# BREX TREASURY LLC X-17A-5 (2021-03-02) — Broker-dealer annual report - Company: BREX TREASURY LLC - Form: X-17A-5 - Filed: 2021-03-02 - Period: 2020-12-31 - Accession: 0001759239-21-000002 - CIK: 1759239 - File #: 8-70251 - Material weakness: No - Auditor: Ernst & Young LLP - Auditor location: San Francisco, CA - Contact: Erik Zhou - Phone: 551-574-7197 - Signed by: Erik Zhou (FINOP) Original filing: https://www.sec.gov/Archives/edgar/data/1759239/000175923921000002/FY20-FS.pdf --- {0}------------------------------------------------ # Brex Treasury LLC Financial Statements and Supplemental Information For the Year Ended December 31, 2020 With Report of Independent Registered Public Accounting Firm This report is deemed CONFIDENTIAL in accordance with Rule 17a-5(e)(3) under the Securities Exchange Act of 1934. {1}------------------------------------------------ ### Table of Contents | Report of Independent Registered Public Accounting Firm | 1 | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------| | Financial Statements | | | Statement of Financial Condition | 2 | | Statement of Operations | 3 | | Statement of Changes in Member's Equity | 4 | | Statement of Changes in Liabilities Subordinated to Claims of General Creditors | 5 | | Statement of Cash Flows | 6 | | Notes to Financial Statements | 7 - 10 | | | | | Supplemental Information | | | Schedule 1 - Computation of Net Capital Pursuant to Rule 15c3-1 of the
Securities and Exchange Commission | 11 | | Schedule 2 - Computation for Determination of Reserve Requirements for
Brokers and Dealers Pursuant to Rule 15c3-3 of the Securities and
Exchange Commission | 12 | | Schedule 3 - Information Related to Possession or Control Requirements for
Brokers and Dealers Pursuant to Rule 15c3-3 of the Securities and
Exchange Commission | 13 | {2}------------------------------------------------ ### Report of Independent Auditors {3}------------------------------------------------ ### Brex Treasury LLC Statement of Financial Condition | | | CONFIDENTIAL | |-----------------------------------------------------|------------------|--------------| | Brex Treasury LLC | | | | Statement of Financial Condition | | | | As of December 31, 2020 | | | | ASSETS | | | | Cash and cash equivalents | \$
12,097,351 | | | Cash segregated under federal and other regulations | 3,811,541 | | | Receivable from customers | 8,708,411 | | | Other assets | 126,153 | | | Total assets | \$
24,743,456 | | | LIABILITIES | | | | Due to affiliate | \$
3,209,744 | | | Payable to customers | 2,800,063 | | | Accounts payable and accrued expenses | 437,559 | | | Other liabilities | 980,589 | | | Total liabilities | 7,427,955 | | | EQUITY | | | | Member's equity | 17,315,501 | | | Total equity | 17,315,501 | | | Total liabilities and equity | \$
24,743,456 | | {4}------------------------------------------------ ### Brex Treasury LLC Statement of Operations | | | CONFIDENTIAL | |--------------------------------------|-----------------------|--------------| | Brex Treasury LLC | | | | Statement of Operations | | | | For the Year Ended December 31, 2020 | | | | REVENUE | | | | Distribution revenue | \$
332,259 | | | Interest income | 124,542 | | | Total revenue | 456,801 | | | EXPENSES | | | | Compensation and benefits | \$
5,539,323 | | | Technology and communications | 2,390,145 | | | Occupancy and equipment | 975,179 | | | General and administrative | 546,385 | | | Legal and professional fees | 440,071 | | | Advertising and marketing | 147,611 | | | Interest expense | 11,819 | | | Other expenses
Total expenses | 764,606
10,815,139 | | | | | | {5}------------------------------------------------ ### Brex Treasury LLC Statement of Changes in Member's Equity | CONFIDENTIAL
Brex Treasury LLC
Statement of Changes in Member's Equity
For the Year Ended December 31, 2020
Member's equity as of December 31, 2019
\$
17,673,839
Contributions
10,000,000
Net loss
(10,358,338)
Member's equity as of December 31, 2020
\$
17,315,501 | | | |---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The accompanying notes are an integral part of this statement. | | | | | | | {6}------------------------------------------------ ### Brex Treasury LLC Statement of Changes in Liabilities Subordinated to Claims of General Creditors | | | CONFIDENTIAL | | |---------------------------------------------------------------------------------------------|---------|--------------|--| | Brex Treasury LLC | | | | | Statement of Changes in Liabilities | | | | | Subordinated to Claims of General Creditors | | | | | For the Year Ended December 31, 2020 | | | | | Subordinated liabilities as of December 31, 2019 | \$
- | | | | Proceeds from issuances of subordinated borrowings
Repayments of subordinated borrowings | -
- | | | | Subordinated liabilities as of December 31, 2020 | \$
- | | | | The accompanying notes are an integral part of this statement. | | | | {7}------------------------------------------------ ### Brex Treasury LLC Statement of Cash Flows | | | CONFIDENTIAL | |-----------------------------------------------------------------------------------------------------|----------------------------------------------------------------|--------------| | Brex Treasury LLC | | | | | | | | Statement of Cash Flows | | | | For the Year Ended December 31, 2020 | | | | OPERATING ACTIVITIES | | | | Net loss | \$
