(a limited liability company) statement of …...empirical research partners llc (a limited...

EMPIRICALRESEARCHPARTNERSLLC(ALimitedLiabilityCompany)

STATEMENTOFFINANCIALCONDITION

DECEMBER31,2016


DECEMBER31,2016

TABLEOFCONTENTS

ReportofIndependentRegisteredPublicAccountingFirm

PageStatementofFinancialCondition..............................................................................................................................................1

NotestoFinancialStatement..................................................................................................................................................2‐7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the MembersEmpirical Research Partners LLC

We have audited the accompanying statement of financial condition of Empirical Research PartnersLLC as of December 31, 2016. This financial statement is the responsibility of Empirical ResearchPartners LLC's management. Our responsibility is to express an opinion on this financial statementbased on our audit.

We conducted our audit in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the statement of financial condition is free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statement. An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the statement of financial condition referred to above presents fairly, in all materialrespects, the financial position of Empirical Research Partners LLC as of December 31, 2016 inaccordance with accounting principles generally accepted in the United States of America.

New York, New YorkFebruary 28, 2017


STATEMENTOFFINANCIALCONDITIONDECEMBER31,2016

Seeaccompanyingnotestothefinancialstatement1

Cashandcashequivalents 29,612,670$Receivablefromclearingbrokers 502,151Commissionsandfeesreceivable 1,544,088Propertyandequipment,net 269,872Prepaidexpensesandotherassets 767,587

Totalassets 32,696,368$

Liabilities:Accountspayableandaccruedexpenses 12,941,079$

Commitmentsandcontingencies(note6)

Members'equity 19,755,289

Totalliabilitiesandmembers'equity 32,696,368$

ASSETS

LIABILITIESANDMEMBERS'EQUITY


NOTESTOTHEFINANCIALSTATEMENTDECEMBER31,2016

2

1. ORGANIZATIONANDDESCRIPTIONOFBUSINESS

Empirical Research Partners LLC (the "Company") is a limited liability company formedpursuant to and in accordance with the Delaware Limited Liability Company Act. TheCompanycommencedoperationsin2003.TheCompanyisabroker‐dealerregisteredwiththe Securities and Exchange Commission (the "SEC") and is a member of the FinancialIndustryRegulatoryAuthority,Inc.("FINRA").Asalimitedliabilitycompany,themembersarenotpersonallyliableforanyofthedebts,obligations, losses,claims,or judgmentsonanyof the liabilitiesof theCompany,whetherarisingintort,contract,orotherwise,exceptasprovidedbylaw.

2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES

UseofEstimatesThepreparationoffinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica("GAAP")requiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosuresofcontingent assets and liabilities at the date of the financial statements, and the reportedamountsofrevenuesandexpensesduringthereportingperiod.Actualresultscoulddifferfromthoseestimates.PropertyandEquipmentPropertyandequipmentarestatedatcostlessaccumulateddepreciationandamortization.Depreciation is based on the straight‐linemethod over the estimated useful lives of theassets.Leaseholdimprovementsareamortizedoverthelifeofthelease.ConcentrationsofCreditRiskThe Companymaintains its cash at one commercial bank in amounts that at timesmayexceed the federal insurance limit.TheCompany’smoneymarket fundsarecomprisedoftwofundsthataremanagedbyonefinancialinstitution.CashandCashEquivalentsTheCompany considers all highly liquid instrumentswithmaturities of threemonths orlesswhenpurchasedtobecashequivalents.



3

2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued)

