# BEECH HILL SECURITIES, INC. X-17A-5 (2021-03-26) — Broker-dealer annual report
- Company: BEECH HILL SECURITIES, INC.
- Form: X-17A-5
- Filed: 2021-03-26
- Period: 2020-12-31
- Accession: 0000852094-21-000003
- CIK: 852094
- File #: 8-41389
- Material weakness: No
- Auditor: Wagner & Zwerman LLP
- Auditor location: Melville, NY
- Contact: Vincent Iannuzzi
- Phone: 212-350-7214
- Email: staff@wzcpafirm.com
- Website: wzcpafirm.com
- Signed by: Paul Cantor (Chairman)
Original filing: https://www.sec.gov/Archives/edgar/data/852094/000085209421000003/beechhillannualaudit.pdf
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### ANNUAL AUDITED REPORT FOHM X-17A-5 PAHT III
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| | FOR OFFICTAL USE ONLY | | | |
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#### **BEECH HILL SECURITES, INC.**
FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION
DECEMBER 31, 2020
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#### **BEECH HILL SECURITIES, INC. TABLE OF CONTENTS**
| Report of Independent Registered Public Accounting Firm……………………… | 1-2 |
|----------------------------------------------------------------------------------|------|
| Financial Statements | |
| Statement of Financial Condition
As of December 31, 2020……………………………………………………. | 3 |
| Notes to Financial Statements…………………………………………………… | 4-11 |
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# **WAGNER & ZWERMAN LLP**
*Certified Public Accountants*
**Mark Wagner, CPA Andrew M. Zwerman, CPA Vincent J. Preto, CPA John Antinore, CPA Kelly J. Schmidt, CPA**
**201 Old Country Rd., Ste. 202 Melville, NY 11747 Phone: 631-777-1000 Fax: 631-777-1008 E-mail: staff@wzcpafirm.com**
#### **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
To the Board of Directors Beech Hill Securities, Inc.
#### **Opinion on the Financial Statements**
We have audited the accompanying statement of financial condition of Beech Hill Securities, Inc. as of December 31, 2020, the related statements of income, changes in stockholders' equity, changes in liabilities subordinated to claims of general creditors, and cash flows for the year then ended, and the related notes and supplemental information (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of Beech Hill Securities, Inc. as of December 31, 2020, 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.
#### **Basis for Opinion**
These financial statements are the responsibility of Beech Hill Securities, Inc.'s management. Our responsibility is to express an opinion on Beech Hill Securities, Inc.'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 Beech Hill 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 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.
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### **WAGNER & ZWERMAN LLP**
*Certified Public Accountants* Page 2 – Independent auditors' report
## **Supplemental Information**
The computation of net capital under Rule 15c3-1 of the Securities and Exchange Commission, computation for determination of reserve requirements under Rule 15c3-3 of the Securities and Exchange Commission, and information relating to possession or control requirements under Rule 15c3-3 of the Securities and Exchange Commission have been subjected to audit procedures performed in conjunction with the audit of Beech Hill Securities, Inc.'s financial statements. The supplemental information is the responsibility of Beech Hill Securities, Inc.'s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with 17 C.F.R. §240.17a-5. In our opinion, the computation of net capital under Rule 15c3-1 of the Securities and Exchange Commission, computation for determination of reserve requirements under Rule 15c3-3 of the Securities and Exchange Commission, and information relating to possession or control requirements under Rule 15c3-3 of the Securities and Exchange Commission are fairly stated, in all material respects, in relation to the financial statements as a whole.
