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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED SEPTEMBER 30, 2002

COMMISSION FILE NUMBER 1-31292

EMPIRE FINANCIAL HOLDING COMPANY
(Exact name of registrant as specified in its charter)

407-774-1300
(Registrant’s telephone number, including area code)

Securities registered under Section 12 (b) of the Exchange Act:

Check whether the registrant has (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past twelve months (or for such shorter periods that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes   x   No   o.

As of September 30, 2002, there were 4,802,800 shares of common stock outstanding, par value $0.01 per share.

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EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
FORM 10Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002

INDEX

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES

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

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EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES

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

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EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES

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

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EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES

Supplemental disclosure of non-cash financing activities:

The shareholders who owned the Company prior to the public offering deferred payment of $785,000 due to them for taxes that they were responsible for during the time that the Company and its subsidiaries were under S corporation status. $334,000 was paid to the shareholders during the third quarter of 2002.

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

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EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Unaudited interim financial statements — The accompanying unaudited consolidated financial statements include the accounts of the Empire Financial Holding Company (the “Company”), Empire Financial Group, Inc. (“Empire Group”), Advantage Trading Group, Inc. (“Advantage”) and Empire Investment Advisors, Inc. (“Advisors”) and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to SEC rules and regulations. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue and expense during the reporting period. Actual results could differ from true estimates. The results of operations for the three and nine month periods ending September 30, 2002, are not necessarily indicative of the results to be expected for the year ended December 31, 2002. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s consolidated audited financial statements as of December 31, 2001, in its S-1 registration.

2. PRO FORMA INFORMATION

The Company and its subsidiaries’ S corporation elections automatically terminated on April 9, 2002, with the completion of its public offering. Prior to that date, the Company, Empire Group, Advantage and Advisors, individually, with the consent of their shareholders, elected to be taxed as S corporations in which taxable income of the respective companies is included in the income tax returns of the individual shareholders. The pro forma adjustments shown in the consolidated statements of income reflect provisions for income taxes computed based upon statutory tax rates as if the Company had been subject to federal and state taxation during the periods presented.

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EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
SELECTED NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

3. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

     Accounts payable, accrued expenses and other liabilities consisted of the following:

4. INCOME TAXES DUE TO CONVERSION FROM S CORPORATION TO C CORPORATION

For the period January 1, 2002 to April 9, 2002, the Company has provided a tax liability of approximately $785,000 which was due to the shareholders for income taxes during the time that the Company and its subsidiaries were under S Corporation status. The Company will make a final distribution to S Corporations shareholders not later than April 2003 related to their income taxes arising from the Company’s taxable income from January 1, 2002 to April 9, 2002. However, due to certain provisions of the Internal Revenue Code, the Company may be able to utilize its subsequent losses during the year to minimize the liability. As of September 30, 2001, one of the shareholders has been paid $334,000 of this liability. If the Company elects an alternative method of allocation and utilizes its losses, which is currently likely, a substantial portion of such funds will be repaid to the Company prior to the end of the year. This alternative method will not affect the earnings for the year ended December 31, 2002, but will affect the net operating loss carryforwards, because the application of 2002 losses reduces pre-tax income and, thus, taxes payable for 2002.

5. NET CAPITAL AND RESERVE REQUIREMENTS

The broker dealer subsidiaries of the Company are subject to the Securities and Exchange Commission Uniform Net Capital Rule 15c3-1 and the requirements of the securities exchanges of which they are members. This rule requires that aggregate indebtedness, as defined, not exceed 15 times net capital, as defined. Rule 15c3-1 also provides for an “alternative net capital requirement” which, if elected, requires that net capital be equal to the greater of $250,000 or 2% of aggregate debit items computed in applying the formula for determination of reserve requirements. The alternative net capital requirement has been utilized by Advantage. Net capital positions of the Company’s broker dealer subsidiaries were as follows at September 30, 2002:

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EMPIRE FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
SELECTED NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

Advantage is also subject to Rule 15c3-3 (the “Rule”) under the Securities Exchange Act of 1934 which specifies certain conditions under which brokers and dealers carrying customer accounts are required to maintain cash or qualified sec