# EMPIRE STATE FINANCIAL, INC. X-17A-5 (2021-04-15) — Broker-dealer annual report
- Company: EMPIRE STATE FINANCIAL, INC.
- Form: X-17A-5
- Filed: 2021-04-15
- Period: 2020-12-31
- Accession: 0000046194-21-000001
- CIK: 46194
- File #: 8-16309
- Material weakness: No
- Auditor: GR Reid Associates, LLP
- Auditor location: Woodbury, NY
- Contact: Bryan Glass
- Phone: 516-442-1853
- Signed by: Bryan Glass (President)
Original filing: https://www.sec.gov/Archives/edgar/data/46194/000004619421000001/empirep.pdf
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UNfflD5f A TES SECUIUTIESANDEXCHANGECOMMISSION **Wa1hlagton,** D,C, 2054!}
### 0MB APPROVAL 0MB Number: 3235-0123 Expires: October 31, 2023 Estimated **average** burden houra oer **response .....** . 12.00
# ANNUALAUDITEDREPORT **FORM** X-17A•5 **PARTIII**
| | SEC ALE NUMBER |
|---------|----------------|
| t-16309 | |
**FACINO PAGE Information Required of Brokers and Dealers Pursuant to Section** 17 **oftbe Securities Exchange Act of 1934 and Rule 17a-5 Thereunder**
| REPORT FOR THE PERIOD BBGINNTNO January 1, 2020 | | | AND ENDING December 31, 2020 | | |
|----------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|-------------------|-------------------------------|--|--|
| | MM/00/YV | | MM/DDfYY | | |
| | A. REGISTRANT IDENTIFICATION | | | | |
| NAME Of' BROKER-DEALER: EMPIRE STA TE FINANCIAL, INC'
ADDRESS OF PRINCIPAL PLACE OP BUSINESS: (Do not use P.O. Box No,) | | OFFICIAL USE ONLY | | | |
| | | | FIAM l,D, NO, | | |
| 20 W Park Avenue, Suite 207 | | | | | |
| | (No. and Slrool) | | | | |
| Long Beach | NY | | 11561 | | |
| (Cit)') | (Stale) | | (Zip Code) | | |
| NAME AND TELBPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT | | | | | |
| Boyan Olan | | | 016-4-42•16113 | | |
| | | | (Aru Code - Tel~phonc Number) | | |
| | B. ACCOUNTANT IDENTlll'ICATION | | | | |
| INDEPENDENT PUBLIC ACCOUNTANT whose opinion is oontalned in this Report• | | | | | |
| GR REID ASSOCIATES, LLP | | | | | |
| | (Name - lf/r,dlv/dwl, .11a1• /a11, /1"1, mtddft nam,) | | | | |
| 7600 Jericho Tpke, Suite 400 | Woodbury | NY | 11797 | | |
| (Address) | (City) | (Slate) | (Zip Code) | | |
| CHECK ONE; | | | | | |
| Certlflod Public Accountant | | | | | |
| B
1ub llc Accountant
1 | | | | | |
| | | | | | |
| Accountont not resident In United Statca or any of its possessions, | | | | | |
| | FOR OPPICIAL USE ONLY | | | | |
*'Claims for exempllon from the requirement that the annual report be cOYered b~ the opinion of an Jndependcmt public account,;m/ must be supported b)' a statement of facts and cfrcumstam:e.r r,/led 11n as the basis for the exemption. See Sec/ton 240, I 7u-5(e)(2)*
SEC 1410 (11·05)
Polontlal poraone who ro to respond **lo** th collocllon of Information conlolned In thl 111form oro not roqulrod to ruapond un1oaa tho lorm dl ph:1y1 acurronlly volld 0MB contrcl numb r,
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### **OATH OR AFFIRMATION**
**L**
I, Bryan Glass , swear (or affirm) that, to the best of my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of Empire State Flnenclal Inc. \_.:::\_\_..:.\_\_---:--::-:------------------:::---- ----------------, as
of December 31 20 20 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 1:1s that of a customer, except as follows:
| This report
ontains (check all applicable boxes): | |
|---------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|
| 0 (a) Pacin Page. | |
| 12) (b) Statement of Financial Condition. | |
| | D (c) Statement oflncome (Loss) or, if there is other comprehensive income in the period(s) presented, a Statement |
| of Comprehensive Income (as defined in §210.1-02 of Regulation S-X). | |
| § (d) Statement of Changes in Financial Condition.
