# EDGAR Filing Document

**Accession Number:** 0001056451
**File Stem:** 0001056451-23-000001
**Filing Date:** 2023-2
**Character Count:** 16141
**Document Hash:** c620b23f05f8c979cbe2e7dbe5d32ed0
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001056451-23-000001.hdr.sgml**: 20230228

**ACCESSION NUMBER**: 0001056451-23-000001

**CONFORMED SUBMISSION TYPE**: X-17A-5

**PUBLIC DOCUMENT COUNT**: 2

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230228

**DATE AS OF CHANGE**: 20230228

**EFFECTIVENESS DATE**: 20230228

**PERIOD START**: 20220101

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** KOVACK SECURITIES INC.
- **CENTRAL INDEX KEY:** 0001056451
- **IRS NUMBER:** 650747270
- **STATE OF INCORPORATION:** FL
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** X-17A-5
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 008-50847
- **FILM NUMBER:** 23680702

**BUSINESS ADDRESS:**
- **STREET 1:** 6451 N. FEDERAL HWY.
- **STREET 2:** SUITE 1201
- **CITY:** FT. LAUDERDALE
- **STATE:** FL
- **ZIP:** 33308
- **BUSINESS PHONE:** 954-670-0620

**MAIL ADDRESS:**
- **STREET 1:** 6451 N. FEDERAL HWY.
- **STREET 2:** SUITE 1201
- **CITY:** FT. LAUDERDALE
- **STATE:** FL
- **ZIP:** 33308

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** KOVACK SECURITIES INC                                   /BD
- **DATE OF NAME CHANGE:** 20020327

### Attached PDF Documents

**Attachment 1:** `2022KSIFSPUB.pdf`

# **KOVACK SECURITIES, INC.**  
**(a wholly owned subsidiary of Kovack Financial LLC)**

# **FINANCIAL STATEMENT**

# **DECEMBER 31, 2022**  
**and**  
**REPORT OF INDEPENDENT REGISTERED**  
**PUBLIC ACCOUNTING FIRM**

*This report is deemed PUBLIC in accordance with Rule 17a-5(e)(3) under the Securities and Exchange Act of 1934*

## TABLE OF CONTENTS

1. Report of Independent Registered Public Accounting Firm
2. Statement of Financial Condition
3. Notes to Financial Statement

DEJOY, KNAUF
& BLOOD LLP
Business Advisors & CPAs

Rochester, New York

# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholder of Kovack Securities Inc.

# Opinion on the Financial Statement

We have audited the accompanying statement of financial condition of Kovack Securities Inc. 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 Kovack Securities Inc. 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 Kovack Securities Inc.’s management. Our responsibility is to express an opinion on Kovack Securities Inc.’s 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 Kovack Securities Inc. 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 statements. 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 statements. We believe that our audit provides a reasonable basis for our opinion.

We have served as Kovack Securities Inc.’s auditor since 2017.

February 28, 2023.

# **KOVACK SECURITIES, INC.**
**(a wholly owned subsidiary of Kovack Financial LLC)**

# **STATEMENT OF FINANCIAL CONDITION**

**DECEMBER 31, 2022**

# **ASSETS**

| Cash and cash equivalents | $6,603,148 |
| --- | --- |
| Cash with clearing organizations | 600,600 |
| Cash with clearing organizations, restricted | 350,086 |
| Receivables: |  |
| Clearing brokers and insurance companies | 1,714,784 |
| Representative and employee advances, net | 243,860 |
| Other receivable | 22,092 |
| Prepaid expenses | 365,307 |
| Property and equipment, net of accumulated depreciation | 670,742 |
| Right of use assets | 1,386,028 |
| Deposits and other assets | 31,940 |
|  | $11,988,587 |

# **LIABILITIES AND STOCKHOLDER'S EQUITY**

| Accounts payable and accrued expenses | $1,373,080 |
| --- | --- |
| Commissions payable | 2,536,454 |
| Related party payable | 2,334,709 |
| Lease liabilities | 1,611,273 |
|  | 7,855,516 |

Stockholder's equity:

| Common stock voting, no par value per share, 1,000 shares authorized, 182 shares issued, and outstanding at December 31, 2022 | 3,196 |
| --- | --- |
| Common stock non-voting, no par value per share, 99,000 shares authorized, 17,988 shares issued and outstanding at December 31, 2022 | 316,471 |
| Additional paid-in capital | 4,569 |
| Retained earnings | 3,808,835 |
| Total stockholder's equity | 4,133,071 |
|  | $11,988,587 |

The accompanying notes are an integral part of this financial statement.