WAGNER & ZWERMAN LLP Certified Public Accountants We have served as Beech Hill Securities, Inc.'s auditor since 2013. Melville, NY February 25, 2021
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#### **BEECH HILL SECURITIES, INC. STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 2020**
#### **ASSETS**
| Cash and cash equivalents | | \$
948,640 |
|----------------------------------------|-----------------|-----------------|
| Receivables from clearing organization | | 1,847,657 |
| Securities owned, at fair value | | 328,639 |
| Accounts receivable | | 504,546 |
| Deposit with clearing broker | | 100,000 |
| Prepaid expenses | | 105,975 |
| Security deposits and other assets | | 30,000 |
| Furniture and office equipment | \$
1,236,149 | |
| Leasehold improvements | 124,342 | |
| | 1,360,491 | |
| Less accumulated depreciation | (1,360,491) | |
| Total property and equipment | | - |
| Right of use asset | | 1,101,898 |
| | | |
| Total assets | | \$
4,967,355 |
#### **LIABILITIES AND STOCKHOLDERS' EQUITY**
| Liabilities | |
|-----------------------------------------------------------|-----------------|
| Accounts payable and accrued expenses | \$
753,194 |
| Commissions payable | 404,897 |
| Loan - Paycheck Protection Program | 647,942 |
| Lease liability - operating | 1,101,898 |
| Total liabilities before subordinated loans | 2,907,931 |
| Subordinated loans | 500,000 |
| Total liabilities | 3,407,931 |
| Commitments and contingencies (Note 12) | |
| Stockholders' equity | |
| Common stock - no par value; 200 shares authorized, | |
| 200 shares issued and 182 shares outstanding | 639,023 |
| Less treasury stock - at cost (18 shares of common stock) | (100,000) |
| Retained earnings | 1,020,401 |
| Total stockholders' equity | 1,559,424 |
| Total liabilities and stockholders' equity | \$
4,967,355 |
| | |
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#### **NOTE 1: ORGANIZATION AND BUSINESS**
Beech Hill Securities, Inc. (the "Company") is a registered broker-dealer with the Securities and Exchange Commission ("SEC") and the Financial Industry Regulatory Authority ("FINRA"). The Company clears all of its customer transactions through a correspondent broker on a fully disclosed basis.
#### **NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
#### Basis of Accounting
The accompanying financial statements are prepared in accordance with accounting principles generally accepted in the United States of America.
#### Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
#### Cash and Cash Equivalents
The Company considers all highly-liquid financial instruments with maturities of three months or less when purchased to be cash equivalents.
#### Allowance for Doubtful Accounts
The Company assesses the financial strength of its customers. Periodically, the Company evaluates its accounts receivable and provides an allowance for doubtful accounts equal to the estimated uncollectible accounts. The Company's estimate is based on a review of the current status of the individual accounts receivable. As of December 31, 2020 there was no allowance for doubtful accounts as management believes that all receivables are fully realizable. It is reasonably possible that the Company's estimate of the provision for allowance for doubtful accounts will change.
#### Securities Owned
Proprietary securities transactions in regular-way trades are recorded on the trade date, as if they had settled. Profit and loss arising from all securities transactions entered into for the account and risk of the Company are recorded on a trade date basis. Securities are recorded at fair value.
#### Furniture, Equipment and Leasehold Improvements
Furniture, fixtures, office equipment and leasehold improvements are recorded at cost. Depreciation and amortization are provided on both the straight-line and accelerated methods over the shorter of the estimated useful lives of the respective assets or the lease term. Maintenance and repairs are charged to expenses as incurred while major renewals and betterments are capitalized.
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#### **NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (Continued)
#### Property, Equipment and Leasehold Improvements (Continued)
When items of property and equipment are sold or retired, the cost and related accumulated depreciation and amortization are removed from the accounts and a gain or loss (if any) is included in earnings in the period of disposal.
#### Loan Payable – U.S. SBA Paycheck Protection Program
In June 2020, the Company received proceeds in the amount of \$647,942 under the United States Small Business Administration Paycheck Protection Program ("PPP"). The PPP, was established as part of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). The Company is accounting for the loan as a financial liability under FASB ASC 470.
#### Income Taxes
The Company elected to be treated as an S corporation pursuant to Section 1362 of the Internal Revenue Code. As a result of this election, the Company's net income or loss is reportable on the individual tax returns of its stockholders. A similar election was made for New York State tax purposes. The Company is subject to New York City corporate income taxes and the New York State corporate minimum tax.
Income and losses for tax purposes may differ from the financial statement amounts. Stockholders' equity reflected in the accompanying financial statements does not necessarily represent the stockholders' tax bases of their respective interests.
Accounting principles generally accepted in the United States of America requires management to evaluate tax positions taken by the Company and recognize a tax liability (or asset) if it has taken an uncertain position that more likely than not would not be sustained upon examination based on its technical merits. Management has analyzed the tax positions taken by the Company and has determined that there are no uncertain positions taken or expected to be taken that would require recognition of a liability or asset or disclosure in the financial statements.
The Company is subject to routine audits by taking jurisdictions; however, there are currently no audits for any tax periods in progress. Management believes that the Company's federal, New York State, and New York City income tax returns prior to 2017 are no longer subject to examination, based on the normal statutory periods subject to audit, notwithstanding any events or circumstances that may exist, which could expand the open period.
