# CALLAWAY FINANCIAL SERVICES, INC. X-17A-5 (2021-03-24) — Broker-dealer annual report - Company: CALLAWAY FINANCIAL SERVICES, INC. - Form: X-17A-5 - Filed: 2021-03-24 - Period: 2020-12-31 - Accession: 0001111120-21-000002 - CIK: 1111120 - File #: 8-52474 - Material weakness: No - Auditor: Jennifer Wray CPA PLLC - Auditor location: Sugar Land, TX - Contact: Maria Dembski - Phone: 954-707-0568 - Email: ienniferwravcpa@yahoo.com - Signed by: Maria Dembski (CFO) Original filing: https://www.sec.gov/Archives/edgar/data/1111120/000111112021000002/callawayaudit2020.pdf --- {0}------------------------------------------------ UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 0MB APPROVAL 0MB Number: 3235-0123 Expires: October 31, 2023 Estimated average burden hours per response ...... 12.00 # **ANNUAL AUDITED REPORT FORM X-17A-5 PART Ill** SEC FILE NUMBER &-52474 **FACING PAGE Information Required of Brokers** and Dealers **Pursuant** to Section 17 of the **Securities Exchange Act of** 1934 **and Rule** 17a-S **Thereunder** | REPORT FOR THE PERIOD BEGINNINGQ1/01/2Q2Q | | AND ENDING 12/31/2020 | | | |-----------------------------------------------------------------------------------------------------|---------------------------------------------------------------------|-----------------------|--------------------------------|--| | | MM/DD/YY | | MM/DDNY | | | | A. REGISTRANT IDENTIFICATION | | | | | NAME OF BROKER-DEALER: Callaway Financial Services, Inc | | | OFFICIAL USE ONLY | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | FIRM I.D. NO. | | | 2245 Texas Dr., Suite 300 | | | | | | | (No. and Street) | | | | | | | | 77479 | | | (City) | (State) | | (Zip Code) | | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT
Maria Dembski | | | 954-707-0568 | | | | | | (Area Code - Telephone Number) | | | | B. ACCOUNTANT IDENTIFICATION | | | | | INDEPENDENT PUBLIC ACCOUNT ANT whose opinion is contained in this Report*
Jennifer Wray CPA PLLC | (Name - if indiVidual, state last, first, middle 11ame) | | | | | 16418 Beewood Glen Dr. | Sugar land | TX | 77498 | | | (Address) | (City) | (State) | (Zip Code) | | | CHECK ONE: | | | | | | !tljcertified Public Accountant | | | | | | Public Accountant | | | | | | B | Accountant not resident in United States or any of its possessions. | | | | | | FOR OFFICIAL USE ONLY | | | | | | | | | | | | | | | | | | | | | | *must be supported by a statement of facts 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 contained** In **this form are not required to respond unless the form displays a currentlyvalld 0MB control number.** SEC 1410 (11-05) {1}------------------------------------------------ #### **OATH OR AFFIRMATION** | 1, Maria Dembski | , swear (or affirm) that, to the best of | |--------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------| | my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of
___
Callaway Financial Services, Inc
;;._ | _______________________________________ , as | | of December 31 | arc 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: | | | | | | | | | | | | | | | l | | | | | | ~,vi::,,~
CHYENNE MEYERS
il·::A:;~i Notary Public, State of Texas | | | \\},?'!:JI} Comm. Expires 06-26-2022 | Signature | | . ~,tp,,,,,,"
Notary ID 131619482 | | | 1 | Maria Dembski/CFO | | | Title | | | | | | | | | | | This report •
ntains (check all a
le boxes): | | | 0 (a) Facing Page. | | | 0 (b) Statement of Financial Condition.
0 (c) Statement of Income (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.
r | | | (f) Statement of Changes in Liabilities Subordinated to Claims of Creditors. | | | (g) Computation of Net Capital. | | | (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3-3.