1

# NOTES TO FINANCIAL STATEMENT

## 1. BUSINESS

Kovack Securities, Inc. (“KSI” or the “Company”) was incorporated in the State of Florida on April 23, 1997, and is a registered securities broker-dealer with the SEC, FINRA and SIPC. The Company’s corporate office is located in Fort Lauderdale, Florida.

## 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

**Basis of accounting:** The accompanying financial statement has been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

**Cash and cash equivalents:** The Company considers all unrestricted deposits and highly liquid investments, readily convertible to known amounts, with an original maturity of three months or less when originated, to be cash equivalents.

**Receivables from clearing brokers and insurance companies:** Receivables from clearing brokers and insurance companies primarily consist of commission and transaction-related receivables.

**Receivables from representatives and employees:** From time to time, the Company provides advances to certain representatives and employees. These advances are repaid to the Company by deducting a portion of the representatives’ commission payout throughout the compensation cycle until the advance has been paid off. Management performs periodic evaluations of outstanding advances and provides for an allowance based on its assessment of specifically identified unsecured receivables. Amounts are charged off against the allowance when management determines such amounts are uncollectible. As of December 31, 2022, the Company recorded an allowance for receivables of $61,300.

**Property and equipment:** Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the respective assets or the term of lease, if shorter, using the straight-line method.

**Accounting estimates:** The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, but are not limited to, revenue and expense accruals and the depreciable lives of property and equipment. Actual results could differ from those estimates.

**Fair value of financial instruments:** The fair value of the Company’s financial instruments, such as cash and cash equivalents and accounts payable approximate their carrying value because of the short maturity of the instruments.

**Income taxes:** The Company has elected, by consent of its stockholder, to be taxed as an S Corporation under the provisions of Section 1361 of the Internal Revenue Code. Under these provisions, the Company does not pay federal corporate income tax on its taxable income. Instead, the stockholder is liable for federal income taxes on its respective share of the Company’s taxable income. Therefore, only state income taxes have been included in the accompanying financial statement. GAAP prescribes a threshold and measurement attribute for financial statement recognition of a tax position that an entity takes or expects to take in a tax return. An entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. This pronouncement is applicable to pass-through entities, such as S Corporations, which are potentially subject to income taxes.

The Company assesses its income tax positions, including its continuing tax status as an S Corporation, based on management’s evaluation of the facts, circumstances and information available at the reporting

2

## 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

date. The Company uses the prescribed more likely than not threshold when making its assessment. The Company did not accrue any interest expense or penalties related to tax positions. Beginning with the tax year ending December 31, 2011, the Company has filed consolidated federal and state income tax returns with its parent. The Company believes that it is no longer subject to examination for years prior to 2019.

## 3. REVENUE RECOGNITION

The Company accounts for revenue under the FASB issued Accounting Standards Codification 606.

## 4. PROPERTY AND EQUIPMENT

Depreciation expense charged to income was $237,066 in 2022. Property and equipment at December 31, 2022 consists of the following:

|  |  | Estimated useful lives |
| --- | --- | --- |
| Equipment | $766,433 | 5 years |
| Furniture | 453,235 | 7 years |
| Software | 734,857 | 5 years |
| Leasehold improvements | 357,272 | 10 years |
|  | 2,311,797 |  |
| Less accumulated depreciation & amortization | (1,641,055) |  |
| Property & equipment, net | $670,742 |  |

## 5. LEASES

The Company has a non-cancelable lease for office facilities that expires in 2027. Additionally, the Company also has non-cancelable leases for office equipment that expire in 2023 and 2024, with options for renewal.

The weighted-average remaining lease terms is 4 years and the weighted-average discount rate is 3%. The Company applied its incremental borrowing rate based on the information available at the commencement of the related leases in determining the present value of future lease payments. The Company reported amounts in the statement of financial condition as of December 31, 2022 for Right of use assets and Lease liabilities of $1,386,028 and $1,611,273 respectively.

## 6. COMMITMENTS AND CONTINGENCIES

From time to time the Company is party to certain claims and legal actions arising in the ordinary course of business. In some cases, plaintiffs are seeking compensatory and punitive damages. It is the opinion of management that the ultimate disposition of these matters will not have a material adverse effect on the Company's financial condition or results of operations. The Company accrues for certain claims and legal actions when it is probable and reasonably estimable.

