# VELOX CLEARING LLC X-17A-5/A (2022-03-01) — Broker-dealer annual report - Company: VELOX CLEARING LLC - Form: X-17A-5/A - Filed: 2022-03-01 - Period: 2021-12-31 - Accession: 0001717774-22-000004 - CIK: 1717774 - File #: 8-70017 - Type: Broker-dealer - Material weakness: No - Auditor: Armanino LLP - Auditor location: Woodland Hills, CA - Contact: Amir Montasser - Phone: 949-352-4691 - Signed by: Gaelin Monkman-Kotz (Co-CEO) Original filing: https://www.sec.gov/Archives/edgar/data/1717774/000171777422000004/VeloxPublicStatements.pdf --- {0}------------------------------------------------ # Velox Clearing LLC ## Statement of Financial Condition With Report of Independent Registered Public Accounting Firm December 31, 2021 Filed as public information pursuant to Rule 17a-5(d) under the Securities Exchange Act of 1934 {1}------------------------------------------------ ### Velox Clearing LLC Statement of Financial Condition December 31, 2021 #### ASSETS . | Cash | \$
4,783,403 | |----------------------------------------------|------------------| | Cash segregated under federal regulations | 6,104,269 | | Receivable from customers and correspondents | 14,371,425 | | Receivable from clearing organizations | 11,270,639 | | Receivable from broker-dealers | 4,699,736 | | Receivable from affiliates | 542,167 | | Restricted cash | 400,000 | | Right-of-use lease asset | 703,613 | | Property and equipment, net | 432,662 | | Other assets | 352,941 | | TOTAL ASSETS | \$
43,660,855 | | LIABILITIES AND MEMBER'S EQUITY | | | Accounts payable and accrued expenses | \$
729,734 | | Payable to customers and correspondents | 21,237,144 | | Payable to broker-dealers | 519,260 | | Payable to clearing organization | 78,700 | | Payable to affiliates | 124,715 | | Operating lease liability | 1,009,618 | | TOTAL LIABILITIES | 23,699,171 | | | | | MEMBER'S EQUITY | | | Member's contributions | 31,483,200 | | Accumulated deficit | (11,521,516) | | TOTAL MEMBER'S EQUITY | 19,961,684 | | TOTAL LIABILITIES AND MEMBER'S EQUITY | \$
43,660,855 | | | | The accompanying notes are an integral part of these financial statements {2}------------------------------------------------ ### Note 1. Organization and Description of Business Velox Clearing LLC (the "Company") was formed on August 9, 2017 in the State of Nevada. It is a wholly owned subsidiary of Velox Holdings Inc., a Nevada Corporation (the "Parent"). The Company is a clearing broker-dealer registered with the Securities and Exchange Commission ("SEC"), a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"), the Securities Investor Protection Corporation ("SIPC"), National Securities Clearing Corp. ("NSCC"), the Depository Trust Company ("DTC"), CBOE-BYX, CBOE-BYZ, CBOE-EDGA, CBOE-EDGX, Investors Exchange ("IEX"), The Nasdaq Stock Market ("NQX"), and the New York Stock Exchange ("NYSE"). ### Note 2. Summary of Significant Accounting Policies ### Basis of presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). ### Use of estimates The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Management believes that the estimates utilized in preparing its financial statements are reasonable. However, actual results could differ from those estimates. ### Restricted cash Restricted cash represents cash held for the Company's letter of credit on its office lease agreement (See Note 3). ### Cash segregated under federal regulations Cash segregated and on deposit for regulatory purposes consists of cash in special reserve bank accounts for the exclusive benefit of clients under Rule 15c3-3 of the Securities Exchange Act of 1934 (the "Customer Protection Rule") and other regulations. ### Concentration of credit risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. Cash is deposited with federally insured commercial banks in the United States and cash balances may, at times, exceed federally insured limits. Management believes that these financial institutions are financially sound and, accordingly, minimal credit risk exists. The Company allows clients and their customers to enter into securities transactions on a cash or margin basis. Credit extended for margin accounts are subject to regulatory and internal requirements. The Company monitors margin levels and will require additional deposits or {3}------------------------------------------------ ### Note 2. Summary of Significant Accounting Policies – (continued) ### Concentration of credit risk - continued reduction of positions if necessary. In addition, the Company performs various services for its clients. The Company monitors the related receivables for collectability. ### Receivables from and payables to broker-dealers and clearing organizations Receivables from broker-dealers and clearing organizations include amounts receivable from securities not delivered by the Company to a purchaser by the settlement date, and deposits with clearing organizations. Payables to broker-dealers and clearing organizations include amounts payable for securities not received by the Company from a seller by the settlement date. ### Receivable from and payable to customers Customer securities transactions are recorded on a settlement date basis. Receivables from customers and payable to customers include amounts due on cash and margin transactions. Securities owned by customers are held as collateral for receivables. Securities owned by customers, including those that collateralize margin loans or other similar transactions, are not reported in the statement of financial condition. ### Receivable from and payable to correspondents The Company collects commissions and other fees from end customers each month. As stipulated by individual agreements with correspondent introducing brokers ("Correspondents"), the Company calculates and distributes amounts due from or to Correspondents. ### Property and equipment Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 7 years. Amortization of leasehold improvements is computed using the straight-line method over the lesser of the estimated useful life of the asset or the term of the lease. ### Other assets Other assets are comprised of receivables generated in the normal course of business, such as interest receivables, prepaid