FOCUS Report Wells Nelson & Associates, L.l.c.

X-17A-5 [Paper] - FOCUS Report

Published: 2008-02-28 17:29:00
Submitted: 2008-02-26
Period Ending In: 2007-12-31
scanned.pdf Scanned paper document


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                                                            UNITI                    08025395                          MB NOM: PTPPROV:ZI;S 0123                |
                §SEC Mail ProcessiNGECURITIES AND EXCHANGE COMMISSION                                                Gapnes:"""‘repmay 26soto
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                  rgp 26 2008                   ANNUAL AUDITED REPORT
                                  c                          FORM X—17A—5                                                    SEC FILE NUMBER
                  weshing?" , D                                    PART II                                                          8—52490
                                                              FACING PAGE
                   Information Required of Brokers and Dealers Pursuant to Section 17 of the
                            Securities Exchange Act of 1934 and Rule 17a—5 Thereunder

REPORT FOR THE PERIOD BEGINNING                                     01/01/07                            AND ENDING               12/31/07
                                                                    MM/DD/YY                                                     MM/DD/YY


                                              A. REGISTRANT IDENTIFICATION

NAME OF BROKER—DEALER:                                                                                                    OFFICIAL USE ONLY

 Wells Nelson & Associates, LLC

ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.)                                                            FIRM ID, NO.
 The Hightower Building, 105 N. Hudson, Suite 600
                                                                  (No. and Street)


 Oklahoma City                                                         OK                                                        73102
                   (City)                                                (State)                                                (Zip Code)

NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT

                                                                                                                        (Area Code— Telephone No.)


                                             B. ACCOUNTANT IDENTIFICATION

INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report*

CF & Co., LLP.
                                               (Name — if individual, state last, first, middle name)


14175 Proton Rd.                                                      Dallas                               maX                               75244
    (Address)                                                         (Ciy)                               WR@CESSE                           (Zip Code)

CHECK ONE:
                 Certified Public Accountant                                                               FEB 23 2008
                 Public Accountant                                                                         THO
                 Accountant not resident in United States or any ofits possessions.                        F!Nflgg?
                                                           FOR OFFICIAL USE ONLY



*Claims for exemption from the requirement that the annual report be covered by the opinion of an independent public accountant
must be supported by a statement offacts and circumstances relied on as the basis for the exemption. See section 240.17a—5(e)(2).



                                      Potential persons who are to respond to the collection of information
SEC 1410 (06—02)                    contained in this form are not required to respond unless the form displays
                                    a currently valid OMB control number.

                                                                                                                                                          Yie


                                                     OATH OR AFFIRMATION


I, _Edward F. Wells                                                       , swear (or affirm) that, to the best of
my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of
 Wells Nelson & Associates, LLC                                                                           , as of
_December 31               , 2007, are true and correct. I further swear (or affirm) that neither the company nor
any partner, proprietor, principal officer or director has any proprietary interest in any account classified solely as
that of a customer, except as follows:




                                                                                   2AF: UA               Signature
                                                                                                           ignat
                                          JOYCE A. ROSS

                                          oofioopatithes
                                         Notwy Publlc in and for the
                                                                                                       President
                                                                                                         res.rl.flen
                                      My Comminaion expleas 3/13.2000
                                                                                                              itle




                      / /Notary Pubifc



        This report** contains (check all applicable boxes):
             (a)   Facing page.
             (b)   Statement of Financial Condition.
             (c) Statement of Income (Loss).
             (d) Statement of Cash Flows
             (e) Statement of Changes in Stockholders® Equity or partners‘ or Sole Proprietor‘s Capital.
             (1  Statement of Changes in Liabilities Subordinated to Claims of Creditors.
             (9) Computation of Net Capital.
             (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3—3.
             () Information Relating to the Possession or control Requirements Under Rule 15c3—3.
             D A Reconciliation, including appropriate explanation, of the Computation of Net Capital Under Rule 15¢3—1 and the
                 Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3—3.
        O    (k) A Reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods of con—
                   solidation.
             (1) An Oath or Affirmation.
             (m) A copy of the SIPC Supplemental Report.
            (n) A report describing any material inadequacies found to exist or found to have existed since the date ofthe previous audit.
            (o) Independent auditor‘s report on internal control
        **For conditions of confidentialtreatment of certain portions of this filing, see section 240.17a—5(e)(3).


