UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended |
March 31, 2021 |
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from ____________________ to ____________________ |
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Commission file number |
0-5703 |
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Siebert Financial Corp. |
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(Exact Name of Registrant as Specified in its Charter) |
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New York |
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11-1796714 |
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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120 Wall Street, New York, NY 10005 |
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(Address of Principal Executive Offices) (Zip Code) |
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(212) 644-2400 |
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(Registrant’s Telephone Number, Including Area Code) |
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock - $0.01 par value |
SIEB |
The Nasdaq Capital Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Non-accelerated filer ☒ |
Smaller reporting company ☒ |
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Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of May 10, 2021, there were 31,283,364 shares of the registrant’s common stock.
SIEBERT FINANCIAL CORP.
INDEX
Forward-Looking Statements
For purposes of this Quarterly Report on Form 10-Q (“Report”), the terms “Siebert,” “Company,” “we,” “us” and “our” refer to Siebert Financial Corp., and its subsidiaries collectively, unless the context otherwise requires.
The statements contained throughout this Report, including any documents incorporated by reference, that are not historical facts, including statements about our beliefs and expectations, are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and similar words or expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.
These forward-looking statements, which reflect our beliefs, objectives, and expectations as of the date hereof, are based on the best judgement of management. All forward-looking statements speak only as of the date on which they are made. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following: economic, social and political conditions, global economic downturns resulting from extraordinary events such as the COVID-19 pandemic and other securities industry risks; interest rate risks; liquidity risks; credit risk with clients and counterparties; risk of liability for errors in clearing functions; systemic risk; systems failures, delays and capacity constraints; network security risks; competition; reliance on external service providers; new laws and regulations affecting our business; net capital requirements; extensive regulation, regulatory uncertainties and legal matters; failure to maintain relationships with employees, customers, business partners or governmental entities; the inability to achieve synergies or to implement integration plans and other consequences associated with risks and uncertainties detailed in under Part I, Item 1A - Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”) as well as in our filings with the SEC.
We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise, except to the extent required by the federal securities laws.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Numbers are rounded for presentation purposes. See notes to condensed consolidated financial statements.
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Revenue |
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Commissions and fees |
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$ |
7,008,000 |
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$ |
5,583,000 |
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Interest, marketing and distribution fees |
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3,459,000 |
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4,625,000 |
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Principal transactions |
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4,248,000 |
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3,203,000 |
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Market making |
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1,614,000 |
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470,000 |
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Stock borrow / stock loan |
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1,847,000 |
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444,000 |
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Advisory fees |
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356,000 |
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262,000 |
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Other income |
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392,000 |
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214,000 |
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Total Revenue |
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18,924,000 |
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14,801,000 |
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Expenses |
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Employee compensation and benefits |
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9,166,000 |
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7,291,000 |
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Clearing fees, including execution costs |
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1,853,000 |
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1,298,000 |
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Technology and communications |
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1,241,000 |
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981,000 |
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Other general and administrative |
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770,000 |
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854,000 |
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Data processing |
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797,000 |
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849,000 |
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Rent and occupancy |
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570,000 |
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727,000 |
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Professional fees |
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615,000 |
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655,000 |
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Referral fees |
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407,000 |
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111,000 |
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Depreciation and amortization |
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392,000 |
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448,000 |
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Interest expense |
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103,000 |
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76,000 |
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Total Expenses |
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15,914,000 |
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13,290,000 |
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Income before provision for income taxes |
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3,010,000 |
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1,511,000 |
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Provision for income taxes |
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735,000 |
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535,000 |
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Net income |
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$ |
2,275,000 |
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$ |
976,000 |
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Net income per share of common stock |
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Basic and diluted |
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$ |
0.07 |
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$ |
0.03 |
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Weighted average shares outstanding |
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Basic and diluted |
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31,173,149 |
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30,459,804 |
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Numbers are rounded for presentation purposes. See notes to condensed consolidated financial statements.
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
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Number of Shares Issued |
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$.01 Par Value |
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Additional Paid-In Capital |
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Retained Earnings |
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Total |
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Balance – January 1, 2021 |
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30,953,710 |
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$ |
309,000 |
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$ |
21,768,000 |
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$ |
15,909,000 |
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$ |
37,986,000 |
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Shares issued for OpenHand purchase |
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329,654 |
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3,000 |
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1,378,000 |
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— |
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1,381,000 |
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Net income |
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— |
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— |
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— |
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2,275,000 |
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2,275,000 |
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Balance – March 31, 2021 |
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31,283,364 |
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$ |
312,000 |
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$ |
23,146,000 |
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$ |
18,184,000 |
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$ |
41,642,000 |
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Number of Shares Issued |
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$.01 Par Value |
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Additional Paid-In Capital |
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Retained Earnings |
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Total |
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Balance – January 1, 2020 |
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27,157,188 |
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$ |
271,000 |
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$ |
7,641,000 |
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$ |
12,869,000 |
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$ |
20,781,000 |
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Shares issued for StockCross purchase |
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3,302,616 |
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33,000 |
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12,256,000 |
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65,000 |
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12,354,000 |
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Net income |
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— |
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— |
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— |
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976,000 |
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976,000 |
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Balance – March 31, 2020 |
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30,459,804 |
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$ |
304,000 |
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$ |
19,897,000 |
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$ |
13,910,000 |
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$ |
34,111,000 |
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Numbers are rounded for presentation purposes. See notes to condensed consolidated financial statements.
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Cash Flows From Operating Activities |
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Net income |
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$ |
2,275,000 |
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$ |
976,000 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Deferred income tax expense |
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171,000 |
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291,000 |
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Depreciation and amortization |
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392,000 |
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448,000 |
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Changes in |
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Receivables from customers |
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3,085,000 |
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15,884,000 |
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Receivables from non-customers |
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(9,000 |
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— |
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Receivables from and deposits with broker-dealers and clearing organizations |
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7,728,000 |
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(109,000 |
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Securities borrowed |
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137,170,000 |
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131,306,000 |
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Securities owned, at fair value |
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(1,465,000 |
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(662,000 |
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Prepaid expenses and other assets |
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438,000 |
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44,000 |
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Prepaid service contract |
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177,000 |
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— |
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Payables to customers |
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4,198,000 |
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(23,021,000 |
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Payables to non-customers |
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(1,800,000 |
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(659,000 |
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Drafts payable |
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(1,319,000 |
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(213,000 |
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Payables to broker-dealers and clearing organizations |
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4,237,000 |
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510,000 |
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Accounts payable and accrued liabilities |
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(46,000 |
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214,000 |
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Securities loaned |
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(145,420,000 |
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(121,607,000 |
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Securities sold, not yet purchased, at fair value |
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7,000 |
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(85,000 |
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Interest payable |
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22,000 |
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30,000 |
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Lease liabilities |
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(68,000 |
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(43,000 |
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Taxes payable |
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14,000 |
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86,000 |
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Net cash provided by operating activities |
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9,787,000 |
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3,390,000 |
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Cash Flows From Investing Activities |
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Purchase of OpenHand common stock |
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(850,000 |
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— |
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Purchase of furniture, equipment, and leasehold improvements |
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(110,000 |
) |
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— |
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Purchase of software |
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(64,000 |
) |
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(183,000 |
) |
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Net cash used in investing activities |
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(1,024,000 |
) |
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(183,000 |
) |
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Cash Flows From Financing Activities |
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Repayments of long-term debt |
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(249,000 |
) |
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— |
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Net cash used in financing activities |
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(249,000 |
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— |
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Net change in cash and cash equivalents, and cash and securities segregated for regulatory purposes |
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8,514,000 |
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3,207,000 |
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Cash and cash equivalents, and cash and securities segregated for regulatory purposes - beginning of year |
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328,556,000 |
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229,594,000 |
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Cash and cash equivalents, and cash and securities segregated for regulatory purposes - end of period |
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$ |
337,070,000 |
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$ |
232,801,000 |
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Cash and cash equivalents - end of period |
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$ |
4,097,000 |
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$ |
5,220,000 |
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Cash and securities segregated for regulatory purposes - end of period |
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332,973,000 |
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227,581,000 |
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Cash and cash equivalents, and cash and securities segregated for regulatory purposes - end of period |
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$ |
337,070,000 |
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$ |
232,801,000 |
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Supplemental cash flow information |
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Cash paid during the period for income taxes |
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$ |
1,000 |
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$ |
17,000 |
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Cash paid during the period for interest |
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$ |
81,000 |
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$ |
116,000 |
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Non-cash investing and financing activities |
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Shares issued for OpenHand purchase |
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$ |
1,381,000 |
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$ |
— |
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Numbers are rounded for presentation purposes. See notes to condensed consolidated financial statements.
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Basis of Presentation
Organization
Overview
Siebert Financial Corp., a New York corporation, incorporated in 1934, is a holding company that conducts the following lines of business through its wholly-owned subsidiaries:
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Retail brokerage business through Muriel Siebert & Co., Inc. (“MSCO”), a Delaware corporation and broker-dealer registered with the SEC
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Investment advisory services through Siebert AdvisorNXT, Inc. (“SNXT”), a New York corporation registered with the SEC as a Registered Investment Adviser (“RIA”) under the Investment Advisers Act of 1940, as amended
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Insurance services through Park Wilshire Companies, Inc. (“PWC”), a Texas corporation and licensed insurance agency
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Robo-advisory technology development through Siebert Technologies, LLC (“STCH”), a Nevada limited liability company
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Prime brokerage services through WPS Prime Services, LLC (“WPS”), a Delaware limited liability company and a broker-dealer registered with the SEC
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StockCross Digital Solutions, Ltd. (“STXD”), an inactive subsidiary headquartered in Bermuda
For purposes of this Quarterly Report on Form 10-Q, the terms “Siebert,” “Company,” “we,” “us,” and “our” refer to Siebert Financial Corp., MSCO, SNXT, PWC, STCH, WPS, and STXD collectively, unless the context otherwise requires.
The Company is headquartered in New York, New York, with primary operations in New Jersey, Florida, and California. The Company has 15+ branch offices throughout the U.S. and clients around the world. The Company’s SEC filings are available through the Company’s website at www.siebert.com, where investors can obtain copies of the Company’s public filings free of charge. The Company’s common stock, par value $.01 per share, trades on the Nasdaq Capital Market under the symbol “SIEB.”
The Company primarily operates in the securities brokerage and asset management industry and has no other reportable segments. All of the Company's revenues for the three months ended March 31, 2021 and 2020 were derived from its operations in the U.S.