~ | | | (i) Information Relating to the Possession or Control Requirements Under Rule 15c3-3. | | | 0 (j) A Reconciliation, including appropriate explanation of the Computation ofNet Capital Under Rule 15c3-1 and the | | | Computation for Determination 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. | | | (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 of the previous audit. | | ** For conditions of confidential treatmellt of certain portions of this .filing, see section 240. 17a-5 (e)(3). | | {2}------------------------------------------------ #### CALLA WAY FINANCIAL SERVICES, INC. #### Financial Statements and Supplemental Schedules For the Year Ended December 31, 2020 {3}------------------------------------------------ | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | | | |-------------------------------------------------------------------------------------------|----|--| | Financial Statements | | | | Statement of financial condition | 4 | | | Statement of Income | 5 | | | Statement of changes in stockholder's equity | 6 | | | Statement of cash flows | 7 | | | Notes to financial statements | | | | Supplemental information pursuant to Rule 17a-5 | | | | Computation of Net Capital | 12 | | | Statement Regarding Changes in Liabilities Subordinated
to Claims of General Creditors | 13 | | | Statement Regarding Reserve Requirements and Possession
or Control Requirements | 14 | | | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 15 | | | EXEMPTION REPORT | 16 | | #### **CONTENTS** {4}------------------------------------------------ Jenni Wray CPA PLLC 16418 Beewood Glen Dr Sugar Land, TX 77498 Tel: 281-923-7665 Email: ienniferwravcpa@yahoo.com PCAOB#6328 ## **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** To the member of Callaway Financial Services Inc #### **Opinion on the Financial Statements** We have audited the accompanying statement of financial condition of Callaway Financial Services Inc as of December 31, 2020, the related statements of income, changes in member's equity, and cash flows for the year ended December 31, 2020, and the related notes and schedules. In our opinion, the financial statements present fairly, in all material respects, the financial position of Callaway Financial Services Inc as of December 31, 2020 and the results of its operations and its cash flows for the year ended 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 Callaway Financial Services Inc's management. Our responsibility is to express an opinion on Callaway Financial Services Inc 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 Callaway Financial Services 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. #### **Auditor's Report on Supplemental Information** The supplementary information contained in Schedules I, II & Ill have been subjected to audit procedures performed in conjunction with the audit of Callaway Financial Services Inc financial statements. The supplemental information is the responsibility of Callaway Financial Services Inc 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 Supplementary schedule is fairly stated, in all material respects, in relation to the financial statements as a whole. Jennifer Wray CPA PLLC We have served as Callaway Financial Services Inc's auditor since 2019. Sugar Land, Texas March 1, 2021 3 {5}------------------------------------------------ # **CALLA WAY FINANCIAL SERVICES, INC. Statement of Financial Condition December 31, 2020** ## **ASSETS** | Cash | 1,299
\$ | |-----------------------------------------------|--------------| | Accounts receivables | 4,330 | | Prepaid expenses | 5,792 | | Deposit with and due from Interactive Brokers | 40,673 | | TOTAL ASSETS | 52,094
\$ | | | | | LIABILITIES AND STOCKHOLDER'S EQUITY | | | Liabilities | | | Accounts payable | 1,365
\$ | | Commission payable | 3,551
\$ | | Other Liability | 780
\$ | | TOTAL LIABILITIES | 5,696 | | Stockholder's Equity | | | Common stock, 100,000,000 shares | | | authorized with \$.01 par value, | | | 20,000 shares issued and outstanding | 200 | | Additional paid-in capital | 41,785 | | Dividends paid | (20,000) | | Retainer earning | 24,413 | | TOTAL STOCKHOLDER'S EQUITY | 46,398 | | TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | \$
52,094 | {6}------------------------------------------------ # **CALLA WAY FINANCIAL SERVICES, INC. Statement of Income Year Ended December 31, 2020** #### **Revenue** | Commission -
Trading | \$
97,042 | |----------------------------------|--------------| | Commission -
Mutual Funds | \$
11,783 | | 12B-1 Fees | \$
33,824 | | Commission -
Variable Annuity | \$
54,565 | | Misc Income | \$