WELLS NELSON & ASSOCIATES, LLC

REPORT PURSUANT TO RULE 17a—5(d)

 YEAR ENDED DECEMBER 31, 2007


                      WELLS NELSON & ASSOCIATES, LLC


                                     CONTENTS

                                                            PAGE

INDEPENDENT AUDITOR‘S REPORT

STATEMENT OF FINANCIAL CONDITION

STATEMENT OF INCOME

STATEMENT OF CHANGES IN MEMBERS‘ EQUITY

STATEMENT OF CHANGES IN LIABILITIES
  SUBORDINATED TO CLAIMS OF GENERAL CREDITORS

STATEMENT OF CASH FLOWS

NOTES TO FINANCIAL STATEMENTS                                7—10

SUPPORTING SCHEDULES

  Schedule I:    Computation of Net Capital Under
                 Rule 15¢3—1 of the Securities
                 and Exchange Commission                    12 —13

  Schedule II:   Computation for Determination of Reserve
                 Requirements Under Rule 15c3—3 of the
                 Securities and Exchange Commission             14


IINDEPENDENT AUDITOR‘S REPORT ON INTERNAL
  CONTROL REQUIRED BY SEC RULE 172—5                        16— 17


                                                    CT & 60. u1P
                                                       CERTIFIED PUBLIC ACCOUNTANTS
                                                               & CONSULTANTS




                                    INDEPENDENT AUDITOR‘S REPORT


Board of Directors and Members
Wells Nelson & Associates, LLC

We have audited the accompanying statement offinancial condition of Wells Nelson & Associates,
LLC as of December 31, 2007 and the related statements of income, changes in members‘ equity,
changes in liabilities subordinated to claims of general creditors, and cash flows for the year then
ended that you are filing pursuant to rule 17a—5 under the Securities Exchange Act of 1934. These
financial statements are the responsibility of the Company‘s management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements.    An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Wells Nelson & Associates, LLC as of December 31, 2007, and the results of
its operations and its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as
a whole. The information contained in the Schedules I and II is presented for purposes of additional
analysis and is not a required part of the basic financial statements, but is supplementary
information required by rule 17a—5 under the Securities Exchange Act of 1934. Such information
has been subjected to the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.



                                                                  CGe Cs RMQP:      |

                                                                    CF & Co., LLP.
Dallas, Texas
February 22, 2008


       14175 Proton Road + Dallas, Texas 75244—3604 + Phone: 972—387—4300 + 800—834—8586 Fax 972—960—2810 + www.cfllp.com

                                                   REGISTERED WITH THE PCAOB
                                   MEMBERS: AICPA + CENTER FOR AUDIT QUALITY® TSCPA > EBPAQC®
                               CPAMERICA INTERNATIONAL AN AFFILITE OF HORWATH INTERNATIONALAND
                                           THE INTERNATIONAL ACCOUNTING GROUP (TIAG)


                            WELLS NELSON & ASSOCIATES, LLC
                               Statement of Financial Condition
                                     December 31, 2007

                                            ASSETS

Cash and cash equivalents                                                         $       133,594
Deposits with clearing broker—dealer                                                    1,757,457
Receivable from clearing broker—dealer                                                     94,856
Securities owned at market value                                                        1,511,347
Furniture, equipment and leasehold improvements, net                                       99,362
Other assets                                                                                6,887

                                                                                 3,603.503_
                            LIABILITIES AND MEMBERS‘ EQUITY

Liabilities
  Accounts payable                                                                $        69,378
  Accrued expenses                                                                        617,188
 Payable to clearing broker—dealer                                                      1,514,285
 Capital lease obligation                                                                  13,400

   Total liabilities                                                                    2,214,251

Members‘ equity                                                                         1,389,252

                                                                                3,603.503_




           The accompanying notes are an integral part of these financial statements.

                                            Page 2


                           WELLS NELSON & ASSOCIATES, LLC
                                      Statement of Income
                            For the Year Ended December 31, 2007

Revenues:
 Commissions                                                                       $        60,955
 Trading and investment gains                                                            1,987,841
 Underwriting and advisory fees                                                          1,010,738
 Interest                                                                                  94,542
 Other                                                                                     112,571

                                                                                         3,266,647

Expenses:
  Employee compensation and benefits                                                     1,971,255
 Brokerage and clearance fees                                                              67,471
 Communications                                                                            82,780
 Occupancy and equipment costs                                                            145,144
 Promotional costs                                                                        112,393
 Interest                                                                                  52,445
 Data processing costs                                                                     16,599
 Regulatory fees and expenses                                                              47,141
 Other                                                                                    170,561

                                                                                         2,665,789

   Net income                                                                     $       600,858




            The accompanying notes are an integral part of these financial statements.