As of March 31, 2021, the Company is comprised of a single operating segment based on the factors related to management’s decision-making framework as well as management evaluating performance and allocating resources based on assessments of the Company from a consolidated perspective.
Acquisition of StockCross
On January 25, 2019, the Company purchased approximately 15% of the outstanding shares of StockCross Financial Services, Inc. (“StockCross”). Subsequently, the Company acquired the remaining 85% of StockCross’ outstanding shares in exchange for 3,298,774 shares of the Company’s common stock. Effective January 1, 2020, StockCross was merged with and into MSCO, and as of January 1, 2020, all clearing and other services provided by StockCross were performed by MSCO.
Prior to and as of the date of the Company’s acquisition of StockCross, the Company and StockCross were entities under common control of Gloria E. Gebbia, the Company’s principal stockholder, and members of her immediate family (collectively, the “Gebbia Family”). The acquisition represented a change in reporting entity.
COVID-19
The challenges posed by the COVID-19 pandemic on the global economy increased significantly starting in the first quarter of 2020. COVID-19 has spread across the globe during 2020 and has impacted economic activity worldwide. In response to COVID-19, national and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing.
The Company instituted a number of temporary closures of branch offices; however, as of the date of the filing of this Report, all of the Company’s branch offices have been re-opened while maintaining compliance with federal, state and local mandates and guidelines. The Company has taken numerous steps to ensure that its employees and customers are operating in a safe environment by implementing measures such as social distancing, sanitizing workstations, temperature checks, requiring masks, and alternating staff.
The financial impact on the Company from the COVID-19 pandemic has been varied as revenue streams related to interest rates have decreased while revenue streams from commissions and fees, principal transactions, and market making have largely benefited from the market volatility associated with the pandemic.
The Company is actively monitoring the impact of COVID-19 on its business, financial condition, liquidity, operations, employees, clients and business partners. Based on management’s assessment as of March 31, 2021, the ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.
Refer to Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Report for additional detail on COVID-19 and its impact on the Company.
Basis of Presentation
The accompanying condensed consolidated financial statements (“financial statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results. Interim results are not necessarily indicative of the results of operations which may be expected for a full year or any subsequent period. These financial statements should be read in conjunction with the financial statements and notes thereto in the Company’s 2020 Form 10-K. The financial statements include the accounts of Siebert and its wholly-owned subsidiaries and upon consolidation, all intercompany balances and transactions are eliminated. The U.S. dollar is the functional currency of the Company and numbers are rounded for presentation purposes.
Significant Accounting Policies
The Company’s significant accounting policies are included in Note 2 – Summary of Significant Accounting Policies in the Company’s 2020 Form 10-K.
Investments, Cost
Accounting Standards Update (“ASU”) 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, generally requires entities to measure equity investments (other than equity method investments, controlling financial interests that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income. However, entities will be able to elect a measurement alternative for equity investments that do not have readily determinable fair values and do not qualify for the practical expedient in ASC 820 to estimate fair value using the net asset value (NAV) per share.
Pursuant to ASU 2016-01, the Company has made an accounting policy election to measure equity securities without readily determinable fair value at cost, less any impairment, adjusted for any changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
Other than the updates described above and in Note 2 – New Accounting Standards in this Report, there have been no material changes to the Company’s significant accounting policies.
2. New Accounting Standards
Accounting Standards Adopted in Fiscal 2021
ASU 2020-01 - In January 2020, the FASB issued Accounting Standard Update (“ASU”) 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2020-01 on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s financial statements.
ASU 2019-12 - In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes”, as part of its initiative to reduce complexity in the accounting standards. The ASU eliminates certain exceptions from ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The guidance is effective for fiscal years beginning after December 15, 2020 and for interim periods within those fiscal years. The Company adopted ASU 2019-12 on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s financial statements.
Accounting Standards Not Yet Adopted
ASU 2016-13 - In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial- Instruments”. The ASU changes the impairment model and requires financial assets measured at amortized cost basis, including finance receivables (loans), HTM debt securities, trade receivables, and off-balance sheet credit exposures not accounted for as insurance to be presented at the net amount expected to be collected. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. Subsequent ASUs, including 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, and 2020-02 were issued to clarify certain aspects of ASU 2016-13 and to provide transition reliefs. Adoption requires modified retrospective transition through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the entity applies the new guidance. The Company plans to adopt ASU 2016-13 and all subsequent ASU guidance as of January 1, 2023 and is in the process of assessing its impact on the Company’s financial statements.
Management has evaluated other recently issued accounting standards and does not believe that any of these standards will have a significant impact on the Company’s financial statements and related disclosures as of March 31, 2021.
3. Acquisitions
StockCross
Overview of Acquisition
Established in 1971, StockCross was one of the largest privately-owned brokerage firms in the nation and its operations consisted primarily of market making, fixed-income products distribution, online or broker-assisted equity trading, securities lending, and equity stock plan services.
Prior to being acquired by the Company, StockCross and the Company were affiliated entities through common ownership and had various related party transactions. In January 2019, the Company acquired approximately 15% ownership of StockCross. Effective January 1, 2020, the Company acquired the remaining 85% of StockCross’ outstanding shares and StockCross was merged with and into MSCO. The purchase price paid was approximately $29,750,000 or 3,298,774 shares of the Company’s common stock which was issued in connection with the acquisition. The acquisition of StockCross added incremental business lines, revenue streams, cost synergies and an experienced management team to MSCO.
Accounting for Acquisition
Prior to and as of the date of the acquisition, the Company and StockCross were entities under common control of the Gebbia Family. As such, the acquisition was accounted for as a transaction between entities under common control.
The acquisition represented a change in reporting entity. As such, upon the closing of the acquisition, the net assets of the Company were combined with those of StockCross at their historical carrying amounts and no goodwill was recorded as part of the transaction.
The Company acquired various assets and liabilities from StockCross which were recorded at their historical carrying amounts and summarized below:
|
|
|
Historical Carrying Value |
|
|
|
|
|
|
|
Assets acquired |
|
|
|
|
Cash and cash equivalents |
|
$ |
1,588,000 |
|
Cash and securities segregated for regulatory purposes |
|
|
224,814,000 |
|
Receivables from customers |
|
|
86,331,000 |
|
Receivables from broker-dealers and clearing organizations |
|
|
3,105,000 |
|
Other receivables |
|
|
627,000 |
|
Prepaid expenses and other assets |
|
|
346,000 |
|
Securities borrowed |
|
|
193,529,000 |
|
Securities owned, at fair value |
|
|
3,018,000 |
|
Furniture, equipment and leasehold improvements, net |
|
|
19,000 |
|
Lease right-of-use assets |
|
|
1,141,000 |
|
Deferred tax assets |
|
|
407,000 |
|
Total Assets acquired |
|
|
514,925,000 |
|
|
|
|
|
|
Liabilities assumed |
|
|
|
|
Payables to customers |
|
|
308,091,000 |
|
Payables to non-customers |
|
|
9,151,000 |
|
Drafts payable |
|
|
2,834,000 |
|
Payables to broker-dealers and clearing organizations |
|
|
1,406,000 |
|
Accounts payable and accrued liabilities |
|
|
963,000 |
|
Securities loaned |
|
|
170,443,000 |
|
Securities sold, not yet purchased, at fair value |
|
|
28,000 |
|
Notes payable – related party |
|
|
5,000,000 |
|
Lease liabilities |
|
|
1,295,000 |
|
Total Liabilities assumed |
|
|
499,211,000 |
|
|
|
|
|
|
Net Assets acquired |
|
$ |
15,714,000 |
4. Receivables From, Payables To, and Deposits With Broker-Dealers and Clearing Organizations
Amounts receivable from, payables to, and deposits with broker-dealers and clearing organizations consisted of the following as of the periods indicated:
|
|
|
As of March 31, 2021 |
|
|
As of December 31, 2020 |
|
||
|
Receivables from and deposits with broker-dealers and clearing organizations |
|
|
|
|
|
|
||
|
DTCC / OCC / NSCC |
|
$ |
9,231,000 |
|
|
$ |
17,841,000 |
|
|
Goldman Sachs |
|
|
2,972,000 |
|
|
|
2,430,000 |
|
|
Pershing Capital |
|
|
1,512,000 |
|
|
|
1,266,000 |
|
|
NFS |
|
|
1,044,000 |
|
|
|
1,061,000 |
|
|
Securities fail-to-deliver |
|
|
508,000 |
|
|
|
379,000 |
|
|
Globalshares |
|
|
29,000 |
|
|
|
46,000 |
|
|
Total Receivables from and deposits with broker-dealers and clearing organizations |
|
$ |
15,296,000 |
|
|
$ |
23,023,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Payables to broker-dealers and clearing organizations |
|
|
|
|
|
|
|
|
|
Securities fail-to-receive |
|
$ |
6,047,000 |
|
|
$ |
1,810,000 |
|
|
Total Payables to broker-dealers and clearing organizations |
|
$ |
6,047,000 |
|
|
$ |
1,810,000 |
|
Under the DTCC shareholders’ agreement, MSCO is required to participate in the DTCC common stock mandatory purchase. As of March 31, 2021 and December 31, 2020, MSCO had shares of DTCC common stock valued at approximately $1,026,000 and $937,000, respectively, which are included within the line item “Deposits with broker-dealers and clearing organizations” on the statements of financial condition.
5. Prepaid Service Contract
On April 21, 2020, the Company entered into a Master Services Agreement (“MSA”), with InvestCloud, Inc. (“InvestCloud”). Pursuant to the MSA, InvestCloud agreed to provide the Company with the InvestCloud Platform, a new client and back end interface and related functionalities for the Company’s key operations. The Company agreed to pay InvestCloud as consideration therefore during the initial three-year term an annual license fee of $600,000 as well as an upfront professional service fee of $1.0 million for one-time configuration, installation and customization of the software. Following the initial three-year term, the MSA will automatically renew for additional one-year terms unless terminated by the Company upon 120 days’ notice.
In connection with the MSA, InvestCloud entered into a side letter agreement with the Company pursuant to which InvestCloud acquired 193,906 shares of the Company’s restricted common stock (the “Shares”) at a per share price of $5.81 (the Company’s share price as of the close of May 12, 2020) for a total of $1.1 million for professional services, which approximates the cost of services to be provided, to integrate the InvestCloud Platform into the Company’s existing systems. The Shares were issued to InvestCloud on May 12, 2020 without registration under the Securities Act of 1933 in reliance upon the exemption provided in Section 4(a)(2) and or Regulation D thereunder.