9,557 | | Interest | \$
10,777 | | TOTAL REVENUE | \$ 217,548 | | | | | Expenses | | | Compensation and related costs | 118,427 | | Clearing charges | 46,889 | | Communications | 7,742 | | Professional fees | 11,275 | | Regulatory fees | 10,706 | | Other expenses | 1,818 | | TOTAL EXPENSES | 196,857 | | Net Income | 20,691 | | Income taxes | | | Non-Cash Items | | | | | {7}------------------------------------------------ ## **CALLAWAY FINANCIAL SERVICES, INC. Statement of Changes in Stockholder's Equity Year Ended December 31, 2020** | | Common
Shares
Issued | Stock | Common | Additional
Paid-in
Capital | Accumulated | Total | |----------------------------------|----------------------------|-------|--------|----------------------------------|--------------|-------------| | Balances at | | | | | | | | December 31, 2019 | 20,000 | \$ | 200 | \$66,785 | \$
3,722 | \$ 70,707 | | Shareholder Distribution | | | | \$ (45,000) | | \$ (45,000) | | Net Income | | | | | \$
20,691 | \$ 20,691 | | Balances at
December 31, 2020 | 20,000 | | 200 | \$21,785 | \$
24,413 | \$ 46,398 | | | | | | | | | {8}------------------------------------------------ #### **CALLAWAY FINANCIAL SERVICES, INC. Statement of Cash Flows Year Ended December 31, 2020** #### **OPERATING ACTIVITIES** | Net Income | | 20,691 | |-----------------------------------------------------------------------|----------------------|---------| | Adjustments to reconcile net income to net cash provided by operation | | | | | Accounts receivables | 7,313 | | | Prepaid expenses | 260 | | | Clearing deposit | 25,314 | | | Interactive Brokers | 4,005 | | | Accounts payable | 1,277 | | | Commission payables | -7,892 | | | Other liabilities | -7,503 | | Net cash provided by Operating Activities | | 43 465 | | FINANCING ACTIVITIES | | | | 3010 Additional paid in capital | | -25,000 | | 30200-Dividends Paid | | -20,000 | | Net cash provided by Financing Activities | | -45,000 | | Net cash increse for period | | -1,535 | | Cash at the beginning of period | | 2,834 | | Cash at end of period | | 1,299 | | | | | {9}------------------------------------------------ ## **CALLAWAY FINANCIAL SERVICES, INC. Notes to Financial Statements December 31, 2020** ## **Note 1 - Nature of Business and Summary of Significant Accounting Policies** #### **Nature of Business:** Callaway Financial Services, Inc. (the Company) was organized in January 2000 as a Texas corporation. The Company is a subsidiary of MDX Holdings Inc., an S corporation, (Parent) owning one hundred (100%) of the Company. The Company is registered with the Securities and Exchange Commission (SEC) as a broker-dealer in securities and is a member of the Financial Industry Regulatory Authority (FINRA) and Securities Investor Protection Corporation (SIPC). The Company operates under the exemptive provisions of Rule 15c3-3(k)(2)(ii) of the Securities Exchange Act of 1934, and accordingly, is exempt from the remaining provisions of that Rule. The Company does not hold customer funds or securities, but as an introducing broker-dealer, will clear all transactions on behalf of customers on a fully disclosed basis through a 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. The Company is a general securities broker-dealer whose customers consist primarily of individuals and retirement plans located in Texas. #### **Significant Accounting Policies:** #### Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. #### Fair Value of Financial Instruments Substantially all the Company's financial asset and liability amounts reported in the statement of financial condition are short term in nature and approximate fair value. {10}------------------------------------------------ ### **CALLAWAY FINANCIAL SERVICES, INC. Notes to Financial Statements December 31, 2020** ## Revenue Recognition Securities commissions and the related expenses are recorded on a trade date basis as securities transactions occur. For Mutual Funds, 12b-1 Fees and Variable Annuity contracts, the Company recognizes the revenue based on commission statements received from issuers. For commission in Muni Bonds, OTC Corporate Bonds, OTC Stocks, Listed Option and Interest Income, the Company recognizes revenue based on a trade date. ## **Note 2 - Net Capital Requirements** The Company is subject to the SEC Uniform Net Capital Rule (SEC Rule 15c3-1), which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. Rule 15c3-1 also provides that equity capital may not be withdrawn, or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. On December 31, 2020, the Company had net capital of \$36,301 which was \$31,301 in excess of its