                                             Page 3


                          WELLS NELSON & ASSOCIATES, LLC
                          Statement of Changes in Members‘ Equity
                           For the Year Ended December 31, 2007




                                                               Number of             Members‘
                                                                  Units                Equity

Balance, December 31, 2006                                            1,367      $      788,394

Net income                                                                              600,858


Balance, December 31, 2007                                            1,367      $     1,389,252




          The accompanying notes are an integral part of these financial statements.

                                           Page 4


                        WELLS NELSON & ASSOCIATES, LLC
     Statement of Changes in Liabilities Subordinated to the Claims of General Creditors
                          For the Year Ended December 31, 2007




Balance, December 31, 2006                                                            $

 Additions

 Retirements

Balance, December 31, 2007                                                            $




         The accompanying notes are an integral part of these financial statements.

                                          Page 5


                              WELLS NELSON & ASSOCIATES, LLC
                                       Statement of Cash Flows
                               For the Year Ended December 31. 2007

Cash flows from operating activities
 Net income                                 .                                        $     600,858
 Adjustments to reconcile net income to net
   cash provided (used) by operating activities:
     Depreciation and amortization                                                           29,587
     Changes in operating assets and liabilities:
       Increase in deposits with clearing broker—dealer                                     (64,012)
       Increase in receivable from clearing broker—dealer                                  (727,088)
       Decrease in securities owned                                                         158,428
       Increase in other assets                                                              (3,284)
       Increase in accounts payable                                                          30,237
       Decrease in payable to clearing broker—dealer                                       (155,840)
       Increase in accrued expenses                                                        286,810

     Net cash provided (used) by operating activities                                      155,696

Cash flows from investing activities
 Purchase of property and equipment                                                         (27,104)

     Net cash provided (used) by investing activities                                       (27,104)

Cash flows from financing activities
 Repayment of capital lease obligation                                                       (4,091)

     Net cash provided (used) by financing activities                                        (4,091)

Net increase in cash and cash equivalents                                                  124,501

Beginning cash and cash equivalents                                                          9,093

Ending cash and cash equivalents                                                     $     133,594
Supplemental Disclosures
 Cash paid for:
   Interest                                                                          $      52,445

   Income taxes                                                                      $           ——




              The accompanying notes are an integral part of these financial statements.

                                               Page 6


                        WELLS NELSON & ASSOCIATES, LLC
                            Notes to Financial Statements
                                 December 31. 2007

Note 1 —   Summary of Significant Accounting Policies

           Basis of Financial Statement Presentation

           The financial statements present the financial position and results of operations of
           Wells Nelson & Associates, LLC (the "Company"), an Oklahoma limited liability
           company, which was formed on February 7, 2000. Three individuals who are
           members of management and/or employees of the Company, own all of the
           membership interests. The Company shall terminate on February 28, 2050, unless
           earlier terminated. Profit and loss are allocated to members in accordance with their
           percentage ownership of outstanding units. The number of membership units
           authorized must be approved by the majority of the board of members. Each
           member‘s liability is limited to its capital account balance.

           Business Operations

           The Company is a broker—dealer in securities registered with the Securities and
           Exchange Commission under (SEC) Rule 15c3—3(k)(2)(ii) which provides that all
           the funds and securities belonging to the Company‘s customers would be handled by
           a clearing broker—dealer.     In accordance with the provisions of this rule, the
           Company executes all of its customers‘ transactions on a fully—disclosed basis,
           through an unaffiliated clearing broker—dealer, located in Dallas, Texas, which
           carries the accounts and securities of the Company‘s customers. Principal
           business activities are conducting principal and agency transactions and providing
           underwriting and advisory services for customers primarily located in Oklahoma.

           Underwriting and Advisory Fees

           Underwriting and advisory fees include gains, losses, and fees, net of syndicate
           expenses, arising from securities offerings in which the Company acts as an
           underwriter or agent. Underwriting and advisory fees also include fees earned
           from providing financial advisory services. Underwriting and advisory fees are
           recorded at the time the underwriting is completed and the income is reasonably
           determinable.