The Company has agreed to indemnify its clearing brokers for losses that the clearing brokers may sustain from the customer accounts introduced by the Company. The Company executes transactions and introduces them to clearing brokers on a fully disclosed basis. The Company's exposure to credit risk associated with nonperformance of its customers in fulfilling their contractual obligations pursuant to securities transactions can be directly impacted by volatile trading markets which may impair the

3

## **6. COMMITMENTS AND CONTINGENCIES (continued)**

customers' ability to satisfy their obligations to the Company. The Company, through its clearing brokers, seeks to manage these risks by requiring customers to maintain sufficient levels of collateral in compliance with various regulatory and internal guidelines. The Company's clearing broker monitors required margin levels daily and, pursuant to such guidelines, requires the customers to deposit additional collateral, or reduce positions, when necessary. The Company's policy is to monitor its market and credit exposure risk.

## **7. RELATED PARTY TRANSACTIONS**

The Company acts as the introducing broker-dealer for customer's accounts which are managed through Kovack Advisors, Inc. ('KAI'), a registered investment advisor and related party. As the introducing broker/dealer, the Company provides back office support in account opening and administration on a fully disclosed basis through either Pershing LLC, or National Financial Services LLC. As of December 31, 2022, KSI owed KAI $2,334,709.

During the year ended December 31, 2022, the Company was a party to an expense sharing agreement with Kovack Financial, LLC ('KFIN'). KFIN wholly owns the Company and KAI. KFIN has consolidated management of the errors and omissions insurance policies for the Company and KAI and allocates the cost of the policies to the respective companies.

## **8. CONCENTRATIONS**

During the year, the Company maintained cash balances in excess of the Federally insured limits. The funds are with major banks and financial institutions. Consequently, the Company does not believe that there is a significant risk in having these balances in any one of these financial institutions.

## **9. REQUIREMENTS OF RULE 15c3-3**

The Company is an introducing broker, exempt from making computations of amounts on deposit in the Special Reserve Bank Account for the Exclusive Benefits of Customers, under the provisions of paragraph (k) of Rule 15c3-3 under the Securities and Exchange Act of 1934.

## **10. NET CAPITAL PROVISION OF RULE 15c3-1**

The Company is subject to the SEC Uniform Net Capital Rule (SEC Rule 15c3-1) 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 15 to 1. At December 31, 2022, the Company had net capital of $2,659,856, which was $2,228,557 in excess of its required net capital of $431,299. The Company's ratio of aggregate indebtedness to net capital was 2.43 to 1.

## **11. SUBSEQUENT EVENTS**

The Company has performed an evaluation of subsequent events through February 28, 2023, which is the date the financial statement was available for issue. There were no other events or transactions that occurred during this period that materially impacted the amounts or disclosures in the Company's financial statement.

4

### UNITED STATES SECURITIES AND EXCHANGE COMMISSION
**Washington, D.C. 20549**

## FORM X-17A-5

### ANNUAL AUDITED REPORT

### Filer Information

**Filer CIK:** 0001056451

**Filer CCC:** XXXXXXXX

**Is this a LIVE or TEST filing?:** LIVE

**Would you like a Return Copy?:** Yes

### Submission Information

**Report Period Begin Date:** 01-01-2022

**Report Period End Date:** 12-31-2022

**Type of Registrant:** Broker-dealer

**Any material weaknesses identified?:** No

### Registrant Identification

**Name of Broker-Dealer:** KOVACK SECURITIES INC.

**Business Address:** 6451 N. FEDERAL HWY., SUITE 1201, FT. LAUDERDALE, FL, 33308

**Contact Person:** Isabelle Shick

**Contact Phone:** 954-782-4771

### Independent Public Accountant Identification

**Accountant Name:** DeJoy, Knauf and Blood LLP

**Accountant Address:** 280 East Broad Street, Suite 300, Rochester, NY, 14604

**Accountant Type:** Certified Public Accountant

### OATH OR AFFIRMATION

I, **Isabelle Shick**, swear (or affirm) that, to the best of my knowledge and belief, the accompanying financial statements and supporting schedules pertaining to the firm of **KOVACK SECURITIES INC.**, as of **12-31-2022**, are true and correct.

**Signature:** Isabelle Shick

**Title:** CFO

**Notarized:** Yes