(e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. | |
| (t) Statement of Changes in Liabilities Subordinated to Claims of Creditors. | |
| § (g) Computation of Net Capital. | |
| (h) Computation for Detennination of Reserve Requirements Pursuant to Rule 15c3-3. | |
| (i) lnfonnation Relating to the Possession or Control Requirements Under Rule 15c3-3. | |
| | D (j) A Reconciliation, including appropriate explanation of the Computation of Net C'.lpital Under Ru le I 5c3-1 and the |
| | Computation for Detennination of the Reserve Requirements Under Exhibit A of Rule 15c3-3. |
| | 0 (k) A Reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods of |
| consolidation. | |
| An Oath or Affirmation. | |
| § (I)
(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 of the previous audit. |
| | |
•
*.. For conditions of aonjldentfa/ treatment of certain portions of this filing, see sec/ion 240. l 7a-S(e)(3).*
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**EMPIRE STATE FINANCIAL, INC.** STATEMENT OF FINANCIAL CONDITION DECEMBER 31, 2020
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# **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
To the Board of Directors and Shareholders of Empire State Financial, Inc.
### **Opinion on the Financial Statements**
We have audited the accompanying statement of financial condition of Empire State Financial, Inc. as of December 31, 2020, and the related notes and supplemental schedules (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Empire State Financial , Inc. as of December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
### **Basis for Opinion**
These financial statements are the responsibility of Empire State Financial, lnc.'s management. Our responsibility is to express an opinion on Empire State Financial, lnc.'s financial statements 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 Empire State Financial, 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 statements are 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 statements, 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** Empire **State** Financial Inc. **auditor** since **2019. Woodbury, NY April 14, 2021**
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# **EMPIRE STATE FINANCIAL, INC.**
## STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 2020
| ASSETS | |
|----------------------------------------------------------|---------------|
| Cash and cash equivalents | \$
83,564 |
| Due from clearing broker | 186,434 |
| Deposit with clearing finn | 250,009 |
| Securities long | 8,481 |
| Due from stockholder | 280,323 |
| Right to use asset | 31,131 |
| Other assets | 109.313 |
| Total assets | \$
949,255 |
| LIABILITIES AND STOCKHOLDER'S EQUITY | |
| Liabilities: | |
| Accounts payable and accrued expenses | \$
289,711 |
| Bank loan payable | 150,000 |
| Lease liability | 31,13l |
| Total liabilities | 470,842 |
| Commitments and Contingencies | |
| Stockholder's equity | |
| Preferred stock, \$.01 par value, authorized 10,000 | |
| shares authorized and outstanding I 0,000 shares | 100 |
| Common stock, \$.01 par value, authorized 2,000,000 | 8,898 |
| shares, 440,000 shares outstanding | |
| Additional paid in capital | 245,773 |
| Retained earnings | 371,657 |
| Total | 626,428 |
| Less 449,889 shares of common stock in Treasury, at cost | (148,015) |
| Stockholder's equity | 478,413 |
| Total liabilities and stockholder's equity | \$
949,255 |
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#### **Note** 1- **Nature of Business**
Empire State Financial, Inc. (The "Company") was incorporated in the state of New York to engage in the general business of a broker or dealer in securities. The Company is a member of the Financial Industry Regulatory Authority, and is registered with the Securities and Exchange Commission.
The Company operates under the provisions of Paragraph (k)(2)(ii) of Rule l Sc3- 3 of the Securities and Exchange Commission and, accordingly, is exempt from the remaining provisions of that rule. Essentially, the requirements of Paragraph (k)(2)(ii) provide that the Company clears all transactions on behalf of customers on a fully disclosed basis with a clearing broker/dealer, and promptly transmits all customer funds and securities to the clearing broker/dealer. The clearing broker/dealer carries all of the accounts of the customers and maintains and preserves all related books and records as are customarily kept by a clearing broker/dealer.
#### **Note 2- Summary of Significant Accounting Policies**
### *a)*
### *Revenue Recognition*
Effective January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"). The new revenue recognition guidance requires that an entity recognize revenue due to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires an entity to follow a five step model to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, ( c) detennine the transaction price, ( d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a perfonnance obligation. In determining the transaction price, an entity may include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved. The Company applied the modified retrospective method of adoption which resulted in no adjustment to retained earnings as of January 1, 2018. The new revenue recognition guidance does not apply to revenue associated with financial instruments, interest income and expense, leasing and insurance contracts.
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#### **Note 2- Summary of Signifkant Accounting Policies** ( **continued)**
#### *b) Commissions*
The Company buys and sells securities on behalf of its customers. Each time a customer enters into a buy or sell transaction, the Company charges a commission. Commission and related clearing expenses are recorded on the trade date. The Company has determined that the performance obligation is satisfied on the trade date because that is when the underlying financial instrument, counter parties are identified, the pricing is agreed upon and the risks and rewards of ownership have transferred to/from the customer.