The Company initially recorded a prepaid asset equal to the $2.1 million of the total professional services related to the development work to be performed by InvestCloud, which is within the line item “Prepaid service contract” on the statements of financial condition. The Company amortizes this asset over the 3-year term of the contract, a period during which the arrangement is noncancelable. The license fees related to the Company’s use of the InvestCloud Platform are prepaid three months in advance and are within the line item “Prepaid service contract” on the statements of financial condition. These prepaid license fees are amortized over the three-month term. The amortization for all the prepaid assets related to InvestCloud is within the line item “Technology and Communications” on the statements of income.
The Company recorded $94,000 and $0 in expense related to share-based payments to InvestCloud for professional services for the three months ended March 31, 2021, and 2020, respectively. The total cost related to InvestCloud was $327,000 and $0 for the three months ended March 31, 2021, and 2020, respectively.
6. Fair Value Measurements
Overview
ASC 820 defines fair value, establishes a framework for measuring fair value, and establishes a hierarchy of fair value inputs. Fair value is 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. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income, or cost approach, as specified by ASC 820, are used to measure fair value.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
Level 1 - Quoted prices (unadjusted) in active markets for an identical asset or liability that the Company can assess at the measurement date.
Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs for the asset or liability.
The availability of observable inputs can vary from security to security and is affected by a variety of factors, such as the type of security, the liquidity of markets, and other characteristics particular to the security. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. As such, the degree of judgment exercised in determining fair value is greatest for instruments categorized in level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that the Company believes market participants would use in pricing the asset or liability at the measurement date.
A description of the valuation techniques applied to the Company’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows:
U.S. government securities: U.S. government securities are valued using quoted market prices and as such, valuation adjustments are not applied. Accordingly, U.S. government securities are generally categorized in level 1 of the fair value hierarchy.
Municipal securities: Municipal securities are valued using recently executed transactions, market price quotations (when observable), bond spreads from independent external parties such as vendors and brokers, adjusted for any basis difference between cash and derivative instruments. The spread data used is for the same maturity as the bond. Municipal securities are generally categorized in level 2 of the fair value hierarchy.
Corporate bonds and convertible preferred stock: The fair value of corporate bonds and convertible preferred stock are determined using recently executed transactions, market price quotations (when observable), bond spreads, or credit default swap spreads obtained from independent external parties such as vendors and brokers, adjusted for any basis difference between cash and derivative instruments. The spread data used is for the same maturity as the bond. If the spread data does not reference the issuer, then data that references a comparable issuer is used. When position-specific external price data is not observable, fair value is determined based on either benchmarking to similar instruments or cash flow models with yield curves, bond, or single-name credit default swap spreads and recovery rates as significant inputs. Corporate bonds and convertible preferred stocks are generally categorized in level 2 of the fair value hierarchy.
Equity securities: Equity securities are valued based on quoted prices from the exchange. To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in level 1 of the fair value hierarchy. Securities quoted in inactive markets or with observable inputs are categorized into level 2. If there are no observable inputs or quoted prices, securities are categorized as level 3 assets in the fair value hierarchy. Level 3 assets are not actively traded and subjective estimates based on managements’ assumptions are utilized for valuation.
Certificates of deposit: Certificates of deposit included in investments are valued at cost, which approximates fair value. When certificates of deposits are held directly with banking institutions and issued directly to the Company, these are categorized within prepaid expenses and other assets in level 2 of the fair value hierarchy. When certificates of deposits are available for trading, they are categorized within securities owned, at fair value in level 2 of the fair value hierarchy.
Unit investment trusts: Units of unit investment trusts are carried at redemption value, which represents fair value. Units of unit investment trusts are categorized in level 1 of the fair value hierarchy.
Fair Value Hierarchy Tables
The following tables present the Company's fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of the periods presented.
|
|
|
As of March 31, 2021 |
||||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities owned, at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities* |
|
$ |
2,015,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,015,000 |
|
|
Certificates of deposit |
|
|
— |
|
|
|
91,000 |
|
|
|
— |
|
|
|
91,000 |
|
|
Municipal securities |
|
|
— |
|
|
|
89,000 |
|
|
|
— |
|
|
|
89,000 |
|
|
Corporate bonds |
|
|
— |
|
|
|
46,000 |
|
|
|
— |
|
|
|
46,000 |
|
|
Unit investment trust |
|
|
— |
|
|
|
203,000 |
|
|
|
— |
|
|
|
203,000 |
|
|
Equity securities |
|
|
1,119,000 |
|
|
|
525,000 |
|
|
|
— |
|
|
|
1,644,000 |
|
|
Total Securities owned, at fair value |
|
$ |
3,134,000 |
|
|
$ |
954,000 |
|
|
$ |
— |
|
|
$ |
4,088,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased, at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
— |
|
|
$ |
28,000 |
|
|
$ |
— |
|
|
$ |
28,000 |
|
|
Total Securities sold, not yet purchased, at fair value |
|
$ |
— |
|
|
$ |
28,000 |
|
|
$ |
— |
|
|
$ |
28,000 |
|
|
|
|
As of December 31, 2020 |
||||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities owned, at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities* |
|
$ |
2,029,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,029,000 |
|
|
Certificates of deposit |
|
|
— |
|
|
|
91,000 |
|
|
|
— |
|
|
|
91,000 |
|
|
Corporate bonds |
|
|
— |
|
|
|
24,000 |
|
|
|
— |
|
|
|
24,000 |
|
|
Equity securities |
|
|
345,000 |
|
|
|
134,000 |
|
|
|
— |
|
|
|
479,000 |
|
|
Total Securities owned, at fair value |
|
$ |
2,374,000 |
|
|
$ |
249,000 |
|
|
$ |
— |
|
|
$ |
2,623,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased, at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
$ |
— |
|
|
$ |
21,000 |
|
|
$ |
— |
|
|
$ |
21,000 |
|
|
Total Securities sold, not yet purchased, at fair value |
|
$ |
— |
|
|
$ |
21,000 |
|
|
$ |
— |
|
|
$ |
21,000 |
|
*As of March 31, 2021 and December 31, 2020, these U.S. government securities mature on 08/31/21
The following represents financial instruments in which the ending balances as of March 31, 2021 and December 31, 2020 are not carried at fair value on the statements of financial condition:
Receivables and other assets: Receivables from broker-dealers and clearing organizations, receivables from customers, other receivables, prepaid service contract, and prepaid expenses and other assets are recorded at amounts that approximate fair value and are classified as level 2 under the fair value hierarchy. The Company may hold cash equivalents related to rent deposits that are categorized as level 2 under the fair value hierarchy.
Securities borrowed and securities loaned: Securities borrowed and securities loaned are recorded at amounts which approximate fair value and are primarily classified as level 2 under the fair value hierarchy. The Company’s securities borrowed and securities loaned balances represent amounts of equity securities borrow and loan contracts and are marked-to-market daily in accordance with standard industry practices which approximate fair value.
Payables: Payables to customers, payables to non-customers, drafts payable, payables to broker-dealers and clearing organizations, accounts payable and accrued liabilities, interest payable, and taxes payable are recorded at amounts that approximate fair value due to their short-term nature and are classified as level 2 under the fair value hierarchy.
Notes payable – related party: The carrying amount of the notes payable – related party approximates fair value due to the relative short-term nature of the borrowing. Under the fair value hierarchy, the notes payable – related party is classified as level 2.
Line of credit: The carrying amount of the line of credit with East West Bank approximates fair value due to the relative short-term nature of the borrowing. Under the fair value hierarchy, the line of credit is classified as level 2.
Investments, cost: The carrying amount of the investment approximates fair value due to there being no identified events or changes in circumstances during the reporting period that could have a significant adverse effect on the original valuation of the investment. Under the fair value hierarchy, the investment is classified as level 3.
7. Leases
As of March 31, 2021, the Company rents office space under operating leases expiring in 2021 through 2026, and the Company has no financing leases. The leases call for base rent plus escalations as well as other operating expenses. The following table represents the Company’s lease right-of-use assets and lease liabilities on the statements of financial condition. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the statements of financial condition.
As of March 31, 2021, the Company does not believe that any of the renewal options under the existing leases are reasonably certain to be exercised; however, the Company will continue to assess and monitor the lease renewal options on an ongoing basis.
|
|
|
As of March 31, 2021 |
|
|
As of December 31, 2020 |
||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
Lease right-of-use assets |
|
$ |
3,225,000 |
|
|
$ |
|
2,290,000 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Lease liabilities |
|
$ |
3,479,000 |
|
|
$ |
|
2,612,000 |
|
The calculated amounts of the lease right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company leases some miscellaneous office equipment, but they are immaterial and therefore the Company records the costs associated with this office equipment on the statements of income rather than capitalizing them as lease right-of-use assets. The Company determined a discount rate of 5.0% would approximate the Company’s cost to obtain financing given its size, growth, and risk profile.
|
Lease Term and Discount Rate |
|
As of March 31, 2021 |
|
|
As of December 31, 2020 |
|
||
|
Weighted average remaining lease term – operating leases (in years) |
|
|
3.5 |
|
|
|
2.2 |
|
|
Weighted average discount rate – operating leases |
|
|
5.0 |
% |
|
|
5.0 |
% |
The following table represents lease costs and other lease information. The Company has elected the practical expedient to not separate lease and non-lease components, and as such, the variable lease cost primarily represents variable payments such as common area maintenance and utilities which are usually determined by the leased square footage in proportion to the overall office building.
|
|
|
Three Months Ended March 31, |
||||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Operating lease cost |
|
$ |
489,000 |
|
|
$ |
571,000 |
|
|
Short-term lease cost |
|
|
21,000 |
|
|
|
39,000 |
|
|
Variable lease cost |
|
|
60,000 |
|
|
|
117,000 |
|
|
Sublease income |
|
|
— |
|
|
|
— |
|
|
Total Rent and occupancy |
|
$ |
570,000 |
|
|
$ |
727,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
556,000 |
|
|
$ |
614,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Lease right-of-use assets obtained in exchange for new lease liabilities |
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
1,388,000 |
|
|
$ |
1,915,000 |
|
Lease Commitments
Future annual minimum payments for operating leases with initial terms of greater than one year as of March 31, 2021 were as follows:
|
Year |
|
Amount |
|
|
|
2021 |
|
$ |
1,057,000 |
|
|
2022 |
|
|
1,050,000 |
|
|
2023 |
|
|
847,000 |
|
|
2024 |
|
|
370,000 |
|
|
2025 |
|
|
325,000 |
|
|
Thereafter |
|
|
139,000 |
|
|
Remaining balance of lease payments |
|
|
3,788,000 |
|
|
Less: difference between undiscounted cash flows and discounted cash flows |
|
|
309,000 |
|
|
Lease liabilities |
|
$ |
3,479,000 |
|
As of March 31, 2021, the Company had two operating leases agreements for additional office space with terms of approximately 2 years. The total commitment of the leases is approximately $358,000, and the leases will commence on April 1, 2021.