IncomeTaxesTheCompany recognizes andmeasures its unrecognized tax benefits in accordancewithFinancialAccountingStandardsBoard("FASB")AccountingStandardsCodification("ASC")740, Income Taxes. Under that guidance, the Company assesses the likelihood, based ontheir technicalmerit, that taxpositionswillbe sustaineduponexaminationbasedon thefacts,circumstancesandinformationavailableattheendofeachperiod.Themeasurementof unrecognized tax benefits is adjustedwhen new information is available, or when aneventoccursthatrequiresachange.The amount of current and deferred taxes payable or refundable is recognized as of thedateofthefinancialstatements,utilizingcurrentlyenactedtaxlawsandrates.Deferredtaxexpensesorbenefitsarerecognizedinthefinancialstatementsforthechangesindeferredtaxliabilitiesorassetsbetweenyears.TheCompanyisnotsubjecttofederalorstateincometaxes.Incometaxespayable, ifany,aretheresponsibilityoftheindividualmembers.TheCompanyissubjecttotheNewYorkCityUnincorporatedBusinessTax.FairValueMeasurementsTheCompany follows theguidance inFASBASC820,FairValueMeasurement.Using thatguidance,fairvalueisthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.Afair value measurement assumes that the transaction to sell the asset or transfer theliability occurs in the principal market for the asset or liability or, in the absence of aprincipalmarket,themostadvantageousmarket.Valuationtechniquesthatareconsistentwith the market, income or cost approach, as specified by FASB ASC 820, are used tomeasurefairvalue.UsingtheprovisionswithinFASBASC820,theCompanyhascharacterizeditsinvestmentsin securities, basedon theorderof liquidity of the inputsused to value the investments,intoa three‐level fairvaluehierarchy.The fairvaluehierarchygives thehighestorderofliquiditytoquotedprices inactivemarkets for identicalassetsor liabilities[Level1],andthelowestorderofliquiditytounobservableinputs[Level3].Iftheinputsusedtomeasuretheinvestmentsfallwithindifferentlevelsofthehierarchy,thecategorizationisbasedonthelowestlevelinputthatissignificanttothefairvaluemeasurementoftheinvestment.The Company's fair value measurements are classified into one of three categories asfollowsbasedonthemeasurementinputs:



4

2. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(continued)

Level 1. These are investmentswhere values are based on unadjusted quoted prices foridenticalassetsinanactivemarkettheCompanyhasabilitytoaccess.Theinvestmentsareexchange‐tradedequityandover‐the‐countersecurities.Level2.Theseareinvestmentswherevaluesarebasedonquotedpricesinmarketsthatarenotactiveormodelinputsthatareobservableeitherdirectlyorindirectlyforsubstantiallythe full term of the investments. These investments would be comprised of less liquidrestrictedsecuritiesandwarrants that trade less frequently. If theassetor liabilityhasaspecified(contractual)term,theLevel2inputmustbeobservableforsubstantiallythefulltermoftheassetorliability.Level3.Theseare investmentswherevaluesarebasedonpricesorvaluation techniquesthat require inputs that are both unobservable and significant to the overall fair valuemeasurement.Theseinputsreflectassumptionsofmanagementabouttheassumptionsthatmarketparticipantswoulduseinpricingtheinvestments.CommissionsandFeesReceivableCommissionandfeesreceivablearestatedattheamounttheCompanyexpectstocollect.AtDecember 31, 2016, there was no allowance for doubtful accounts. If the financialconditionsoftheCompany'scustomersweretodeteriorate,adverselyaffectingtheirabilitytomakepayments,allowancesfordoubtfulaccountswouldbeprovided.RevenueRecognitionTheCompanypreparesresearchintheareasofportfoliostrategy,quantitativemodelingforstock selection, and money management business strategy, which is provided toinstitutional investors. These includemutual funds, banks, insurance companies, pensionfunds, andhedge funds.TheCompany is compensatedand receives its fee income for itsresearchinthreeways:

1. CommissionsearnedontransactionsinwhichtheCompanyactsasanintroducingbroker.TheCompanysharesinthisrevenuewithitsclearingbrokers.

2. Paymentsfromotherbrokeragefirmsrepresentingthetransferofcommissionsasdirectedbytheirclients.

3. Paymentsdirectlyfromclients.Forcategoryone,revenueisrecognizedonatrade‐datebasis,whileincategoriestwoandthree, it is recognized when the research is utilized by the customer and the customeradvisestheCompanyofitsusage.



5

3. RECEIVABLEFROMCLEARINGBROKERS

The clearing and depository operations for the Company's security transactions areprovidedprimarilybybrokerspursuant toclearanceagreements.AtDecember31,2016,the amount receivable from clearing brokers represents commissions earned as anintroducingbrokerforthetransactionsofitscustomers.The Company has agreed to indemnify its clearing brokers for losses that the clearingbrokersmaysustainfromcustomeraccountsintroducedbytheCompany.AtDecember31,2016,therewerenosignificantunsecuredamountsowedtotheclearingbrokersbythesecustomers in connection with normal margin, cash, and delivery against paymenttransactions.