#### *c) Fair Value Measurements*
The Company carries its investments at fair value. ASC 820, *Fair Value Measurements and Disclosure,* defines fair value 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. ASC 820 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.
The fair value hierarchy is categorized into three levels based on the inputs as follows:
- Level I Fair values derived from unadjusted quoted prices of identical assets in active markets.
- Level 2 Fair values derived from quoted prices of similar assets in active markets, quoted prices for identical or similar assets in markets that are not active and model driven valuations in which all significant inputs are observable in active markets.
Level 3 - Fair values derived from inputs which are not observable in markets.
### *d) Cash and Caslt Equivalents*
For the purpose of the statement of cash flows, the Company considers money market funds maintained with banks and brokers to be cash and cash equivalents. The Company maintains cash in bank accounts which, at times, may exceed federally insured limits or where no insurance is provided. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on cash and cash equivalents.
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### **Note 2- Summary of Significant Accounting Policies (continued)**
#### *e) Accounts Receivable*
Accounts receivable is recorded at amounts billed and presented on the statement of financial condition net of allowance for doubtful accounts, if applicable. The allowance is detennined by a variety of factors, including the age of the receivables, current economic condition, historical losses and other information management obtains regarding the financial condition of its clients. The policy for determining the past due status of receivables is based on how recently payments have been received. Receivables are charged off when they are deemed uncollectable, which may arise when the client is deemed unable to pay the amount owed to the Company.
#### *j) Equipment*
Equipment is carried at cost and is depreciated over the usefu I life of 5-7 years using the straight-line method.
#### g) *Use of Estimates*
Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses.
#### *h) Income Taxes*
The Company accounts for income taxes under ASC740, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. [ncome tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
#### i) *The Allowance for Credit Losses*
Effective January 1, 2020, The Company adopted ASC Topic 326, financial Instruments - Credit Losses ("ASC 326"). ASC 326 impacts the impainnent model for certain financial assets by requiring a current expected credit loss ("CECL") methodology to estimate expected credit losses over the entire life of the financial asset. Under the accounting update, the Company could detennine there are no expected credit losses in certain circumstances (e.g., based on the credit quality of the client).
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#### **Note 2- Summary of Significant Accounting Policies (continued)**
### *The Allowance for Credit Losses (continued)*
The Company identified fees and other receivables (including, but not limited to, receivables related to securities transactions, and advisory fees) as impacted by the new guidance. ASC 326 specifies that the Company adopt the new guidance prospectively by means of a cumulative-effect adjustment to the opening member's equity. as of December 31, 2019. Accordingly, the Company recognized no adjustment upon adoption.
The allowance for credit losses is based on the Company's expectation of the collectability of financial instruments, including fees and other receivables utilizing the CECL framework. The Company considers factors such as historical experience, credit quality, age of balances and current and future economic conditions that may affect the Company's expectation of collectability in determining the allowance for credit losses. The Company's expectation is that the credit risk associated with the fees and other receivables is not significant accordingly, the Company has not provided an allowance for credit losses at December 31, 2020.
#### **Note 3- Commitments and Contingencies**
### *Office Space*
i)
The Company leases office space pursuant to a lease agreement expiring August 31, 2021. The lease requires monthly payments of \$3,950. The Company's future rental commitments are approximately as follows:
| Year | Amount | | | |
|------|----------|--|--|--|
| 2021 | \$31,600 | | | |
The Company has adopted F ASB standard 842 regarding leases, which took effect as of the first day of the fiscal year after December 31, 2018. As of December 31, 2020, the Company recorded a right-of-use asset in the amount of approximately \$31,131 and a lease liability in the amount of approximately \$31,131. The impact to the Company Net Capital was \$0, as the right-of-use asset is allowable to the extent of an offsetting lease liability.
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#### **Note 4- Related Party**
The Company lent the Stockholder \$351,475. The loan is non-interest bearing and has no maturity. The repayment will be at the discretion of the stockholder to maintain margin collateral in compliance with various regulatory requirements and the clearing broker's internal guidelines, The Company monitors its customers' activity by reviewing information it receives from its clearing broker on a daily basis, and requiring customers to deposit additional collateral, or reduce positions when necessary.
#### **Note 5- Financial Instruments with Off-Balance Sheet Credit Risk**
As a securities broker, the Company is engaged in buying and selling securities for a diverse group of institutional and individual investors. The Company introduces these transactions for clearance to another broker-dealer on a fu Uy disclosed basis.