Rent and occupancy expenses were $570,000 and $727,000 for the three months ended March 31, 2021 and 2020, respectively.
8. Investments, Cost
OpenHand Holdings, Inc.
Pursuant to a stock purchase agreement dated as of January 31, 2021, the Company acquired an interest of 5% of OpenHand Holdings, Inc. ("OpenHand") common stock for consideration of a total of $2,231,000 consisting of $850,000 in cash and 329,654 restricted shares of the Company’s common stock valued at $1,381,000 or $4.19 per share. The value of the restricted stock was determined using the thirty-day trading average. The Company agreed to register the shares issued to OpenHand by filing a selling shareholder registration statement.
OpenHand is a subscription-based brokerage platform that will provide zero-commission trading for equity and option transactions and credit its members daily with rebates of revenues generated by the clients, less operational expenses. The Company will be the exclusive broker-dealer for all OpenHand account services and will benefit from their cloud-based technology which uses Amazon Web Services. Through this strategic, operational, regulatory, and technological partnership, OpenHand and the Company’s clients will benefit from numerous financial and operational efficiencies. The Company also received an option to purchase an additional 7.5% of OpenHand for approximately $4.5 million, based upon a $60 million valuation of OpenHand. This option expires 18 months after the launch of the OpenHand platform. No value was attributed to the option because it is not a derivative and there were no transaction costs associated with this option as of March 31, 2021.
As of March 31, 2021 and December 31, 2020, the carrying value of the Company’s investment in OpenHand was $2,231,000 and $0, respectively.
The investment does not have a readily determinable fair value since OpenHand is a private company and its shares are not publicly traded. The Company made an accounting policy election to measure this investment at cost less any impairment. As of March 31, 2021, there were no unrealized gains or losses on this investment. In addition, management concluded that there have been no impairments as there were no identified events or changes in circumstances during the reporting period that could have a significant adverse effect on the original valuation of the investment.
9. Goodwill and Intangible Assets, Net
Goodwill
As of March 31, 2021 and December 31, 2020, the Company’s carrying amount of goodwill was $1,989,000, all of which came from the Company’s acquisition of WPS.
Intangible Assets, Net
As a result of the Company’s acquisition of WPS, the Company acquired intangible assets consisting of WPS’s customer relationships and trade name, the fair values of which were $987,000 and $70,000, respectively, as of the acquisition date. Pursuant to the Company’s agreement with the original owners of WPS, the Company agreed to discontinue using the name of Weeden Prime Services, LLC and filed to change it to WPS Prime Services, LLC in May 2020. The Company amortizes its acquired intangible assets over their respective useful lives, and as of March 31, 2021, the WPS trade name has been fully amortized.
Impairment
As of March 31, 2021, management concluded that there have been no impairments to the carrying value of the Company’s goodwill and other tangible and intangible assets.
10. Long-Term Debt
Line of Credit with East West Bank
Overview
On July 22, 2020, the Company entered into a Loan and Security Agreement with East West Bank. In accordance with the terms of this agreement, the Company has the ability to borrow term loans in an aggregate principal amount not to exceed $10 million during the two-year period after July 22, 2020. The Company’s obligations under the agreement are secured by a lien on all of the
Company’s cash, dividends, stocks and other monies and property from time to time received or receivable in exchange for the Company’s equity interests in and any other rights to payment from the Company’s subsidiaries; any deposit accounts into which the foregoing is deposited and all substitutions, products, proceeds (cash and non-cash) arising out of any of the foregoing. Each term loan will have a term of four years, beginning when the draw is made. The repayment schedule will utilize a five-year (60 month) amortization period, with a balloon on the remaining amount due at the end of four years.
Term loans made pursuant to the agreement shall bear interest at the prime rate as reported by the Wall Street Journal, provided that the minimum interest rate on any term loan will not be less than 3.25%. In addition to the foregoing, on the date that each term loan is made, the Company shall pay to the lender an origination fee equal to 0.25% of the principal amount of such term loan. Pursuant to the loan agreement, the Company paid all lender expenses in connection with the loan agreement.
This agreement contains certain financial and non-financial covenants. The financial covenants are that the Company must maintain a debt service coverage ratio of 1.35 to 1, an effective tangible net worth of a minimum of $25 million, and MSCO must maintain a net capital ratio that is not less than 10% of aggregate debit items. Certain other non-financial covenants include that the Company must promptly notify East West Bank of the creation or acquisition of any subsidiary that at any time owns assets with a value of $100,000 or greater. As of March 31, 2021 and the date of the filing of this Report, the Company was in compliance with all of its covenants related to this agreement.
In addition, the Company’s obligations under the agreement are guaranteed pursuant to a guarantee agreement by and among, John J. Gebbia, individually, and as a co-trustee of the John and Gloria Living Trust, U/D/T December 8, 1994, and Gloria E. Gebbia, individually and as a co-trustee of the Trust.
As of March 31, 2021, the Company has drawn down a $5.0 million term loan under this agreement and has an outstanding balance of $4.4 million. The Company has an additional $5.0 million remaining to draw down from this line of credit.
Remaining Payments
Future annual minimum payments for the line of credit with East West Bank as of March 31, 2021 were as follows:
|
|
|
Amount |
|
|
|
2021 |
|
$ |
749,000 |
|
|
2022 |
|
|
998,000 |
|
|
2023 |
|
|
998,000 |
|
|
2024 |
|
|
1,661,000 |
|
|
Total |
|
$ |
4,406,000 |
|
The interest expense and cash paid related to this line of credit was both $37,000 for the three months ended March 31, 2021. The effective interest rate related to this line of credit was 3.25% for the three months ended March 31, 2021.
11. Notes Payable - Related Party
As of both March 31, 2021 and December 31, 2020, the Company had various notes payable to Gloria E. Gebbia, the Company’s principal stockholder, the details of which are presented below:
|
Description |
|
Issuance Date |
|
Face Amount |
|
Unpaid Principal Amount |
|
||
|
4.00% due May 31, 2021 |
|
December 1, 2020 |
|
$ |
2,200,000 |
|
$ |
2,200,000 |
|
|
4.00% due November 30, 2021* |
|
November 30, 2020 |
|
|
3,000,000 |
|
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Notes payable – related party |
|
|
|
$ |
5,200,000 |
|
$ |
5,200,000 |
|
*This note payable is subordinated to MSCO and is subordinated to the claims of general creditors, approved by FINRA, and are included in MSCO’s calculation of net capital and the capital requirements under FINRA and SEC regulations.
The Company’s interest expense for these notes for the three months ended March 31, 2021 and 2020 was $52,000 and $60,000, respectively. Cash paid for these notes for the three months ended March 31, 2021 and 2020 was both $30,000. The Company’s interest payable related to these notes was $22,000 and $0 as of March 31, 2021 and December 31, 2020, respectively.
12. Revenue Recognition
Overview of Revenue
The primary sources of revenue for the Company are as follows:
Commissions and Fees
The Company earns commission revenue for executing trades for clients in individual equities, options, insurance products, futures, fixed income securities, as well as certain third-party mutual funds and ETFs. Commission revenue associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, is recognized at a point in time on the trade date when the performance obligation is satisfied. The performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to / from the customer.
Principal Transactions
Principal transactions primarily represent riskless transactions in which the Company, after executing a solicited order, buys or sells securities as principal and at the same time buys or sells the securities with a markup or markdown to satisfy the order. Principal transactions are recognized at a point in time on the trade date when the performance obligation is satisfied. The performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to / from the customer.
Market Making
Market making revenue is generated from the buying and selling of securities. Market making transactions are recorded on a trade-date basis as the securities transactions occur. The performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to / from the counterparty. Securities owned are recorded at fair market value at the end of the reporting period.
Stock Borrow / Stock Loan
The Company borrows securities on behalf of retail clients to facilitate short trading, loans excess margin and fully-paid securities from client accounts, facilitates borrow and loan contracts for broker-dealer counterparties, and provides stock locate services to broker-dealer counterparties. The Company recognizes all self-clearing revenues net of operating expenses related to stock borrow / stock loan. Stock borrow / stock loan also includes any revenues generated from the Company’s fully paid lending programs on a self-clearing or introducing basis. The Company does not utilize stock borrow / stock loan activities for the purpose of financing transactions.
The performance obligation is satisfied on the contract date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to / from the counterparty.
For the three months ended March 31, 2021, stock borrow / stock loan revenue was $1,847,000 ($4,830,000 gross revenue less $2,983,000 expenses). For the three months ended March 31, 2020, stock borrow / stock loan revenue was $444,000 ($1,663,000 gross revenue minus $1,219,000 expenses).
Advisory Fees
The Company earns advisory fees associated with managing client assets. The performance obligation related to this revenue stream is satisfied over time; however, the advisory fees are variable as they are charged as a percentage of the client’s total asset value, which is determined at the end of the quarter.
Interest, Marketing and Distribution fees
The Company earns interest from clients’ accounts, net of payments to clients’ accounts, and on the Company’s bank balances. Interest income also includes interest payouts from introducing relationships related to short interest, net of charges.
The Company also earns margin interest which is the net interest charged to customers for holding financed margin positions. Marketing and distribution fees consist of 12b-1 fees which are trailing payments from money market funds. Interest, marketing and distribution fees are recorded as earned.
For the periods presented, the Company combined revenue from interest income and revenue from margin interest, marketing and distribution fees as these revenue streams are similar in nature. These revenue streams were historically disaggregated; however, the Company has combined these revenue streams to most accurately present the statements of income.
Other Income
Other income represents fees generated from correspondent clearing fees, corporate services client fees, payment for order flow, and transactional fees generated from client accounts. Transactional fees are recorded concurrently with the related activity. Other income is recorded as earned.