           Securities Transactions

           Profit and loss arising from all securities transactions entered into for the account
           and risk of the Company are determined using the specific identification method
           and are recorded on a trade date basis. Customer‘s securities transactions are
           reported on a settlement date basis with related commission income and expense
           reported on a       settlement   date   basis.    The amounts     recorded for




                                           Page 7


                        WELLS NELSON & ASSOCIATES, LLC
                            Notes to Financial Statements
                                December 31, 2007

Note 1 —   Summary of Significant Accounting Policies, continued

           Securities Transactions, continued

           commission income and expense for customers‘                   securities transactions
           approximate the amounts that would be recorded on a trade date basis.

           Cash and Cash Equivalents

           For purposes of the statement of cash flows, the Company has defined cash
           equivalents as highly liquid investments, with original maturities of less than
           ninety days, not held for sale in the ordinary course of business.

           Furniture, Equipment and Leasehold Improvements

           Furniture, equipment and leasehold improvements are stated at cost less
           accumulated depreciation. Depreciation is provided principally by accelerated
           and straight—line methods using estimated useful lives of five to seven years.
           Leasehold improvements are amortized over the lesser of the economic useful life
           of the improvement or the term of the lease.

           Income Taxes

           The Company is treated and taxed as a partnership for federal income tax purposes.
           Accordingly, any tax liability is the responsibility ofthe individual members.

           Use of Estimates

           The preparation of financial statements in conformity with accounting principles
           generally accepted in the United States of America requires the Company 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
           statement. Actual results could differ from those estimates.

Note 2 —   Deposits with Clearing Broker—Dealer

           Deposits with clearing broker—dealer include cash required to be maintained at the
           clearing broker—dealer for clearing and trading activities.

Note 3 —   Securities
           Marketable securities owned at December 31, 2007 are considered trading
           securities and consist of state and municipal obligations at fair value based on
           quoted market prices.

                                          Page 8


                           WELLS NELSON & ASSOCIATES, LLC
                               Notes to Financial Statements
                                    December 31, 2007

Note 4 —   Fumniture, Equipment and Leasehold Improvements

           A summary of furniture, equipment and leasehold improvements at December 31,
           2007 is as follows:

               Furniture and fixtures                                       $    164,890
              Equipment                                                          148,891
              Leasehold improvements                                              24,930
                                                                                 338,711
              Less: accumulated depreciation and amortization                   (239.349)

                                                                           99,362
Note 5 —   Leases
           The Company‘s facilities and certain equipment are leased under various
           operating leases with initial noncancelable terms in excess of one year. Rental
           expense related to facilities and equipment amounted to $100,964 during 2007.
           One facility lease contains a renewal option.

           The Company leases certain equipment under a capital lease. Assets under this
           capital lease are included in the caption "Furniture, equipment and leasehold
           improvements" in the statement of financial condition and include equipment of
           $21,893 less accumulated amortization of $9,487.

           The following are the minimum lease payments that will have to be made in each
           of the years indicated based on capital and operating leases in effect as of
           December 31, 2007:

              Year Ended
              December 31,                                    Operating         Capital
                    2008                                  $ 89,336         $       5,264
                    2009                                    48,453                 5,265
                    2010                                    25,160                 4,386

              Total minimum lease payments                      62,94             14,915
                  Amount representing interest                                    (1,515)

              Present value of minimum lease payments                      $      13,400




                                        Page 9


                           WELLS NELSON & ASSOCIATES, LLC
                               Notes to Financial Statements
                                    December 31. 2007

Note 6 —   Net Capital Requirements and Exemptive Provisions

           The Company is subject to the Securities and Exchange Commission 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, 2007, the Company had net
           capital of $1,153,603, which was $1,053,603 in excess ofits required net capital
           of $100,000. The Company‘s ratio of aggregate indebtedness to net capital ratio
           was .61 to 1.

           The Company is exempt from the Securities and Exchange Commission Customer
           Protection Rules (SEC Rule 15¢c3—3), which relate to reserves and custody of
           securities, under section (k)(2)(ii) of this rule.

Note 7 —   Concentration of Credit Risk

           Cash at one bank exceeded federally insured limits at various times throughout
           the year ended December 31, 2007.