expenses, and a security lease deposit. {4}------------------------------------------------ ### Note 2. Summary of Significant Accounting Policies – (continued) ### Leases The Company determines if an arrangement is a lease at inception. For leases where the Company is the lessee, right-of-use ("ROU") assets represent the Company's right to use the underlying asset for the term of the lease, and the operating lease liability represents an obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date of the underlying lease arrangement to determine the present value of lease payments. The ROU asset is determined based on the lease liability initially established and reduced for any prepaid lease payments and any lease incentives received. The lease term to calculate the ROU asset and related lease liability includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company's lease agreements generally do not contain any material variable lease payments, residual value guarantees or restrictive covenants. The Company elected the package of practical expedients permitted under the transition guidance, which allowed for the carry-forward of the Company's historical lease classification and assessment on whether a contract is or contains a lease. The Company elected to not apply the new standard's ### Note 2. Summary of Significant Accounting Policies – (continued) ### Leases - continued recognition requirements to leases with an initial term of 12 months or less and instead elected to recognize lease payments in the statement of operations on a straight-line basis over the lease term. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while expense for financing leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition. The Company accounts for lease components and non-lease components as a single lease component. ### Income taxes The Company is a limited liability company for federal and state income tax purposes. Under laws pertaining to income taxation of limited liability companies, no federal income tax is paid by the Company. The income or loss of the Company is taxed to the member in its respective return. Accordingly, no provision for income taxes besides the \$12,800 minimum California state franchise tax is reflected in the accompanying financial statements. The Company evaluates its tax positions taken or expected to be taken in the course of preparing tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the "more-likely-than-not" threshold {5}------------------------------------------------ ### Note 2. Summary of Significant Accounting Policies – (continued) are recorded as an expense in the applicable year. As of December 31, 2021, the Company does not have any significant uncertain tax positions for which a reserve would be necessary. ### Note 3: Letter of Credit On December 31, 2021, the Company had a letter of credit in the favor of its office landlord. The letter of credit is in the amount of \$400,000 and expires at the end of the related lease term in July 2024. ### Note 4. Property and Equipment, Net Property and equipment consist of the following at December 31, 2021: | Computer
equipment | \$
54,139 | | |------------------------------------------------|---------------|--| | Furniture
and
fixtures | 101,677 | | | Office
equipment | 7,354 | | | Leasehold improvements | 668,480 | | | Internally developed software | 31,544 | | | | 863,194 | | | Less accumulated depreciation and amortization | (430,530) | | | | \$
432,662 | | Total depreciation and amortization expense for the year ended December 31, 2021 was \$159,472 of which \$17,887 was charged back to other affiliates of the Company through an expense sharing agreement (See Note 7). ### Note 5. Net Capital Requirements The Company, as a registered broker-dealer in securities, is subject to the Uniform Net Capital Rule 15c3-1 of the Securities and Exchange Commission. The Company computes its net capital requirement under the alternative method provided for in Rule 15c3-1. Under the alternative method, the Company shall not permit its net capital to be less than the greater of \$1,500,000 or 2 percent of aggregate debit items computed in accordance with the Formula for Determination of Reserve Requirements for Brokers and Dealers, as defined. On December 31, 2021, the Company's net capital was \$18,072,948, which exceeded the minimum net capital requirement of \$1,500,000 by \$16,572,948. ### Note 6: Trading Activities and Related Risks The Company's trading activities are comprised of providing securities clearing services to clients. Trading activities expose the Company to market and credit risks. These risks are managed in accordance with established risk management policies and procedures. The Company is not trading or settling penny stocks, as defined by the Securities and Exchange Commission. {6}------------------------------------------------ ### Note 6: Trading Activities and Related Risks – (continued) In the normal course of business, the Company clears, settles, and finances various customer transactions. Clearance of these transactions includes the purchase and sale of securities which exposes the Company to default risk arising from the potential that customers or counterparties may fail to satisfy their obligations. In these situations, the Company may be required to purchase or sell financial instruments at unfavorable market prices to satisfy obligations to customers or counterparties. Liabilities to other brokers and dealers related to unsettled transactions are recorded at an amount for which the securities were purchased and paid upon receipt of the securities from other brokers or dealers. In the case of aged securities not received, the Company may purchase the underlying security in the market and seek reimbursement for any losses from counterparties. The Company may be exposed to off-balance-sheet risk. In the normal course of business, the Company clears securities purchase and sales transactions on behalf of its clients. If another party involved in the transaction fails to fulfill its contractual obligation, the Company may incur a loss if the market value of the security is different from the contract amount of