Categorization of Revenue
The following table presents the Company’s major revenue categories and when each category is recognized:
|
|
|
Three Months Ended March 31, |
|
|
||||||
|
Revenue Category |
|
2021 |
|
|
2020 |
|
|
Timing of Recognition |
||
|
|
|
|
|
|
|
|
|
|
||
|
Trading Execution and Clearing Services |
|
|
|
|
|
|
|
|
||
|
Commissions and fees |
|
$ |
7,008,000 |
|
|
$ |
5,583,000 |
|
|
Recorded on trade date |
|
Principal transactions |
|
|
4,248,000 |
|
|
|
3,203,000 |
|
|
Recorded on trade date |
|
Market making |
|
|
1,614,000 |
|
|
|
470,000 |
|
|
Recorded on trade date |
|
Stock borrow / stock loan |
|
|
1,847,000 |
|
|
|
444,000 |
|
|
Recorded as earned |
|
Advisory fees |
|
|
356,000 |
|
|
|
262,000 |
|
|
Recorded as earned |
|
Total Trading Execution and Clearing Services |
|
|
15,073,000 |
|
|
|
9,962,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income |
|
|
|
|
|
|
|
|
|
|
|
Interest, marketing and distribution fees |
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
1,154,000 |
|
|
|
1,331,000 |
|
|
Recorded as earned |
|
Margin interest |
|
|
2,152,000 |
|
|
|
2,506,000 |
|
|
Recorded as earned |
|
12b-1 fees |
|
|
153,000 |
|
|
|
788,000 |
|
|
Recorded as earned |
|
Total Interest, marketing and distribution fees |
|
|
3,459,000 |
|
|
|
4,625,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
392,000 |
|
|
|
214,000 |
|
|
Recorded as earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue |
|
$ |
18,924,000 |
|
|
$ |
14,801,000 |
|
|
|
The following table presents each revenue category and its related performance obligation:
|
Revenue Stream |
Performance Obligation |
|
Commissions and fees, Principal transactions, Market making, Stock borrow / stock loan, Advisory fees |
Provide financial services to customers and counterparties |
|
Interest, marketing and distribution fees, Other income |
n / a |
Soft Dollar Arrangement
As a result of the acquisition of WPS, the Company has soft dollar and commission sharing arrangements with customers that fall both within, and outside of, the safe harbor provisions of Rule 28(e) of the Securities Exchange Act of 1934 ("Rule 28(e)"), as amended. These soft dollar arrangements were determined to be a separate performance obligation that should be allocated a portion of the transaction price.
Under these arrangements, the Company charges additional dollars on customer trades and uses these fees to pay third parties for research, brokerage services, market data, and related expenses (“research services”) on behalf of clients. The Company is an agent in these arrangements, as it does not control the research services before they are transferred to the customer. As such, the revenue from these agreements are recognized net of cost in the line item “Commissions and fees” on the statements of income.
The Company paid client expenses of approximately $227,000 and $218,000 for the three months ended March 31, 2021 and 2020, respectively. The Company had an outstanding receivable and payable of approximately $20,000 and $278,000, respectively, as of March 31, 2021.
The receivable and payable related to soft dollar arrangements are in the line items “Other receivables” and “Accounts payable and accrued liabilities,” respectively, on the statements of financial condition.
As of March 31, 2021 and December 31, 2020, no allowance for uncollectible commissions was necessary as the Company believes all commissions receivable and prepaid research services expenses will be realized.
Other Items
For the three months ended March 31, 2021 and 2020, there were no costs capitalized related to obtaining or fulfilling a contract with a customer, and thus the Company has no balances for contract assets or contract liabilities. The Company concludes that its revenue streams have the same underlying economic factors, and as such, no disaggregation of revenue is required.
13. Referral Fees
Upon the acquisition of WPS, the Company has agreements with various third parties to share commissions and pay fees as defined in the respective agreements. These expenses were approximately $407,000 and $111,000 for the three months ended March 31, 2021 and 2020, which are presented in the line item “Referral fees” on the statements of income.
14. Income Taxes
The Company’s provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary. As of March 31, 2021, the Company has concluded that its deferred tax assets are realizable on a more-likely-than-not basis with the exception of certain federal net operating losses that are expected to expire unutilized and certain state net operating losses.
On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan”) was signed into law to provide additional relief in connection with the ongoing COVID-19 pandemic. The American Rescue Plan includes, among other things, provisions relating to PPP loan expansion, defined pension contributions, excessive employee remuneration, and the repeal of the election to allocate interest expense on a worldwide basis. Under ASC 740, the effects of new legislation are recognized upon enactment. The enactment of the American Rescue Plan did not impact the Company’s income tax provision.
For the three months ended March 31, 2021, the Company recorded an income tax provision of $735,000 on pre-tax book income of $3,010,000. The effective tax rate for the three months ended March 31, 2021 was 24%. The effective tax rate differs from the federal statutory rate of 21% primarily related to certain permanent tax differences and state and local taxes.
For the three months ended March 31, 2020, the Company recorded an income tax provision of $535,000 on pre-tax book income of $1,511,000. The effective tax rate for the three months ended March 31, 2020 was 35%. The effective tax rate differs from the statutory rate of 21% primarily related to an adjustment of certain deferred tax assets and state and local taxes.
15. Earnings Per Share
Basic earnings per share is calculated by dividing net income by the weighted average of the number of outstanding common shares during the period. The Company had net income of $2,275,000 and $976,000 for the three months ended March 31, 2021 and 2020, respectively.
16. Capital Requirements
MSCO
Net Capital
MSCO is subject to the Uniform Net Capital Rules of the SEC (Rule 15c3-1) of the Securities Exchange Act of 1934. Under the alternate method permitted by this rule, net capital, as defined, shall not be less than the lower of $1 million or 2% of aggregate debit items arising from customer transactions. As of March 31, 2021, MSCO’s net capital was $29.2 million, which was approximately $26.8 million in excess of its required net capital of $2.4 million, and its percentage of aggregate debit balances to net capital was 24.7%.
As of December 31, 2020, MSCO’s net capital was $27.5 million, which was approximately $25.2 million in excess of its required net capital of $2.3 million, and its percentage of aggregate debit balances to net capital was 24.3%.
Effective upon the Company’s acquisition of StockCross on January 1, 2020, the capital of MSCO and StockCross was combined.
Special Reserve Account
MSCO is subject to Customer Protection Rule 15c3-3 which requires segregation of funds in a special reserve account for the exclusive benefit of customers. As of March 31, 2021, MSCO had cash deposits of $333.0 million in the special reserve accounts which was $9.3 million in excess of the deposit requirement of $323.7 million. After adjustments for deposit(s) and / or withdrawal(s) made on April 1, 2021, MSCO had $9.3 million in excess of the deposit requirement.
As of December 31, 2020, MSCO had cash deposits of $324.9 million in the special reserve accounts which was $5.0 million in excess of the deposit requirement of $319.9 million. After adjustments for deposit(s) and / or withdrawal(s) made on January 2, 2021, MSCO had $1.0 million in excess of the deposit requirement.
Effective upon the Company’s acquisition of StockCross on January 1, 2020, the requirements and special reserve accounts of MSCO and StockCross were combined.
WPS
Net Capital
WPS, as a member of FINRA, is subject to the SEC Uniform Net Capital Rule 15c3-1. This rule requires the maintenance of minimum net capital and that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1 and that equity capital may not be withdrawn, or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. WPS is also subject to the CFTC's minimum financial requirements which require that WPS maintain net capital, as defined, equal to the greater of its requirements under Regulation 1.17 under the Commodity Exchange Act or Rule 15c3-1.
As of March 31, 2021, WPS’s net capital was approximately $3.3 million which was $3.1 million in excess of its minimum requirement of $250,000 under 15c3-1. As of December 31, 2020, WPS’s net capital was approximately $3.9 million which was $3.7 million in excess of its minimum requirement of $250,000 under 15c3-1.
17. Financial Instruments with Off-Balance Sheet Risk
The Company enters into various transactions to meet the needs of customers, conduct trading activities, and manage market risks and is, therefore, subject to varying degrees of market and credit risk.
In the normal course of business, the Company's customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose the Company to off-balance sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and the Company has to purchase or sell the financial instrument underlying the contract at a loss.
The Company's customer securities activities are transacted on either a cash or margin basis. In margin transactions, the Company extends credit to its customers, subject to various regulatory and internal margin requirements, collateralized by cash and securities in the customers' accounts. In connection with these activities, the Company executes and clears customer transactions involving the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual exchange regulations.
Such transactions may expose the Company to off-balance sheet risk in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event the customer fails to satisfy obligations, the Company may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer's obligations.
The Company seeks to control the risks associated with its customer activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels daily and pursuant to such guidelines, requires customers to deposit additional collateral or to reduce positions when necessary.
The Company's customer financing and securities settlement activities may require the Company to pledge customer securities as collateral in support of various secured financing sources such as bank loans and securities loaned. In the event the counterparty is unable to meet its contractual obligation to return customer securities pledged as collateral, the Company may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its customer obligations. On a daily basis, the Company controls this risk by monitoring the market value of securities pledged and by requiring adjustments of collateral levels in the event of excess market exposure. In addition, the Company establishes credit limits for such activities and continuously monitors compliance.
18. Commitments, Contingencies, and Other
Legal and Regulatory Matters
The Company is party to certain claims, suits and complaints arising in the ordinary course of business.
On April 26, 2021, FINRA proposed that StockCross enter into a settlement agreement with FINRA for alleged failures to comply with supervisory requirements relating to certain equity and options and stock lending transactions. These activities occurred prior to Siebert’s acquisition of StockCross, and FINRA proposed a fine of $300,000 in relation to the matter. On January 22, 2021, the California Department of Financial Protection and Innovation proposed that StockCross enter into a consent order related to StockCross and one of its registered representatives for activities that occurred prior to Siebert’s acquisition of StockCross. The California proposed order seeks an aggregate amount of approximately $900,000 in relation to this matter.
The Company has actively worked with legal counsel to evaluate the merit of each matter. Based on the facts of the above matters as well as historical resolutions, the Company does not believe that the above matters will have a material impact on the Company’s results of operation or its financial position.
As of March 31, 2021, all other legal matters are without merit or involve amounts which would not have a material impact on the Company’s results of operations or its financial position.
Overnight Financing
The Company has an available line of credit for short term overnight demand borrowing of up to $15 million with BMO Harris Bank as of March 31, 2021. As of March 31, 2021, the Company had no outstanding loan balance with BMO Harris Bank and there are no commitment fees or other restrictions on line of credit. As of December 31, 2020, MSCO had an additional $15 million line of credit with Texas Capital Bank, which MSCO did not renew. The removal of this line of credit did not impact MSCO’s ability to meet its liquidity requirements. MSCO utilizes customer or firm securities as a pledge for short-term borrowing needs.