The Company recognizes interest and penalties associated with tax matters, if applicable, as part of other expenses and includes accrued interest and penalties in accrued expenses in the statement of financial condition. The Company did not recognize any interest or penalties associated with tax matters for the year ended December 31, 2020.
#### Subsequent Events
The Company has evaluated subsequent events through February 25, 2020, the date the financial statements were available to be issued.
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#### **NOTE 3: RECEIVABLES FROM CLEARING ORGANIZATION**
Receivables from clearing organization at December 31, 2020 consists of \$1,847,657 of net proceeds received from the Company's trading activities and commissions.
#### **NOTE 4: FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS**
The following table shows the balances of major classes of furniture, equipment and leasehold improvements, their estimated useful lives, and the accumulated depreciation and amortization for each class at December 31, 2020:
| Equipment and software | 3 to 5 years | | \$ | 850,500 |
|--------------------------------------------------|--------------------------------|-----------|----|-------------|
| Furniture | 5 years | | | 385,649 |
| | Shorter
of
lease
term | and | | |
| Leasehold improvements | estimated useful life | | | 124,342 |
| | | 1,360,491 | | |
| Less – Accumulated depreciation and amortization | | | | (1,360,491) |
| | | | \$ | 0 |
#### **NOTE 5: SUBORDINATED BORROWINGS**
The Company has borrowings of \$500,000 subject to subordination agreements, which are more fully described as follows:
| Description | Effective | Maturity | Rate | Balance Due |
|--------------------------------|-----------------|--------------------------------------------------------|------|-------------|
| Note payable to
stockholder | January 1, 2014 | December 31, 2021
(Executed annual auto
renewal) | 3% | \$ 100,000 |
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#### **NOTE 5: SUBORDINATED BORROWINGS** (Continued)
| Description | Effective | Maturity | Rate | Balance Due |
|------------------------------------|--------------------|--------------------------------------------------------------|------|-------------|
| Note payable to non
stockholder | March 7, 2014 | March 16, 2021
(Executed annual auto
renewal) | 3% | 100,000 |
| Note payable to non
stockholder | October 24, 2012 | December 31, 2021
(Executed annual auto
renewal) | 3% | 100,000 |
| Note payable to non
stockholder | December 31, 2016 | December 31, 2021
(Executed
annual
auto
renewal) | 3% | 100,000 |
| Note payable to non
stockholder | September 14, 2018 | September 14, 2021 | 3% | 100,000 |
| | | | | \$ 500,000 |
The above noted subordinated loans, unless elected to cancel, will be auto renewed for a subsequent year.
Interest expense incurred on the loans for the year ended December 31, 2020 amounted to \$15,000. The subordinated borrowings were included in the computation of net capital under the SEC's Uniform Net Capital Rule. To the extent that such borrowings are required for the Company's continued compliance with minimum net capital requirements, they cannot be repaid.
#### **NOTE 6: FAIR VALUE MEASUREMENTS**
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Fair value is a market-based measurement that should be determined based on the assumptions market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) the reporting entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). Valuation techniques used to measure fair value shall maximize the use of observable inputs and minimize the use of unobservable inputs.
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#### **NOTE 6: FAIR VALUE MEASUREMENTS** (Continued)
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:
Level 1: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include:
- Quoted prices for similar assets or liabilities in active markets
- Quoted prices for identical or similar assets or liabilities in markets that are not active
- Inputs other than quoted prices that are observable for the asset or liability
- Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3: Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances, which might include the reporting entity's own data. However, market participant assumptions cannot be ignored and, accordingly, the reporting entity's own data used to develop unobservable inputs are adjusted if information is reasonably available without undue cost and effort indicating that market participants would use different assumptions.
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
The following table presents the Company's assets and liabilities measured at fair value as of December 31, 2020:
| Securities Owned: | Level 1 | | Level 2 | Level 3 | Total |
|----------------------|---------|---|---------------|---------|-----------------|
| Municipal Securities | | 0 | 328,639 | | 0
328,639 |
| Total assets | \$ | 0 | \$
328,639 | \$ | 0
\$ 328,639 |
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#### **NOTE 6: FAIR VALUE MEASUREMENTS** (Continued)
Municipal securities are normally valued using a model that incorporates market observable data, such as reported sales of similar securities, broker quotes, yields, bids, offers and reference data. Certain securities are valued principally using dealer quotations. Due to the reliance on some unobservable inputs, the Company has classified its municipal securities as Level 2 on the hierarchy. The Company has included \$328,639 of municipal securities within its securities owned account.