the transaction. The Company may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer's or broker's obligations. ### Note 7. Related Party Transactions The Company entered into a technology service agreement with an affiliate Velox Technologies in March 2020. The agreement was subsequently amended in October 2020. Under this agreement Velox Technologies agrees to develop, design, sell and provide additional services related to the software that the Company may use. On December 31, 2021, amounts due to Velox Technologies totaled \$15,427. In 2019, the Company entered into an expense sharing agreements with two affiliates of the Parent, Velox Technologies and Zinvest Financial Service LLC. Both affiliates are sharing the office space and certain office equipment with the Company. On December 31, 2021, the Company was due \$254,800 from Zinvest Financial Service LLC. On September 30, 2020, the Company entered into a line of credit agreement with the Parent for \$8,000,000. The Loan had a maturity date of December 31, 2021, was renewed through December 30, 2022, and bears an interest rate of Federal Funds plus two percent. As of December 31, 2021, the Company had no borrowings outstanding under this facility. ### Note 8. Employee Benefit Plan The Company provides a defined contribution 401(K) employee benefit plan ("the Plan") that covers substantially all employees. All employees are eligible to participate in the Plan based on meeting certain term of employment requirements. The Company did not make an employer contribution during 2021. {7}------------------------------------------------ ### Note 9. Commitments and Contingencies ### Contingencies The Company recognizes liabilities that it considers probable and can be reasonably estimable as contingencies and accrues the related costs it believes sufficient to meet the exposure. In the normal course of business, the Company is subject to certain pending and threatened legal actions. On December 27, 2021, a case was filed by former employees of the Company alleging that the Company did not uphold its employment obligations. The outcome can not be determined or estimated as of February 28, 2022. Management believes that the Company has no other pending litigation as of December 31, 2021, that was not sufficiently accrued for. ### Commitments The Company entered into a 4-year service agreement with FIS Phase 3 ("Phase 3"). The service agreement is effective January 2019 through December 2022. The agreement calls for the Company topay a minimum fee of \$900,000 for the remaining term of the contract, plus professional services, pricing charges, and volume-based fees. ### Note 9. Commitments and Contingencies – (continued) ### Guarantee The Company is a member of exchanges and clearing houses. The Company may be required to pay a proportionate share of the financial obligations of another member who may default on its obligations to the organization. In general, the Company's guarantee obligation would arise only if the organization had previously exhausted its resources. In addition, any such guarantee obligation would be apportioned among the other non-defaulting members of the organization. Any potential contingent liability under these membership agreements cannot be estimated. As of December 31, 2021, the Company has not recorded any contingent liability in the statement of financial condition for these agreements and believes that any potential requirement to make payments under these agreements is immaterial. ### Note 10. Leases The Company leases office space in Anaheim, California under a non-cancelable operating lease, which expires on August 31, 2024. Amounts reported in the statement of financial condition as of December 31, 2021, related to the operating lease include a right-of-use lease asset of \$703,613 and a lease liability of \$1,009,618. Lease costs for the year-ended December 31, 2021, was \$245,645, which includes \$138,104 of rent expense and \$107,541 of leasehold improvement depreciation. {8}------------------------------------------------ #### Note 10. Leases - continued The Company's future minimum annual lease payments are as follows: | Year
Ending December
31: | | |--------------------------------|-----------------| | 2022 | \$
383,256 | | 2023 | 395,024 | | 2024 | 270,214 | | | 1,048,494 | | Less: present value discount | (38,876) | | Operating lease liability | \$
1,009,618 | ### Note 11. Note Payable – Paycheck Protection Program In April 2020, the Company received loan proceeds in the amount of \$495,700 from a promissory note issued by BMO Harris Bank National Association, under the Paycheck Protection Program ("PPP"). The Company initially recorded a note payable and subsequently recorded forgiveness when the loan obligation was legally released. The Company recognized \$501,866 of loan forgiveness income for the year ended December 31, 2021, including interest of \$6,166. ### Note 12. Risks and Uncertainties - COVID-19 On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The COVID-19 outbreak in the United States has caused business disruption through mandated and voluntary closings of businesses and shelter in place orders. In response, the U.S. Government enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes significant provisions to provide relief and assistance to affected organizations. Management considered the consequences of COVID-19 and other events and conditions, and it determined that they did not create a material impact on its operations in fiscal year 2021. While the disruption is currently expected to be temporary, COVID-19 is not expected to have a significant impact on the entity. Additionally, management has determined that there is no material uncertainty that casts doubt on the entity's ability to continue as a going concern. #### Note 13. Subsequent Events Management of the Company has evaluated events and transactions that may have occurred through February 18, 2022, the date the financial statements were available to be issued and determined that no subsequent events occurred that require recognition or additional disclosure in the financial statements Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.