The interest expense and the cash paid related to the utilization of this credit line was both $14,000 and $16,000 for the three months ended March 31, 2021 and 2020, respectively. There were no fees associated with the utilization of this credit lines for the three months ended March 31, 2021 and 2020, respectively.
General Contingencies
In the normal course of its business, the Company indemnifies and guarantees certain service providers against specified potential losses in connection with their acting as an agent of, or providing services to, the Company. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the financial statements for these indemnifications.
The Company provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. The Company may also provide standard indemnifications to some counterparties to protect them in the event additional taxes are owed or payments are withheld, due either to a change in or adverse application of certain tax laws. These indemnifications generally are standard contractual terms and are entered into in the normal course of business. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the financial statements for these indemnifications.
The Company is self-insured with respect to employee health claims. The Company maintains stop-loss insurance for certain risks and has a health claim reinsurance limit capped at approximately $50,000 per employee. The estimated liability for self-insurance claims is initially recorded in the year in which the event of loss occurs and may be subsequently adjusted based upon new information and cost estimates. Reserves for losses represent estimates of reported losses and estimates of incurred but not reported losses based on past and current experience. Actual claims paid and settled may differ, perhaps significantly, from the provision for losses. This adds uncertainty to the estimated reserves for losses. Accordingly, it is at least possible that the ultimate settlement of losses may vary significantly from the amounts included in the financial statements.
As part of this plan, the Company recognized expenses of $291,000 and $210,000 for the three months ended March 31, 2021 and 2020, respectively.
The Company had an accrual of $88,000 as of March 31, 2021, which represents the historical estimate of future claims to be recognized for claims incurred during the period.
The Company believes that its present insurance coverage and reserves are sufficient to cover currently estimated exposures, but there can be no assurance that the Company will not incur liabilities in excess of recorded reserves or in excess of its insurance limits.
19. Related Party Disclosures
StockCross
Prior to being acquired by the Company, StockCross and the Company were affiliated entities through common ownership and had various related party transactions. In January 2019, the Company acquired approximately 15% ownership of StockCross. Effective January 1, 2020, the Company acquired the remaining 85% of StockCross’ outstanding shares and StockCross was merged with and into MSCO. The purchase price paid was approximately $29,750,000 or 3,298,774 shares of the Company’s common stock which was issued in connection with the acquisition. Upon the closing of the transaction on January 1, 2020, all receivables and payables between the Company and StockCross were eliminated upon consolidation.
Kennedy Cabot Acquisition, LLC
Kennedy Cabot Acquisition, LLC (“KCA”) is an affiliate of the Company and is under common ownership with the Company. To gain efficiencies and economies of scale with billing and administrative functions, KCA serves as a paymaster for the Company for payroll and related functions, the entirety of which KCA passes through to the subsidiaries of the Company proportionally. In addition, KCA has purchased the naming rights of the Company for the Company to use.
KCA sponsors a 401(k) profit sharing plan which covers substantially all of the Company’s employees. Employee contributions to the plan are at the discretion of eligible employees. There were no contributions by the Company or KCA to the plan for the three months ended March 31, 2021 and 2020. In January 2020, MSCO sold approximately $288,000 worth of a private equity security to KCA at cost.
For the three months ended March 31, 2021 and 2020, KCA has earned no profit for providing these services as KCA passes through any revenue or expenses to the Company’s subsidiaries.
Park Wilshire Companies, Inc.
PWC brokers the insurance policies for related parties. Revenue for PWC from related parties was $49,000 and $37,000 for the three months ended March 31, 2021 and 2020, respectively.
Gloria E. Gebbia and John J. Gebbia
The Company has entered into various debt agreements with Gloria E. Gebbia, the Company’s principal stockholder. Refer to Note 11 – Notes Payable - Related Party for additional detail.
In addition, the Company’s obligations under its agreement with East West Bank are guaranteed pursuant to a guarantee agreement by and among, John J. Gebbia, individually, and as a co-trustee of the John and Gloria Living Trust, U/D/T December 8, 1994, and Gloria E. Gebbia, individually and as a co-trustee of the Trust. Refer to Note 10 – Long-Term Debt for additional detail.
Gloria E. Gebbia has extended loans to certain Company employees for the purchase of the Company’s shares. These transactions have not materially impacted the Company’s financial statements.
Gebbia Sullivan County Land Trust
The Company operates on a month-to-month lease agreement for its branch office in Omaha, Nebraska with the Gebbia Sullivan County Land Trust, the trustee of which is a member of the Gebbia Family. For both the three months ended March 31, 2021 and 2020, rent expense was $15,000 for this branch office.
20. Subsequent Events
The Company has evaluated events that have occurred subsequent to March 31, 2021 and through May 17, 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 March 31, 2021.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides a narrative of our financial performance and condition that should be read in conjunction the accompanying financial statements and related notes included under Part I, Item 1 of this Report.
Overview
We are a financial services company and provide a wide variety of financial services to our clients. We operate in the following business lines through our wholly-owned subsidiaries:
•
Retail brokerage business through MSCO, a Delaware corporation and broker-dealer registered with the SEC
•
Investment advisory services through SNXT, a New York corporation registered with the SEC as a RIA
•
Insurance services through PWC, a Texas corporation and licensed insurance agency
•
Robo-advisory technology development through STCH, a Nevada limited liability company
•
Prime brokerage services through WPS, a Delaware limited liability company and a broker-dealer registered with the SEC
•
STXD, an inactive subsidiary headquartered in Bermuda
Results in the businesses in which we operate are highly correlated to general economic conditions and, more specifically, to the direction of the U.S. equity and fixed-income markets. Market volatility, overall market conditions, interest rates, economic, political, and regulatory trends, and industry competition are among the factors which could affect us and which are unpredictable and beyond our control. These factors affect the financial decisions made by market participants who include investors and competitors, impacting their level of participation in the financial markets. In addition, in periods of reduced financial market activity, profitability is likely to be adversely affected because certain expenses remain relatively fixed, including salaries and related costs, portions of communications costs and occupancy expenses. Accordingly, earnings for any period should not be considered representative of earnings to be expected for any other period.
COVID-19
Impact
Overview
The World Health Organization declared the spread of COVID-19 a worldwide pandemic in March 2020. Since that time, the COVID‑19 pandemic has adversely impacted the economic environment, leading to lower interest rates across the curve and heightened volatility in the financial markets. We are actively monitoring the impact of COVID-19 and the possible effects of the roll-out of various vaccines on our business, financial condition, liquidity, operations, employees, clients and business partners.
Financial Impact
In the first quarter of 2020, the Federal Reserve cut the federal funds target overnight rate twice for a total of 150 basis points to near zero. This decline in interest rates led to a decrease in our revenue from interest, marketing and distribution fees, and may continue to have a negative impact on these revenue streams in the foreseeable future as we do not anticipate short-term interest rates to recover to levels experienced at beginning of 2020 during 2021.
Market volatility caused by the pandemic resulted in an increase in revenue streams related to our institutional clients, while higher volumes in retail trading resulted in an increase in principal transactions, commissions and fees, and market making.
Management Response
Operations
In response to the pandemic and for the protection of our employees, clients and business partners, we implemented remote work arrangements for nearly 100% of our employees, restricted business travel and temporarily closed some of our branch offices. With our ability to meet a vast majority of our clients' needs through our technology-based platforms and services, these arrangements did not materially affect our ability to maintain our business operations.
As of the date of this Report, we have reopened all of our branch offices while ensuring compliance with federal, state, and local laws as well as health and safety guidelines. We have taken numerous steps to ensure that our employees and customers are operating in a safe environment by implementing measures such as social distancing, sanitizing workstations, temperature checks,
requiring masks, and alternating staff. Throughout this challenging time, our unwavering focus on continuing to earn our clients’ trust is made possible by the significant contributions of our employees, and we remain committed to serving our clients while protecting our employees’ wellbeing.
Expense Reduction
To offset the decrease in certain revenue streams associated with COVID-19, we are strategically evaluating our clearing relationship opportunities within our institutional operations to increase profitability. We are assessing all of our vendors to identify areas where we can optimize our cost structure while maintaining operational efficiency and quality of the customer experience. As of the date of this Report, we are actively involved in contract negotiations with key vendors to reduce many of our fixed costs.
In addition, we evaluated our branch offices and transitioned out of legacy office space into more cost-efficient locations. We anticipate these transitions to provide cost reductions beginning in the second quarter of 2021 and are looking into ways to further consolidate our office space.
We do not believe any of the changes described above will have a negative impact on the operations or financials of our business.
Liquidity and Capital Resources
The situation surrounding COVID-19 has not materially impacted our liquidity position or future outlook as we have been able to meet all obligations and believe we will be able to do so in the foreseeable future.
Conclusion
We note that the ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the possible effects of the roll-out of various vaccines, which are uncertain and cannot be predicted at this time. We are currently monitoring the COVID-19 situation and will continue to respond to meet the demands of our clients as well as protect our employees.
Significant Events
Acquired 5% Interest in OpenHand
In January 2021, we acquired an interest of 5% of OpenHand common stock for consideration of a total of $2,231,000 consisting of $850,000 in cash and 329,654 restricted shares of our Common Stock valued at $1,381,000 or $4.19 per share. We made an accounting policy election to measure this investment at cost less any impairment.
OpenHand is a subscription-based brokerage platform that will provide zero-commission trading for equity and option transactions and credit its members daily with rebates of revenues generated by the clients, less operational expenses. Siebert will be the exclusive broker-dealer for all OpenHand account services and will benefit from their cloud-based technology which uses Amazon Web Services. Through this strategic, operational, regulatory, and technological partnership, OpenHand and Siebert clients will benefit from additional product offerings and numerous financial and operational efficiencies.
The value of the restricted stock was determined using the thirty-day trading average. We agreed to register the shares issued to OpenHand by filing a selling shareholder registration statement. We also received an option to purchase an additional 7.5% of OpenHand for approximately $4.5 million, based upon a $60 million valuation of OpenHand. This option expires 18 months after the launch of the OpenHand platform. No value was attributed to the option because it is not a derivative and there were no transaction costs associated with this option as of March 31, 2021.