(10,358,338) | | | Changes in operating assets and liabilities: | | | | Receivable from customers | (8,505,052) | | | Other assets | (103,642) | | | Due to affiliate | 1,273,244 | | | Payable to customers | 1,404,910 | | | Accounts payable and accrued expenses | 256,362 | | | Other liabilities | 980,589 | | | Total adjustments to reconcile net loss to net cash used in operations: | (4,693,589) | | | Net cash used in operating activities: | (15,051,927) | | | FINANCING ACTIVITIES | | | | Proceeds from issuance of debt | 4,352,169 | | | Principal payments on debt | (3,669,601) | | | Contributions to member's equity | 10,000,000 | | | Net cash provided by financing activities | 10,682,568 | | | Net cash decrease for the period | (4,369,359) | | | Cash, cash equivalents, and cash segregated under federal and other | | | | regulations at beginning of period | 20,278,251 | | | Cash, cash equivalents, and cash segregated under federal and other
regulations at end of period | \$
15,908,892 | | | | | | | The following presents cash, cash equivalents, and restricted cash for | | | | the period presented: | | | | Cash and cash equivalents | \$
12,097,351 | | | Cash segregated under federal and other regulations | 3,811,541 | | | Total cash, cash equivalents, and restricted cash | \$
15,908,892 | | | | | | | | The accompanying notes are an integral part of this statement. | | {8}------------------------------------------------ #### 1. ORGANIZATION & OPERATIONS #### Nature of Business Brex Treasury LLC (the "Company") is a broker-dealer registered with the Securities and Exchange Commission ("SEC") pursuant to section 15(b) of the Securities Exchange Act of 1934, as amended, and is a member of the Financial Industry Regulatory Authority ("FINRA"). The Company was organized as a Delaware limited liability company on November 1, 2018 and commenced operations as a broker dealer on August 16, 2019. The Company is 100% owned by Brex Inc. (the "Parent"). The Company currently operates in one reportable operating segment and offers customers a business cash management account known as Brex Cash where customer deposits can be swept into a money market mutual fund or bank sweep. In 2020, the Company implemented its bank sweep program pursuant to SEC Rule 15c3-3 that allows customers to transfer Brex Cash funds to a program bank, thus providing Federal Deposit Insurance Corporation ("FDIC") protection on amounts up to \$250,000. Brex Cash also provides customers same-day liquidity for their deposits, allowing them to send and receive payments with no transaction fees while also earning yield on their money market mutual fund investments. #### 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES #### Basis of Presentation The financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP"). The significant accounting policies described below, together with other notes that follow, are an integral part of the financial statements. #### Use of Estimates The preparation of the financial statements and the related disclosures in conformity with GAAP require the Company to make judgments, assumptions, and estimates that affect the amounts reported in the financial statements and accompanying notes. The Company bases their estimates on historical experience and on various other factors they believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. These judgments, estimates, and assumptions are inherently subjective in nature; actual results may differ from these estimates and assumptions, and the differences could be material. #### Cash and Cash Equivalents The Company considers all liquid investments with original maturities of three months or less that are not segregated and on deposit for regulatory purposes to be cash equivalents. Cash and cash equivalents include money market mutual funds and deposits with banks. The Company had \$2,054,838 in money market mutual funds as of December 31, 2020. #### Cash Segregated Under Federal and Other Regulations Cash segregated under federal and other regulations consists of cash holdings in a segregated reserve account set aside to satisfy requirements under Rule 15c3-3 of the SEC. The cash is held within a special reserve bank account for the exclusive benefit of customers. #### Fair Values Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. Fair value measurement accounting guidance establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company's assumption about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. {9}------------------------------------------------ The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into the following three levels: - Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. - Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices. - Level 3: Unobservable inputs for the asset or liability, including situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Investments are transferred into or out of any level at their beginning period values. As of December 31, 2020, the Company held securities consisting of money market mutual funds, which are valued at the closing price reported by the fund sponsor from an actively traded exchange and are categorized as Level 1 in the fair value hierarchy. #### Payable to and Receivable from Customers In the normal course of business, customer deposits are swept to and from either a money market mutual fund or program bank. When customer deposits are received by the Company and have not been swept into the money market mutual fund or the program bank, those deposits are payable to customers until they are