Note 8 —   Defined Contribution Plan

           The Company adopted a 401(k) profit sharing plan covering all eligible
           employees, effective January 1, 2003.       Participants may make deferral
           contributions up to the annual maximum amount allowed by the Internal Revenue
           Code. The Company may also make discretionary contributions and safe harbor
           matching contributions. There were no discretionary or matching contributions
           for 2007.

Note 9 —   Commitments and Contingent Liabilities

           The Company is engaged in various trading and brokerage activities in which
           counterparties primarily include broker—dealers, banks and other financial
           institutions.    In the event counterparties do not fulfill their obligations, the
           Company may be exposed to risk. The risk of default depends on the credit
           worthiness of the counterparty or issuer of the instrument. It is the Company‘s
           policy to review, as necessary, the credit standing of each counterparty.

           The Company is required to indemnify its clearing broker/dealer if a customer
           fails to settle a securities transaction, according to its clearing agreement.
           Management was neither aware, nor had it been notified of any potentially
           material indemnification loss at December 31, 2007.




                                           Page 10


   Supplemental Information

 Pursuant to Rule 17a—5 of the

Securities Exchange Act of 1934

             as of

      December 31, 2007


                                            Schedule I

                         WELLS NELSON & ASSOCIATES, LLC
  Computation of Net Capital Under Rule 15¢c3—1 of the Securities and Exchange Commission
                                 As of December 31, 2007



Computation of Net Capital

Total members‘ equity qualified for net capital                              $   1,389,252

Deductions and/or charges
 Non—allowable assets:
   Furniture, equipment and leasehold improvements           $    99,362
   Other assets                                                    3,600         (102,962)
Net capital before haircuts on securities positions                              1,286,290

Haircuts on securities (computed, where applicable,
 pursuant to Rule 15c3—1(£)):
    Debt securities                                              (96,345)
    Undue concentration                                           (1,192)
    Money market mutual fund                                     (35,150)        (132.687)

Net capital                                                                 L153,603_
Aggregate Indebtedness

Items included in statement of financial condition
  Accounts payable                                                           $     69,378
 Accrued expenses                                                                 617,188
 Payable to clearing broker—dealer                                                  2,938
 Capital lease obligation                                                          13,400

Total aggregate indebtedness                                                702904



                                             Page 12


                                Schedule I (continued)

                     WELLS NELSON & ASSOCIATES, LLC
Computation of Net Capital Under Rule 15c3—1 of the Securities and Exchange Commission
                             As of December 31. 2007



Computation of Basic Net Capital Requirement

Minimum net capital required (6 2/3% of total
 aggregate indebtedness)                                                           $      46,863



Minimum dollar net capital requirement of
 reporting broker or dealer                                                        $     100,000


Minimum net capital requirement (greater of two
 minimum requirement amounts)                                                      $     100,000


Net capital in excess of minimum required                                          $ 1,053,603



Excess net capital at 1000%                                                        $ 1,083,313



Ratio: Aggregate indebtedness to net capital                                       0.61 to 1

Reconciliation with Company‘s Computation

There were no material differences in the computation of net capital under rule 15¢3—1
 from the Company‘s computation.




                                            Page 13


                                         Schedule II

                        WELLS NELSON & ASSOCIATES, LLC
              Computation for Determination of Reserve Requirements Under
               Rule 15c3—3 of the Securities and Exchange Commission
                                 As of December 31. 2007



Exemptive Provisions

The Company has claimed an exemption from Rule 15¢ 3—3 under section (k)(2)(ii), in which
all customer transactions are cleared through another broker—dealer on a fully disclosed basis.

Company‘s clearing firm:   First Southwest Company




                                            Page 14


 Independent Auditor‘s Report

     On Internal Control

 Required By SEC Rule 17a—5

Year Ended December 31, 2007


                                                     CT & 6o., 112
                                                        CERTIFIED PUBLIC ACCOUNTANTS
                                                                & CONSULTANTS




                       INDEPENDENT AUDITOR‘S REPORT ON INTERNAL
                           CONTROL REQUIRED BY SEC RULE 172—5

To the Board of Directors and Members
Wells Nelson & Associates, LLC

In planning and performing our audit ofthe financial statements and supplemental information of
Wells Nelson & Associates, LLC (the "Company"), as of and for the year ended December 31,
2007 in accordance with auditing standards generally accepted in the United States of America, we
considered the Company‘s internal control over financial reporting as a basis for designing our
auditing procedures for the purpose of expressing our opinion on the financial statements, but not
for the purpose of expressing an opinion on the effectiveness of the Company‘s internal control.
Accordingly, we do not express an opinion on the effectiveness ofthe Company‘s internal
control.