Expansion of Clearing Operations
In December 2020, MSCO was admitted as a member of Euroclear. The admission into Euroclear is a strategic step to enhance our clearing capabilities and provide additional services to our clients, corporate services companies and counterparties. In addition, we are expanding our clearing services in the U.S. by acting as a correspondent clearing firm for other broker-dealers and anticipate being able to offer these services in 2021.
Hired New Leaders of Securities Finance Group
In November 2020, we hired Anthony Palmeri and Gerard Losurdo to lead our Securities Finance Group, which generally consists of our stock borrow / stock loan and related services. Mr. Palmeri joined from JPMorgan Chase & Co. where he was an Executive
Director, and Mr. Losurdo joined from TD Prime Services, LLC where, as a Managing Director, he led its Securities Lending and Equity Finance division.
Mr. Palmeri and Mr. Losurdo have continued to expand this department by adding numerous counterparty relationship in both the securities lending and securities locate business lines. During the first quarter of 2021, our Securities Finance Group again achieved its highest quarterly revenue of over $1.8 million, which represents an increase of over 300% from the first quarter of 2020.
New Fin-Tech Partnership with InvestCloud
In May 2020, we announced a partnership with InvestCloud, a tech provider of flexible and fully integrated digital apps for financial services, to provide a variety of enhancements and upgrades to our online and mobile client experience. We are working to implement InvestCloud's full suite of applications, ranging from intuitive client-facing portals and mobile apps to back-office operational automation, as well as centralize our digital transformation into a single partner.
StockCross Acquisition
Overview
Established in 1971, StockCross was one of the largest privately-owned brokerage firms in the nation and its operations consisted primarily of market making, fixed-income products distribution, online and broker-assisted equity trading, securities lending, and equity stock plan services.
In January 2019, we acquired approximately 15% ownership of StockCross. Effective January 1, 2020, we acquired the remaining 85% of StockCross’ outstanding shares in exchange for 3,298,774 shares of our common stock, and StockCross was merged with and into MSCO. As of January 1, 2020, the business and operations of StockCross became part of MSCO, and all clearing and other services provided by StockCross were performed by MSCO.
Recent Results
The business lines acquired from StockCross have added new revenue streams and supplemented existing ones within MSCO. The nature of StockCross’ self-clearing business line requires the presentation of various assets and corresponding liabilities on the statements of financial condition. Further, at the time of acquisition, StockCross added approximately $1.5 billion in retail customer net worth and approximately 30,000 retail accounts to Siebert.
The merger of StockCross into MSCO has been fully implemented and we have begun to see an increase in revenue for the acquired business lines. The merger resulted in the expansion of our client services areas and provided additional resources for the combined client base without any material loss of clients during the transition.
In addition, effective March 16, 2021, MSCO received approval to become an IRA nonbank custodian and trustee. Once the conversion of the IRA custodianship is completed, MSCO will be able to offer IRA services to its clients.
Client Account and Activity Metrics
The following tables set forth metrics we use in analyzing our client account and activity trends for the periods indicated.
Client Account Metrics – Total Assets Under Management
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As of |
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|||||
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Total assets under management (in billions) |
|
$ |
17.2 |
|
|
$ |
16.2 |
|
Client Account Metrics – Retail Customers
|
|
|
As of |
|
|||||
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Retail customer net worth (in billions) |
|
$ |
15.3 |
|
|
$ |
14.6 |
|
|
Retail customer margin debit balances (in billions) |
|
$ |
0.5 |
|
|
$ |
0.5 |
|
|
Retail customer credit balances (in billions) |
|
$ |
0.7 |
|
|
$ |
0.7 |
|
|
Retail customer money market fund value (in billions) |
|
$ |
0.8 |
|
|
$ |
0.8 |
|
|
Retail customer accounts |
|
|
112,152 |
|
|
|
110,699 |
|
•
Retail customer net worth represents the total value of securities and cash in the retail customer accounts after deducting margin debits
•
Retail customer margin debit balances represents credit extended to our customers to finance their purchases against current positions
•
Retail customer credit balances represents client cash held in brokerage accounts
•
Retail customer money market fund value represents all retail customers accounts invested in money market funds
•
Retail customer accounts represents the number of retail customers
Client Account Metrics – Institutional Customers
|
|
|
As of |
|
|||||
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Institutional customer net worth (in billions) |
|
$ |
1.9 |
|
|
$ |
1.6 |
|
•
Institutional customer net worth represents the total value of securities and cash in the institutional customer accounts after deducting margin debits and short positions.
Client Activity Metrics – Retail Customers
|
|
|
Three Months Ended |
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|||||
|
|
|
March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Total retail trades |
|
142,875 |
|
|
120,495 |
|
||
•
Total retail trades represents retail trades that generate commissions
Statements of Income and Financial Condition
Statements of Income for the Three Months Ended March 31, 2021 and 2020
Revenue
Commissions and fees for the three months ended March 31, 2021 were $7,008,000 and increased by $1,425,000 from the corresponding period in the prior year, primarily due to incremental WPS clients within our institutional customer base as well as strong market conditions for the retail business during the first quarter of 2021.
Interest, marketing and distribution fees for the three months ended March 31, 2021 were $3,459,000 and decreased by $1,166,000 from the corresponding period in the prior year, primarily due to the reduction of the federal funds rate to near zero at the end of the first quarter of 2021. Note that for the periods presented, we combined revenue from interest income and revenue from margin interest, marketing and distribution fees as these revenue streams are similar in nature. These revenue streams were historically disaggregated; however, we are combining these revenue streams as this most accurately presents the statements of income.
Principal transactions for the three months ended March 31, 2021 were $4,248,000 and increased by $1,045,000 from the corresponding period in the prior year, primarily due to strong market conditions during the first quarter of 2021.
Market making for the three months ended March 31, 2021 was $1,614,000 and increased by $1,144,000 from the corresponding period in the prior year, primarily due to favorable market conditions and increased trading activity during the first quarter of 2021.
Stock borrow / stock loan for the three months ended March 31, 2021 was $1,847,000 and increased by $1,403,000 from the corresponding period in the prior year, primarily due to the organic growth of the business, the addition of key personnel, expansion of our stock locate revenues, and additional securities lending and locate counterparty relationships.
Advisory fees for the three months ended March 31, 2021 were $356,000 and increased by $94,000 from the corresponding period in the prior year, primarily due to overall expansion of the advisory business line.
Other income for the three months ended March 31, 2021 was $392,000 and increased by $178,000 from the corresponding period in the prior year, primarily due to an increase in payment for order flow.
Operating Expenses
Employee compensation and benefits for the three months ended March 31, 2021 were $9,166,000 and increased by $1,875,000 from the corresponding period in the prior year, primarily due to increased commission payouts corresponding to the increase in commissions and fees, principal transactions, market making, and stock borrow / stock loan revenue in the first quarter of 2021.
Clearing fees, including execution costs for the three months ended March 31, 2021 were $1,853,000 and increased by $555,000 from the corresponding period in the prior year, primarily due to an increase in WPS client activities in the first quarter of 2021.
Technology and communications expenses for the three months ended March 31, 2021 were $1,241,000 and increased by $260,000 from the corresponding period in the prior year, primarily due to development work with InvestCloud related to our online platform.
Other general and administrative expenses for the three months ended March 31, 2021 were $770,000 and decreased by $84,000 from the corresponding period in the prior year, primarily due to a reduction in office expense and travel-related expenses due to COVID-19.
Data processing expenses for the three months ended March 31, 2021 were $797,000 and decreased by $52,000 from the corresponding period in the prior year.
Rent and occupancy expenses for the three months ended March 31, 2021 were $570,000 and decreased by $157,000 from the corresponding period in the prior year, primarily due to a decrease in rent related to our transition out of legacy office space into more cost-efficient locations.
Professional fees for the three months ended March 31, 2021 were $615,000 and decreased by $40,000 from the corresponding period in the prior year.
Referral fees for the three months ended March 31, 2021 were $407,000 and increased by $296,000 from the corresponding period in the prior year, primarily due to the expansion of our referral network for WPS in 2021.
Depreciation and amortization expenses for the three months ended March 31, 2021 were $392,000 and decreased by $56,000 from the corresponding period in the prior year, primarily due to writing off certain software in the first quarter of 2020.
Interest expense for the three months ended March 31, 2021 was $103,000 and increased by $27,000 from the corresponding period in the prior year, primarily due to the interest on the line of credit with East West Bank.
Provision For Income Taxes
Provision for income taxes for the three months ended March 31, 2021 was $735,000 and increased by $200,000 from the corresponding period in the prior year, primarily due to higher pre-tax earnings in the first quarter of 2021. Refer to Note 14 – Income Taxes for additional detail.
Statements of Financial Condition as of March 31, 2021 and December 31, 2020
Assets
Assets as of March 31, 2021 were $1,237,154,000 and decreased by $135,833,000 from December 31, 2020, primarily due to a decrease in securities borrowed.
Liabilities
Liabilities as of March 31, 2021 were $1,195,512,000 and decreased by $139,489,000 from December 31, 2020, primarily due to a decrease in securities loaned.
Liquidity and Capital Resources
Overview
In terms of the overall performance of the business in relation to liquidity, for the periods presented we have had strong operating cash flows as well as a reasonable and predictable level of investing activities which are mostly related to the purchase of OpenHand common stock as well as software and internal technology development.
Despite lower interest rates and the effects of COVID-19, we have performed well and have sufficient cash flows to meet our liquidity needs over the periods presented. We believe our ability to generate cash flows will continue into the foreseeable future.
We have a variety of sources of borrowing capability such as an overnight demand borrowing capability with BMO Harris Bank, notes payable to Gloria E. Gebbia, and a line of credit from East West Bank.
The indicators of our liquidity are cash and cash equivalents, and as of the date of this Report, there are not any known or material events that we would expect to use large amounts of our liquid assets to cover expenses. As of March 31, 2021, we have a sufficient amount of remaining availability on our various credit lines to facilitate incremental capital needs.
We believe that our operating cash flows, cash and cash equivalents, borrowing capacity, and overall access to capital markets are sufficient to fund our operating, investing and financing requirements for the next twelve months.
Cash and Cash Equivalents
Our cash and cash equivalents are unrestricted and are used to fund our working capital needs. Our cash and cash equivalents as of March 31, 2021 and December 31, 2020 were $4.1 and $3.6 million, respectively.