swept. When the Company receives redemption instructions from customers, the Company prepays the redemption amount prior to settlement of the redemption from the money market mutual fund or program bank. These prepayments are receivable from customer until the redemption is settled with the money market mutual fund or the program bank. #### Revenue Recognition The Company recognizes revenue from contracts with customers. Distribution revenue is recognized when earned at a point in time for distribution and shareholder services performed each day for deposits that have been distributed to a money market mutual fund. Distribution service fees are determined on a monthly basis using daily average assets under management. Fees earned by the Company for a given period will be higher or lower depending on the volume of customer fund investments. Thus, the total consideration received will vary in line with the direction of fund investment volume each day. The Company records interest income on its interest-earning assets and customer funds that have been swept to a program bank as part of its bank sweep program. Interest income is recognized in the period it is earned based upon the underlying contractual rate. For the period ended December 31, 2020, interest-earning assets consisted of deposits with banks and an investment in a money market mutual fund. #### Rent and Occupancy Costs Rent and occupancy costs are recorded pursuant to an expense sharing agreement between the Company and its Parent. Refer to Note 3 – Related Party Transactions for additional disclosure regarding costs covered under the expense sharing arrangement. {10}------------------------------------------------ ### Income Taxes The Company is a single member limited liability company, which is treated as a disregarded entity for federal and state tax purposes. The Company's taxable income and expenses is ultimately included in the federal and state income tax returns of the Parent. No formal tax-sharing arrangement exists between the Company and its Parent, and the Company has no obligation to fund any tax liability of the Parent with its earnings. As of December 31, 2020, the Company determined that any benefits associated with positions taken for income tax purposes would more likely than not be sustained upon review by relevant tax authorities and therefore has not recorded a liability for unrecognized tax benefits. There were no uncertain tax positions recognized by the Company as of December 31, 2020, which is not expected to change significantly during the next 12 months. #### Advertising and Marketing Costs Expenses incurred to promote the Brex Cash product are recognized in Advertising and marketing on the Statement of Operations. The timing of recognition is dependent on the type of advertising or marketing expense. #### Recently Adopted Accounting Pronouncements In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016- 13 ("Topic 326"), Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance requires an impairment model, known as the current expected credit loss ("CECL") model, that is based on expected rather than incurred losses, with an anticipated result of more timely loss recognition. The CECL model requires measurement of expected credit losses not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. These changes will result in earlier recognition of credit losses. The Company adopted Topic 326 effective January 1, 2020. The adoption of the standard did not have a material impact on the Company's financial statements. #### Recently Issued Accounting Pronouncements Not Yet Adopted In December 2019, the FASB issued Accounting Standards Update No. 2019-12, ("Topic 740"), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which is part of the Board's initiative to reduce cost and complexity related to accounting for income taxes. Topic 740 eliminates certain exceptions to the general principles of Topic 740, Income Taxes, and simplifies income tax accounting in several areas. The amendments are effective for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2020, with early adoption permitted. Topic 740 allows entities to adopt this provision on a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact Topic 740 will have on its financial position, results of operations, cash flows and disclosures. Compensation and benefits 5,539,323 \$ Technology and communications 2,318,909 Occupancy and equipment 975,179 General and administrative 434,319 #### 3. RELATED-PARTY TRANSACTIONS Pursuant to an expense sharing agreement, the Company reimburses the Parent for certain general administrative, operational, and occupancy services performed by the Parent on behalf of the Company. In addition, the Parent pays certain direct expenses on behalf of the Company and cash is settled with allocated expenses. These costs are recorded in the following expense classes on the Statement of Operations. | 740): Simplifying the Accounting for Income Taxes which is part of the Board's initiative to reduce cost and complexity
related to accounting for income taxes. Topic 740 eliminates certain exceptions to the general principles of Topic 740,
Income Taxes, and simplifies income tax accounting in several areas. The amendments are effective for fiscal years | | | |---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|--| | (and interim periods within those fiscal years) beginning after December 15, 2020, with early adoption permitted.