4. PROPERTYANDEQUIPMENTPropertyandequipmentconsistedofthefollowingatDecember31,2016:

EstimatedUsefulLife

Furniture,fixturesandequipment 141,431$ 3‐5yearsLeaseholdimprovements 426,022 Leaseterm

567,453Less:accumulateddepreciation 297,581Propertyandequipment,net 269,872$

5. EMPLOYEEBENEFITPLAN

In2006,theCompanyadopteda401(k)retirementsavingsplanforalleligibleemployees.Under the plan, eligible participating employees may elect to contribute the maximumallowedbylaw.TheCompanymaymakeprofit‐sharingcontributionsthataredeterminedby themanagingmemberaccording toadiscretionary formula inanamountdeterminedeach year. Participants are fully vested in their contributions at all times, and theCompany's profit‐sharing contributions vest immediately. Profit‐sharing contributionswerenotdeclaredbythemanagingmemberfor2016.



6

6. COMMITMENTSANDCONTINGENCIES

OperatingleasecommitmentThe Company leases office space under an operating lease that expires in 2022. During2016occupancycostswere$692,517.TheapproximateminimumfuturerentalpaymentsrequiredasofDecember31,2016,overthetermoftheleaseisasfollows:

FortheYearsEndedDecember31:

2017 601,000$2018 640,0002019 640,0002020 640,0002021 640,000

Thereafter 534,0003,695,000$

Prepaidexpensesandotherassetsincludecertificatesofdepositwhichcollateralizeslettersofcreditforthebenefitofthelandlordintheamountof$401,571.

7. FAIRVALUEMEASUREMENTSAssetsand liabilitiesmeasuredat fairvaluearebasedononeormoreof threevaluationtechniques.Thevaluationtechniquesareasfollows:

a. Market approach. Prices and other relevant information generated by markettransactionsinvolvingidenticalorcomparableassetsorliabilities;

b. Costapproach.Amountthatwouldberequiredtoreplacetheservicecapacityofanasset(replacementcost);and

c. Incomeapproach.Techniquestoconvertfutureamountstoasinglepresentamountbased onmarket expectations (including present value techniques, option‐pricingandexcessearningsmodels).

ThefollowingtablesummarizestheCompany'sassetsrequiredtobemeasuredatfairvalueonarecurringbasisatDecember31,2016:

Assets Level1 Level2 Level3 TotalValuationTechnique

Moneymarketfunds 28,188,458$ ‐$ ‐$ 28,188,458$ a

As ofDecember31, 2016, all of theCompany'smoneymarket fund accounts included incashandcashequivalentswereconsideredtobeLevel1inthevaluationhierarchy,valuedbaseduponquotedpricesinmarketsthatareactiveandwhichtheCompanyhastheabilitytoaccess.



7

7. FAIRVALUEMEASUREMENTS(continued)

There were no liabilities required to be measured at fair value on a recurring basis atDecember31,2016.

8. RELATEDPARTYTRANSACTIONSTheCompanyhasafeesharingagreementwithanaffiliate,FMMIINC(“FMMI”)inwhichtheCompanyisallocated20%offeesearnedfromFMMIforservicesprovided.TheCompanyisowed$226,691fromFMMIasofDecember31,2016,whichisincludedin“Commissionsandfeesreceivable”inthestatementoffinancialcondition.

9. NETCAPITALREQUIREMENTSThe Company is subject to the uniform net capital requirements of Rule 15c3‐1 of theSecurities andExchangeAct, as amended,which requires theCompany tomaintain, at alltimes, sufficient liquid assets to cover indebtedness. In accordance with the rule, theCompanyisrequiredtomaintaindefinedminimumnetcapitalofthegreaterof$5,000or62/3%ofaggregateindebtedness.At December 31, 2016, the Company had net capital, as defined, of $14,873,151, whichexceeded the required minimum net capital of $862,739 by $14,010,412. Aggregateindebtedness at December 31, 2016 totaled $12,941,079. The Company’s percentage ofaggregateindebtednesstonetcapitalwas87%.

10. SUBSEQUENTEVENTSManagement of the Company has evaluated events and transactions that have occurredsince December 31, 2016 and determined that there are no material events that wouldrequiredisclosuresintheCompany’sfinancialstatements.

(a limited liability company) statement of …...empirical research partners llc (a limited...

Documents