#### **NOTE 7: LEASES**
The Company occupies office space under a long-term lease which expires February 29, 2024. Under the terms of the lease, the base rent is subject to escalations for increases in real estate taxes and operating costs. Certain principals of the Company have guaranteed payments required under the lease obligation. Pursuant to this lease, the Company maintains a rent security deposit in the amount of \$30,000, which is reflected in the other assets in the statement of financial condition.
The Company also subleases a portion of its facilities to other parties, which resulted in sublease income of \$231,500. Two of those leases are long-term and require fixed monthly rental payments through December 31, 2020 while the remaining leases are extended through 2024.
Future minimum commitments under the above long-term leases, including sub-lease income, are as follows as of December 31, 2020:
| For the years ended December 31: | Minimum | | Sublease | |
|----------------------------------|---------|-------------------|----------|---------|
| | | lease commitments | | income |
| 2021 | \$ | 370,250 | \$ | 234,000 |
| 2022 | | 370,250 | | 246,000 |
| 2023 | | 370,250 | | 246,000 |
| 2024 | | 61,708 | | 41,000 |
| 2025 | | - | | - |
| | \$ | 1,172,458 | \$ | 767,000 |
| Less effects of discounting | | (70,560) | | |
| Lease Liability recognized | \$ | 1,101,898 | | |
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#### **NOTE 7: LEASES** (Continued)
Because management generally does not have access to the rate implicit in the lease, the Company utilized its incremental borrowing rate as the discount rate. Management estimated this rate, which is the interest rate the Company could borrow the amount of the initial lease liability to purchase a similar collateralized asset on the date of the lease inception, to be 4.5%
#### **NOTE 8: 401(K) PLAN**
The Company maintains a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code. Employees who have completed six months of service and have attained 21 years of age are eligible to participate. Participants may contribute up to 15% of their salaries. The plan provides for discretionary employer matching contributions. For the year ended December 31, 2020, the Company made no matching contributions.
#### **NOTE 9: RISKS AND UNCERTAINTIES**
Substantially all of the Company's cash and securities positions are held by a custodian broker. The Company has not sustained losses on its cash positions held with its custodian broker and believes its risk is further mitigated by the fact that the broker is highly capitalized and is also a member of major security exchanges.
Although the Company clears its customer transactions through another broker/dealer, nonperformance by its customers in fulfilling their contractual obligations pursuant to securities transactions may expose the Company to risk and potential loss. The Company has a policy of reviewing, as considered necessary, the credit standing of each customer with which it conducts business.
The Company is involved, from time to time, in proceedings with and investigations by, governmental agencies and self-regulatory organizations.
In December 2019, a novel strain of coronavirus was reported in Wuhan, China. The World Health Organization has declared the outbreak to constitute a "Public Health Emergency of International Concern." As a result of the spread of the COVID-19 coronavirus, economic uncertainties have arisen which are likely to negatively impact the Company's operating results. At this point, the extent to which COVID-19 may impact the Company's financial condition or results of operations is uncertain. The extent of the impact of COVID-19 will depend on certain developments, including the duration and spread of the outbreak, all of which are uncertain and cannot be predicted.
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#### **NOTE 10: COMMITMENTS AND CONTINGENCIES**
From time to time, Beech Hill Securities, Inc. becomes involved in various claims, suits, investigations, and legal proceedings that arise in the ordinary course of its business. As required by FASB ASC 450, *Accounting for Contingencies*, the Company accrues a liability when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss.
#### **NOTE 11: WARRANTS**
From time to time, the Company is party to investment banking transactions where the Company may receive warrants of issuing parties as part of its compensation. However, the Company also assigns these warrants to third parties and, accordingly, any value ascribed to the warrants is offset by a liability due to the third party. No assets or liabilities are reflected in the financial statements for these warrants as the value of warrants held by the Company are immaterial.
#### **NOTE 12: NET CAPITAL**
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. Rule 15c3-1 also provides that equity capital may not be withdrawn or cash distributions paid if the resulting net capital ratio would exceed 10 to 1. At December 31, 2020, the Company has net capital of \$1,717,639, which is \$1,467,639 in excess of its required net capital of \$250,000.
Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.