Topic 740 allows entities to adopt this provision on a retrospective basis for all periods presented or a modified
retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of
adoption. The Company is currently evaluating the impact Topic 740 will have on its financial position, results of | | | | | | | | Pursuant to an expense sharing agreement, the Company reimburses the Parent for certain general administrative,
operational, and occupancy services performed by the Parent on behalf of the Company. In addition, the Parent pays | | | | certain direct expenses on behalf of the Company and cash is settled with allocated expenses. These costs are recorded | | | | | For the Year Ended | | | | December 31, 2020 | | | Compensation and benefits | \$
5,539,323 | | | Technology and communications | 2,318,909 | | | Occupancy and equipment | 975,179 | | | General and administrative | 434,319 | | | Legal and professional fees | 62,523 | | | Advertising and marketing | 116,462 | | | Interest expense | 11,819 | | | Other expenses | 50,672 | | {11}------------------------------------------------ As of December 31, 2020, the Company owed the Parent \$2,501,792 for such services and the amount is included in the Due to affiliate balance in the Statement of Financial Condition. The Company also borrows from the Parent to finance its operating activities from time to time under a \$25,000,000 line of credit at an interest rate of 5% per annum. As of December 31, 2020, the outstanding balance owed by the Company was \$682,568 with accrued interest payable of \$11,819. The amounts borrowed are included in Due to affiliates in the Statement of Financial Condition. The Parent has business cash management accounts through Brex Cash. As of December 31, 2020, the Company had \$1,955,120 in Payable to customers owed to the Parent. #### 4. NET CAPITAL REQUIREMENT The Company is authorized to use the alternative standard for computing net capital under SEA Rule 15c3-1(a)(1)(ii). Under the alternative standard, the Company must maintain a minimum net capital equal to the greater of \$250,000 or 2.0% of aggregate debit items computed in accordance with the Formula for Determination of Reserve Requirements for Brokers and Dealers. As of December 31, 2020, the Company's net capital was \$17,182,069 which was \$16,932,069 in excess of its required minimum net capital. #### 5. RISKS AND UNCERTAINTIES In March 2020, the World Health Organization declared the outbreak of the novel coronavirus referred to as "COVID-19" to be a global pandemic. The COVID-19 pandemic has negatively impacted the global economy and caused significant volatility in the financial markets. We will continue to actively monitor the COVID-19 pandemic and evaluate its impact on our business and financial position. The extent of this impact will depend on a number of evolving factors and cannot currently be reasonably estimated. #### 6. COMMITMENTS & CONTINGENCIES #### Guarantees Guarantees are defined as contracts and indemnification agreements that contingently require a guarantor to make payments to the guaranteed party based on changes in an underlying factor (such as an interest or foreign exchange rate, security or commodity price, an index, or the occurrence or nonoccurrence of a specified event) related to an asset, liability or equity security of a guaranteed party. This guidance also defines guarantees as contracts that contingently require the guarantor to make payments to the guaranteed party based on another entity's failure to perform under an agreement as well as indirect guarantees of indebtedness of others. The Company had no obligations under guarantee arrangements as of December 31, 2020. #### Indemnifications In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations, warranties, and covenants that provide for indemnifications under certain circumstances. These include contracts with certain service providers, such as depository institutions. The Company's maximum exposure under these arrangements cannot be estimated. However, Management of the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the financial statements for these indemnifications. #### 7. SUBSEQUENT EVENTS The Company has evaluated events through February 26, 2021, the date that the financial statements were available to be issued and has determined that there were no subsequent events requiring adjustment or disclosure in these financial statements. {12}------------------------------------------------ ### SCHEDULE 1 ### COMPUTATION OF NET CAPITAL PURSUANT TO RULE 15c3-1 OF THE SECURITIES AND EXCHANGE COMMISSION ### DECEMBER 31, 2020 | Total member's equity | \$