The Company's exposure to credit risk associated with non-performance of customers in fulfilling their contractual obligations pursuant to securities transactions can be directly impacted by volatile trading markets which may impair customers' ability to satisfy their obligations to the Company and the Company's ability to liquidate the collateral at an amount equal to the original contracted amount. The agreement between the Company and its clearing broker provides that the Company is obligated to assume any exposure related to such non-performance by its customers. The Company seeks to control the aforementioned risks by requiring customers to maintain margin collateral in compliance with various regulatory requirements and the clearing broker's internal guidelines. The Company monitors its customer activity by reviewing information it receives from its clearing broker on a daily basis, and requiring customers to deposit additional collateral, or reduce positions, when necessary.
#### **Note 6- Net Capital Requirement**
The Company is subject to the Securities and Exchange Commission's Net Capital Rule (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 1500%. At December 3 I, 2020, the Company had net capital of \$87,505, which was \$37,505 in excess of its required net capital of \$50,000. The Company's net capital ratio was 502.50%.
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#### **Note** 7- **Investments, at Fair Value**
The Company adopted ASC 820, Fair Value Measurements ("ASC 820"). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three level of the fair value hierarchy under ASC 820 are as follows:
Level 1---Quoted prices (unadjusted) in active markets for identical investments at the measurement date. '
Level 2-Pricing inputs are other than quoted prices included within Level l that are observable for the investment, either directly or indirectly. Level 2 pricing inputs include quoted prices for similar investments in active markets, quoted prices for identical or similar investments in markets that are not active, inputs other than quoted prices that are observable for the investment, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3-Pricing inputs are unobservable for the investment and are based on the Company's own assumptions about the assumptions that a market participant would use, including inputs derived from extrapolation and interpolation that are not corroborated by observable market data.
In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the investment in its entirety falls is determined based on the lowest level input that is significant to the investment in its entirety. Assessing the significance of a particular input to the investment in its entirety requires judgment, and considers factors specific to the investment.
The categorization of an investment within the hierarchy is based upon the pricing transparency of the investment and does not necessarily correspond to the Company's perceived risk of that investment.
At December 31, 2020, the Company's investments are classified within Level l as they were traded in active markets. Fair value was calculated based on the quoted market prices at the measurement date.
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#### **Note** 7 - **Investments, at Fair Value (continued)**
| | Level I | | Level2 | | Level3 | | Total | |
|-----------------------------|-------------|----|--------|----|--------|-----|-------|--|
| Securities Long
Equities | \$
8,481 | \$ | | \$ | | \$ | 8,481 | |
| Total Securities Long | \$
8,481 | \$ | | \$ | | \$. | 8,481 | |
#### **Note 8** - **Compliance with Rule 15c3-3**
The Company claims exemption from the requirements of Rule l 5c3-3, under Section (k)(2)(ii) of the Rule.
#### **Note 9** - **Note Payable**
### **Bank Loan**
The Company obtained a loan from the Small Business Administration on July 12, 2020 for \$150,000. The loan matures on July 12, 2050 and has an interest rate of3.75%. The loan repayment begins on July 12, 2021, whereby the Company will make monthly payments of \$731.
#### **Note 10** - **Subsequent Events**
The Company has performed an evaluation of events that have occurred subsequent to December 31, 2020 and through April 14, 2021, the date of the filing of this report. There have been no material subsequent events that occurred during such period that would require disclosure in this report or would be required to be recognized in the financial statements as of December 31, 2020.
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#### **Note 11** - **COVID-19**
A coronavirus (COVID-19) was first reported in China. In January 2020, the World Health Organization declared it a Public Health Emergency of International Concern. This contagious disease outbreak, which has continued to spread to additional countries, and any related adverse public health developments, could adversely affect the Company's customers, service providers and suppliers as a result of quarantines, facility closures, and travel and logistics restrictions in connection with the outbreak. More broadly, the outbreak could affect workforces, economies and financial markets globally, potentially leading to an economic downturn. The ultimate impact of the COVID-19 is uncertain. Management continues to monitor the outbreak, however, as of the date of these consolidated financial statements the potential impact of such on the Company's business and operations cannot be reasonably estimated.
The U.S. enacted the CARES Act which is an economic stimulus package to assist eligible small businesses to cover certain operational costs due to the adverse impact of COVID-19. In addition, the CARES Act includes temporary tax law changes to provide additional relief to U.S. businesses and individual taxpayers.
A copy of the Finn's statement of Financial Condition as of December 31, 2020, pursuant to SEC Rule I 7a-*5,* is available for examination at the Firm's office and at the regional office of the SEC.
Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.