced any losses from maintaining cash account balances in excess of federally insured limits. {13}------------------------------------------------ ### Notes to Financial Statements #### Insurance Commissions The Company derives a portion of its reverii.ie from the placement of universal Life and annuity 'insurance with several insurance carriers. The Company is not bound to'exclusivity with any insurance carrier and works with customers to determine the most appropriate policy and carrier. Insurance commissions are earned through a single insurance registered represeritative. f?everiue derived from these carriers for 2019 was as follows: | | R
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15 | #### Placement Fees The Company earns private equity security placement fees when a client is admitted into an issuing fund For the year ended December 31, 2019, pLacement fee revenue was primarily generated from five affiliated private funds in the following composition: | | f?
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10 | As of December 31, 2019, Private Fund A has a placement fee receivable due to the Company of 542,188. ### s. Related Party Transactions #### Office Sublease On December 9, 2016, the Company eritered into an office sublease agreemerit with its Member. Under the terms of the agreement, the annual sublease commenced on December 9, 2016 and wil( reriew automatically for five successive one year periods unless either party gives written notice of termination. The Company has assumed that all reriewal options will be exercised. In addition to the annual sublease minimum rent (56,312 with 5111 annual increases), the Company wiLl be responsible for their pro-rata share of taxes and operating expenses. During 2019, the Company incurred sublease expenses of 56,649 for amounts incurred under the agreement and is included as part of other expenses in the accompanying statement of operations. The following table summarizes the Company's operating lease information including future minimum lease payments under the lease as of December 31, 2019: {14}------------------------------------------------ #### Notes to Financial Statements | Fo
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56 | #### Expense Sharing and Administrative Services Agreement Effective August 17, 2015, the Company eritered mto an expense sharing and admimstrative services agreement with its sole member, MLIP, Mainline Investment Advisers, LLC ("MLIA"), Merion Realty Advisers, LLC ("Merion"), and Mamlme Private Wealth, LLC ("MLPW") MLIP, MLIA, Merion, and MLPW are collectively referred to as "Mamline Provider Affiliates " Under the terms of the agreement, the Mainlme Provider Affiliates employ personnel who provide services to the Company, including management oversight, back office, and similar support, or from time to time may fund certatn other expenses related to the other operation of the Company such as facility rental costs, computer and IT costs, among other, to the Company During 2019, the Company mcurred admmistrative fees to Mainline Provyder Affiliates of 5138,658 for amounts incurred under the agreement, !>52,398 of which is payable as of December 31, 2019 The Due to affiliated entity are detailed in the accompanying statement of financial condition. ### 6. Net Capital Requirements r The Company is subject to the Securities and Exchange Commission uniform Net Capital Rule (SEC Rule 1 5c3-1 ), which requires the maintenance of minimum "net capital" and requires that the ratio of "aggregate indebtedness" to net capital, both as defined, shall not exceed 1 500%. At December 31, 2019, the ratio was 130.95%. At December 31, 2019, the Company had net capital, as defined, of !>85,568, which was !)78,098 in excess of its required net capital of-57,470. The Company is exempt from the caLculation of the reserve requirement under Rule 15c3-3k(2)(i) due to the fact that it carries no margin account, promptly transmits all customer funds and delive'rs all securities received in connection with its activities as a broker-dealer, does not otherwise hold funds or securities for, or owe money or securities to, customers and effectuates all financial transactions betvveen the broker-dealer and its customers through a special account for the exclusive benefit of its customers. {15}------------------------------------------------ #### Notes to Financtal Statements #### 7. Subsequent Events On February 27, 2020, the Company received a capital contribution from its sole member, MLIP, in the amount of 545,000. {16}------------------------------------------------ Supplemental Information {17}------------------------------------------------ ### Computation of Net Capital Pursuant to Rule 1 5c3-1 of the Securities and Exchange Commission and Statement Pursuant to Rule 1 7a-5(d)(7)(iii) | D
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95 | #### Statement Pursuant to Rule 1 7a-5(d)(2)(iii) A reconciliation of the Company's computat!on of net capital as reported in the unaudited Part 114 of Form X-17A-s was not prepared as there are no material differences between the Company's computation of net capital in Part 11 A of Form X-17A-s and the computation contained herein. {18}------------------------------------------------ ### Management's Exemption Report Mainline Securities, LLC (the "Company") is a registereA broker-dealer subject to Rule 1 7a-s promulgated by the Securities and Exchange Commission (17 C.F.R. S240.l7a-s, "Reports to be made by certain brokers and dealers"). This Exemption Report was prepared as required by 17 C.F.R. S 240. 17a-5(d)(1 ) and (4). To the best of its knowledge and belief, the Company states the following: - 1 ) The Company claimed an exemption from 1 7 C.F.R. S 240.1 5c3-3 under the following provisions of 17 C.F.R. S 240.l5c3-3(k)(2)(i). - 2) The Company met the identified exemption provisions in 17 C.F.R. S 240.l5c3-3(k) throughout the most recent fiscal year without exception. Mainline Securities, LLC I, John T. Adams, affirm that, to my best knowledge and belief, this Exemption Report is true and correct, B7: ) Title: Chief Financial Officer March 2, 2020 Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.