Also, as required by rule 17a—5(g)(1) of the Securities Exchange Commission (SEC), we have
made a study of the practices and procedures followed by the Company including consideration
of control activities for safeguarding securities. This study included tests of such practices and
procedures that we considered relevant to the objectives stated in rule 17a—5(g) in making the
periodic computations of aggregate indebtedness and net capital under rule 17a—3(a)(11) and for
determining compliance with the exemptive provisions of rule 15c3—3. Because the Company
does not carry securities accounts for customers or perform custodial functions relating to
customer securities, we did not review the practices and procedures followed by the Company in
any of the following:

        1. Making    quarterly securities examinations,      counts, verifications,                                    and
           comparisons and recordation ofdifferences required by rule 17a—13

            Complying with the requirements for prompt payment for securities under
       bo




            Section 8 of Federal Reserve Regulation T of the Board of Governors of the
            Federal Reserve System

The management of the Company is responsible for establishing and maintaining internal control
and the practices and procedures referred to in the preceding paragraph. In fulfilling this
responsibility, estimates and judgments by management are required to assess the expected
benefits and related costs of controls and of the practices and procedures referred to in the
preceding paragraph and to assess whether those practices and procedures can be expected to
achieve the SEC‘s above—mentioned objectives. Two ofthe objectives ofinternal control and the
practices and procedures are to provide management with reasonable but not absolute assurance
that assets for which the Company has responsibility are safeguarded against loss from
unauthorized use or disposition and that transactions are executed in accordance with
       14175 Proton Road + Dallas, Texas 75244—3604 + Phone: 972—387—4300 * 800—834—8586 + Fax 972—960—2810 + www.cfllp.com

                                                   REGISTERED WITH THE PCAOB »
                                   MEMBERS: AICPA + CENTER FOR AUDIT QUALITY® TSCPA + EBPAQC +
                               CPAMERICA INTERNATIONAL AN AFFILIATE OF HORWATH INTERNATIONAL AND
                                           THE INTERNATIONAL ACCOUNTING GROUP (TIAG)


management‘s authorization and recorded properly to permit the preparation of financial
statements in conformity with accounting principles. Rule 17a—5(g) lists additional objectives of
the practices and procedures listed in the preceding paragraph.

Because of inherent limitations in internal control and the practices and procedures referred to
above, error or fraud may occur and not be detected. Also, projection of any evaluation of them
to future periods is subject to the risk that they may become inadequate because of changes in
conditions or that the effectiveness of their design and operation may deteriorate.

A control deficiency exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent or detect
misstatements on a timely basis. A significant deficiency is a control deficiency, or combination
of control deficiencies, that adversely affects the entity‘s ability to initiate, authorize, record,
process, or report financial data reliably in accordance with generally accepted accounting
principles such that there is more than a remote likelihood that a misstatement of the entity‘s
financial statements that is more than inconsequential will not be prevented or detected by the
entity‘s internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the financial statements
will not be prevented or detected by the entity‘s internal control.

Our consideration of internal control was for the limited purpose described in the first and
second paragraphs and would not necessarily identify all deficiencies in internal control that
might be material weaknesses.      We did not identify any deficiencies in internal control and
control activities for safeguarding securities that we consider to be material weaknesses, as
defined above.

We understand that practices and procedures that accomplish the objectives referred to in the
second paragraph of this report are considered by the SEC to be adequate for its purposes in
accordance with the Securities Exchange Act of 1934 and related regulations, and that practices
and procedures that do not accomplish such objectives in all material respects indicate a material
inadequacy for such purposes. Based on this understanding and on our study, we believe that the
Company‘s practices and procedures, as described in the second paragraph of this report, were
adequate at December 31, 2007, to meet the SEC‘s objectives.

This report is intended solely for the information and use of the Board of Directors, management,
the SEC, the Financial Industry Regulatory Authority, and other regulatory agencies that rely on
rule 17a—5(g) under the Securities Exchange Act of 1934 in their regulation of registered brokers
and dealers, and is not intended to be and should not be used by anyone other than these
specified parties.

                                                     C442 C 143L
                                                     CF & Co., LL.P.
Dallas, Texas
February 22, 2008                                                                       END



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