required net capital of\$5,000. The Company's net capital ratio was .16 to 1. #### **Note 3 - Transactions with Clearing Broker-Dealer** The Company has an agreement with a clearing broker-dealer (Interactive Brokers) to provide clearing, execution, and other related securities services. Clearing charges are incurred at markup rate multiplied by the number of shares or stock options traded by the Company. The clearing agreement with Interactive Brokers includes a monthly minimum clearing and execution fee of \$2,000 per month. ## **Note 4 - Related Party Transactions/ Economic Dependency/ Concentrations** The Company and its Parent Company are under common control and the existence of that control creates operating results and financial position significantly different than if the companies were autonomous. The Company has a Services Agreement (Agreement) with its Parent MDX Holdings Inc. The Agreement is for a one-year term, automatically renewed on a year-to-year basis unless terminated by any of the parties on 30 days notice prior to expiration of an annual term. Under the Agreement, the Parent is to provide office facilities, personal property and support services, with rent for the office space. The Parent issues monthly invoice to the Company that represents the Company's allocable share of services provided by the Parent. Net services allocation - Parent, incurred and paid, totaled \$6,839 under this Agreement for the period ending December 31, 2020. {11}------------------------------------------------ The Company has a single Parent company, with two primary owners, both of which are registered securities representatives of the Company. ## **CALLA WAY FINANCIAL SERVICES, INC. Notes to Financial Statements December 31, 2020** MDX Holdings Inc. is a Parent Company, and one of its shareholders is a producing registered securities representative and officer of the Company. The other shareholder is the Chief Compliance Officer and FIN OP of the Company but is not a producing representative. #### **Note 5** - **Income Taxes** The Company made a profit of \$20,691 for the year. The Company has a net operating loss carryforward of approximately \$17,156 which is available to offset 2020 taxable income and creates a tax liability of approximately \$742, there is no accrued tax liability recognized in the accompanying statement of financial condition. As of December 31, 2020, open Federal tax years subject to examination include the tax years ended December 31, 2017 through December 31, 2019. ## **Note 6** - **Off-Balance-Sheet Risk and Concentration of Credit Risk** As discussed in Note 1, the Company's customers' securities transactions are introduced on a fully disclosed basis with its clearing broker-dealer. The clearing broker-dealer carries all the accounts of the customers of the Company and is responsible for execution, collection and payment of funds, and receipt and delivery of securities relative to customer transactions. Off-balance-sheet risk exists with respect to these transactions due to the possibility that customers may be unable to fulfill their contractual commitments wherein the clearing broker-dealer may charge any losses incurred to the Company. The Company seeks to minimize this risk through procedures designed to monitor the credit worthiness of its customers and that customer transactions are executed properly by the clearing broker-dealer. The Company has accounts receivables of \$4,330 which represents approximately 8.3% of the Company's total assets. #### **Note** 7 - **Commitments and Contingencies** There are currently no asserted claims or legal proceedings against the Company; however, the nature of the Company's business subjects it to various claims, regulatory examinations, and other proceedings in the ordinary course of business. The ultimate outcome of any such future action against the Company could have an adverse impact on the financial condition, results of operations, or cash flows of the Company. {12}------------------------------------------------ #### **CALLAWAY FINANCIAL SERVICES, INC. Notes to Financial Statements December 31, 2020** #### **Note 8 - Subsequent Events** Management has evaluated the Company's events and transactions that occurred subsequent to December 31, 2020, through March **1,** 2021 the date the financial statements were available to be issued. {13}------------------------------------------------ # **CALLAWAY FINANCIAL SERVICES, INC. Schedule I-Supplemental Information Pursuant to Rule 17a-5 December 31, 2020** #### **Computation of Net Capital** | Total stockholder's equity qualified for net capital | \$