17,315,501 | |------------------------------------------------------------------------------------------------------------------------|------------------| | Less: non-allowable assets: | | | Other assets | 92,334 | | Tentative net capital before haircuts | 17,223,167 | | Less: haircuts | 41,098 | | Net capital | 17,182,069 | | Minimum net capital required under the alternative standard,
the greater of \$250,000 or 2% of the aggregate debits | \$
250,000 | | Excess net capital | \$
16,932,069 | | | | | Net capital in excess of the greater of 5% of combined aggregate | | | debit items or 120% of minimum net capital requirement | \$
16,882,069 | There are no differences between the computation of net capital presented above and the computation of net capital in the Company's unaudited amended Form X-17A-5, Part IIA filing as of December 31, 2020, which was filed on February 25, 2021 {13}------------------------------------------------ ### SCHEDULE 2 ### COMPUTATION FOR DETERMINATION OF RESERVE REQUIREMENTS FOR BROKERS AND DEALERS PURSUANT TO RULE 15c3-3 OF THE SECURITIES AND EXCHANGE COMMISSION ### DECEMBER 31, 2020 | Credit balances | | |---------------------------------------------------------------------------------------------|-----------------| | Free credit balances and other credit balances in customers' security | \$ 3,718,119 | | Monies borrowed collateralized by securities carried for the accounts of customers | - | | Monies payable against customers' securities loaned | - | | Customers' securities failed to receive | - | | Credit balances in firm accounts which are attributable to prinicpal sales to customers | - | | Market value of stock dividends, stock splits and similar distributions receivable | | | outstanding over 30 calendar days | - | | Market value of short securities and credits in all suspense accounts over 30 calendar | | | days old | 1,021 | | Market value of securities which are in transfer in excess of 40 calendar days and have | | | not been confirmed to be in transfer by the transfer agent or the issuer during the 40 days | | | Other | -
- | | Total credits | \$
3,719,140 | | Debit balances | | | Debit balances in customers' cash and margin accounts excluding unsecured accounts and | | | accounts doubtful of collection | \$
- | | Securities borrowed to effectuate short sales by customers and securities borrowed to | | | make delivery on customers' securities failed to deliver | - | | Failed to deliver of customers' securities not older than 30 calendar day | - | | Other | - | | Total debits | \$
- | | Reserve computation | | | Excess of total credits over total debits | \$
3,719,140 | | Amount held on deposit in Reserve Bank Account at December 31, 2020 | 1,970,132 | | Amount of deposit - January 4, 2021 | 3,805,079 | | New amount held on deposit in Reserve Bank Account after deposit | 5,775,211 | There are no differences between the computation of reserve requirements presented above and the computation of reserve requirements in the Company's unaudited amended Form X-17A-5, Part IIA filing as of December 31, 2020, which was filed on February 25, 2021 {14}------------------------------------------------ ### SCHEDULE 3 ## INFORMATION RELATED TO POSSESSION OR CONTROL REQUIREMENTS FOR BROKERS AND DEALERS PURSUANT TO 15c3-3 OF THE SECURITIES AND EXCHANGE COMMISSION ### DECEMBER 31, 2020 Customers' fully paid securities and excess margin securities not in the Company's possession and control as of the report date, but for which the required action was not taken by the Company within the time frames specified under Rule 15c3-3. Number of items: 0 Customers' fully paid securities and excess margin securities to which instructions to reduce the possession and control have not been issued as of the report date, excluding items as permitted by Rule 15c3-3. Number of items: 0 There are no differences between the information presented above and the information in the Company's unaudited amended Form X-17A-5, Part IIA filing as of December 31, 2020, which was filed on February 25, 2021. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.