46,398 | |------------------------------------------------------|--------------| | Deductions / charges | | | Non-allowable assets: | | | Commission receivable | 4,305 | | Prepaid expenses | 5,792 | | Total deductions/ charges | 10,097 | | Net capital before haircuts on securities positions | 36,301 | | Haircuts on securities: | | | Net Capital | \$
36,301 | | Aggregate indebtedness | | | Accounts Payable | 1,365 | | commission payable | 3,551 | | Other Current Liability | \$
780 | | Total aggregate indebtedness | \$
5,696 | | Computation of basic net capital requirement | | | Minimum net capital required (greater of \$5,000 or | | | 6 2/3% of aggregate indebtedness) | | | | \$
5,000 | | Net capital in excess of minimum requirement | \$
31,301 | | Ratio of aggregate indebtedness to net capital | .16 to 1 | | | | #### **Reconciliation of Computation of Net Capital** The above computation does not differ from the computation of net capital under Rule l 5c3-1 as of December 31, 2020, as filed by Callaway Financial Services, Inc. on form X-17A-5. Accordingly, no reconciliation is deemed necessary. {14}------------------------------------------------ #### **CALLA WAY FINANCIAL SERVICES, INC.** #### **Schedule II-Statement Regarding Changes in Liabilities Subordinated to Claims of General Creditors December 31, 2020** No statement is required as no subordinated liabilities existed at any time during the year. {15}------------------------------------------------ #### **CALLA WAY FINANCIAL SERVICES, INC.** #### **Schedule III-Statement Regarding Reserve Requirements and Possession of Control Requirements. December 31, 2020** The Company operates pursuant to section (k)(2)(ii) exemptive provisions of Rule 15c3-3 of Securities Exchange Act of 1934. Under these exemptive provisions, the Computation of the Determination of the Reserve Requirements and Information Relating to the Possession or Control Requirements are not required. {16}------------------------------------------------ ## **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** To the Members of Callaway Financial Services Inc We have reviewed management's statements, included in the accompanying Exemption Report, in which (1) Callaway Financial Services Inc identified the following provisions of 17 C.F.R. §15c3-3(k) under which Callaway Financial Services Inc claimed an exemption from 17 C.F.R. §240.15c3-3(k)(2)(ii) (exemption provisions) and (2) Callaway Financial Services Inc stated that Callaway Financial Services Inc met the identified exemption provisions throughout the most recent fiscal year without exception. Callaway Financial Services Inc's management is responsible for compliance with the exemption provisions and its statements. Our review was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) and, accordingly, included inquiries and other required procedures to obtain evidence about Callaway Financial Services Inc's compliance with the exemption provisions. A review is substantially less in scope than an examination, the objective of which is the expression of an opinion on management's statements. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to management's statements referred to above for them to be fairly stated, in all material respects, based on the provisions set forth in paragraph (k)(2)(ii) of Rule 15c3-3 under the Securities Exchange Act of 1934. Jennifer Wray CPA PLLC Sugar Land, Texas. March 1, 2021 {17}------------------------------------------------ # **Callaway Financial Services Inc.** #### **Cal.laway Financial Services, Inc. Exemption Report** **Callaway Financial Services, Inc.** (the "Company'') is a **registered** broker-dealer **subject** to Rule **1711-S promulgated** by the Securities and Exchange Commission ( **17** CF .R. §240. I 7a-5. **"Reports** to be made **by** certain brokers and dealers"). This Exemption Report was pnipared as **required** by 17 C.F.R. § 240.J 7a-5(d)(l) and {4). To the best ofits knowledge and **belief,** the Company states the **following:** - (1) The **Company** daimed ru1 exemption from 17 C.F.R. § 240.15<:3-3 under the **following** provisions of 17 C.ER § 240.15c3-3 (k}(2)(ii) - **(2)** The **Company** met the identified exemption provrnmn in 17 C.F.R § **240.15c3-3(k)** throughout the most recent fiscal year without **exception** #### **Callaway Fimmcild Services, lne.** I, Maria Dembski, s,vear (or affirm) that, to my best knowledge and belief, this **Exemption Report** is true and correct. February 11, 2021 2245 Texas Dr., Suite 300 Sugar Land, Texas 77479 Member FINRA!S!PC phone: (954) 707-0586 Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.