Net Capital, Reserve Accounts, Segregation of Funds, and Other Regulatory Requirements
MSCO is subject to the Uniform Net Capital Rules of the SEC (Rule 15c3-1) and the Customer Protection Rule (15c3-3) of the Securities Exchange Act of 1934 and maintains capital and segregated cash reserves in excess of regulatory requirements. Requirements under these regulations may vary; however, MSCO has adequate reserves and continency funding plans in place to sufficiently meet any regulatory requirements. In addition to net capital requirements, as a self-clearing broker-dealer, MSCO is subject to cash deposit and collateral requirements with clearing houses, such as the DTCC and Options Clearing Corporation, which may fluctuate significantly from time to time based upon the nature and size of clients’ trading activity and market volatility.
WPS, as a member of FINRA, is subject to the SEC Uniform Net Capital Rule 15c3-1. This rule requires the maintenance of minimum net capital and that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1 and that equity capital may not be withdrawn, or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. WPS is also subject to the CFTC's minimum financial requirements which require that WPS maintain net capital, as defined, equal to the greater of its requirements under Regulation 1.17 under the Commodity Exchange Act or Rule 15c3-1.
For the three months ended March 31, 2021 and 2020, MSCO and WPS had sufficient net capital to meet their respective liquidity and regulatory capital requirements. Refer to Note 16 – Capital Requirements for more detail on our capital requirements.
Sources of Liquidity
Line of Credit with East West Bank
On July 22, 2020, we entered into a Loan and Security Agreement with East West Bank. In accordance with the terms of this agreement, we have the ability to borrow term loans in an aggregate principal amount not to exceed $10 million during the two-year period after July 22, 2020. Our obligations under the agreement are guaranteed pursuant to a guarantee agreement by and among, John J. Gebbia, Gloria E. Gebbia and a trust for which they are mutually co-trustees.
As of March 31, 2021, we have drawn down a $5.0 million term loan under this agreement and have an outstanding balance of $4.4 million. We have an additional $5.0 million remaining to draw down from this line of credit. Refer to Note 10 – Long-Term Debt for more detail on this agreement.
Future annual minimum payments for the line of credit with East West Bank as of March 31, 2021 were as follows:
|
|
|
Amount |
|
|
|
2021 |
|
$ |
749,000 |
|
|
2022 |
|
|
998,000 |
|
|
2023 |
|
|
998,000 |
|
|
2024 |
|
|
1,661,000 |
|
|
Total |
|
$ |
4,406,000 |
|
Overnight Financing
We have an available line of credit for short term overnight demand borrowing of up to $15 million with BMO Harris Bank as of March 31, 2021. As of December 31, 2020, we had an additional $15 million line of credit with Texas Capital Bank, which we did not renew. The removal of this line of credit did not impact our ability to meet our liquidity requirements.
As of March 31, 2021, we had no outstanding loan balance and there are no commitment fees or other restrictions on the line of credit. MSCO utilizes customer or firm securities as a pledge for short-term borrowing needs.
Notes Payable – Related Party
As of both March 31, 2021 and December 31, 2020, we had $5.2 million in notes payable to Gloria E. Gebbia, all of which have maturity dates in 2021. We have sufficient liquidity to meet all maturities of these notes. Refer to Note 11 – Notes Payable - Related Party for more detail.
Leases
As of March 31, 2021, the remaining balance of our lease payments for operating leases with initial terms of greater than one year was $1.1 million for 2021. The remaining balance of our lease payments for these leases after 2021 was $2.7 million.
As of March 31, 2021, we had two operating leases agreements for additional office space with terms of approximately 2 years. The total commitment of the leases is approximately $358,000, and the leases will commence on April 1, 2021. Refer to Note 7 – Leases for more detail.
Off-Balance Sheet Arrangements
We enter into various transactions to meet the needs of customers, conduct trading activities, and manage market risks and are, therefore, subject to varying degrees of market and credit risk.
In the normal course of business, our customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose us to off-balance sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and we have to purchase or sell the financial instrument underlying the contract at a loss.
Our customer securities activities are transacted on either a cash or margin basis. In margin transactions, we extend credit to our customers, subject to various regulatory and internal margin requirements, collateralized by cash and securities in the customers' accounts. In connection with these activities, we execute and clear customer transactions involving the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual exchange regulations.
Such transactions may expose us to off-balance sheet risk in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event the customer fails to satisfy obligations, we may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer's obligations.
We seek to control the risks associated with our customer activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. We monitor required margin levels daily and pursuant to such guidelines, require customers to deposit additional collateral or to reduce positions when necessary.
Our customer financing and securities settlement activities may require us to pledge customer securities as collateral in support of various secured financing sources such as bank loans and securities loaned. In the event the counterparty is unable to meet its contractual obligation to return customer securities pledged as collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy customer obligations. On a daily basis, we control this risk by monitoring the market value of securities pledged and by requiring adjustments of collateral levels in the event of excess market exposure. In addition, we establish credit limits for such activities and continuously monitor compliance.
There were no material losses for unsettled customer transactions for the three months ended March 31, 2021 and 2020.
Uncertain Tax Positions
We account for uncertain tax positions in accordance with the authoritative guidance issued under ASC 740-10, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure requirements.
We recognize interest and penalties related to unrecognized tax benefits on the provision for income taxes line on the statements of income. Accrued interest and penalties would be included on the related tax liability line on the statements of financial condition.
As of both March 31, 2021 and December 31, 2020, we recorded an uncertain tax position of $1,105,000 related primarily to our 2017 to 2019 amended tax returns, as the anticipated tax refunds exceed the amount that meets the more-likely-than-not recognition threshold.
Prepaid Service Contract
We entered into an agreement with InvestCloud for development work related to our online platform. As part of this agreement, we have an obligation to pay for the license fees associated with the InvestCloud Platform for a three-year term. For the three months ended March 31, 2021, and 2020, we have incurred expense of $327,000 and $0, respectively, related to this contract. Refer to Note 5 – Prepaid Service Contract for more detail.
Related Party Disclosures
During the course of business, we enter into various agreements and transactions with related parties. Refer to Note 19 – Related Party Disclosures for more detail.
Fair Value Measurements
We have securities that are valued using the fair value framework under ASC 820 within our assets and liabilities as of March 31, 2021 and December 31, 2020. The majority of these assets are level 1 U.S. government securities and equity securities as well as level 2 equity securities in the line item “Securities owned, at fair value” on the statements of financial condition. The liabilities consist of relatively small amounts of level 2 equity securities in the line item “Securities sold, not yet purchased, at fair value.” Refer to Note 6 – Fair Value Measurements for more detail.
Impairment
We have concluded as of March 31, 2021, there has been no impairment to the carrying value of Siebert’s goodwill and other tangible and intangible assets.
Segment
We concluded as of March 31, 2020, Siebert is comprised of a single operating segment based on the factors related to management’s decision-making framework as well as management evaluating performance and allocating resources based on assessments of Siebert from a consolidated perspective.
New Accounting Standards
We have determined that all accounting standards adopted in the three months ended March 31, 2021 did not have a material impact on our financial statements. We are still assessing the impact the adoption of ASU 2016-13 on January 1, 2023 will have on our financial statements. Refer to Note 2 – New Accounting Standards for more detail.
Critical Accounting Policies
Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Form 10-K. There have been no
changes to critical accounting policies or estimates as of March 31, 2021.
Regulatory Matters
On April 26, 2021, FINRA proposed that StockCross enter into a settlement agreement with FINRA for alleged failures to comply with supervisory requirements relating to certain equity and options and stock lending transactions. These activities occurred prior to Siebert’s acquisition of StockCross, and FINRA proposed a fine of $300,000 in relation to the matter. On January 22, 2021, the California Department of Financial Protection and Innovation proposed that StockCross enter into a consent order related to StockCross and one of its registered representatives for activities that occurred prior to Siebert’s acquisition of StockCross. The California proposed order seeks an aggregate amount of approximately $900,000 in relation to this matter.
We have actively worked with legal counsel to evaluate the merit of each matter. Based on the facts of the above matters as well as historical resolutions, we do not believe that the above matters will have a material impact on our results of operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Instruments Held For Trading Purposes
We do not directly engage in derivative transactions, have no interest in any special purpose entity and have no liabilities, contingent or otherwise, for the debt of another entity.
Financial Instruments Held For Purposes Other Than Trading
We generally invest our cash and cash equivalents temporarily in dollar denominated bank account(s). These investments are not subject to material changes in value due to interest rate movements.
Customer transactions are cleared through clearing brokers on a fully disclosed basis and are also self-cleared by MSCO. If customers do not fulfill their contractual obligations any loss incurred in connection with the purchase or sale of securities at prevailing market prices to satisfy customer obligations may be incurred by the Company. We regularly monitor the activity in customer accounts for compliance with margin requirements. We are exposed to the risk of loss on unsettled customer transactions if customers and other counterparties are unable to fulfill their contractual obligations. There were no material losses for unsettled customer transactions in the last five years.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Executive Vice President / Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report pursuant to Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act. Based on that evaluation, our management, including the Executive Vice President / Chief Financial Officer, concluded that our disclosure controls and procedures are effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and to ensure that information required to be disclosed is accumulated and communicated to our management, including our Executive Vice President / Chief Financial Officer, to allow timely decisions regarding required disclosure.
Based on its evaluation, our management, including our Executive Vice President / Chief Financial Officer, concluded that as of the end of the period covered by this Report, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
No change in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) was identified during the end of the period covered by this Report, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to certain claims, suits and complaints arising in the ordinary course of business. In the opinion of our management, all such matters are without merit, or involve amounts which would not have a significant effect on the financial position of the Company.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Report, investors should carefully consider the risk factors discussed in Part I, Item 1A - Risk Factors in our 2020 Form 10-K. Each of such risk factors could materially affect our business, financial position, and results of operations. Other than the supplemental risk factor provided below, there have been no material changes from the risk factors disclosed in our 2020 Form 10-K.
There may be a limited public market for our Common Stock; Volatility.
11,893,202 shares of our common stock, or approximately 38% of our shares of our common stock outstanding, are currently held by non-affiliates as of May 10, 2021. A stock with a small number of shares held by non-affiliates, known as the “float,” will generally be more volatile than a stock with a large float. Although our common stock is traded on the Nasdaq Capital Market, there can be no assurance that an active public market will continue.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We issued 329,654 restricted shares of our common stock to OpenHand pursuant to a stock purchase agreement dated as of January 31, 2021. We issued 150,000 restricted shares of our common stock on November 10, 2020 to Anthony Palmeri and Gerard Losurdo pursuant to an agreement. We issued 193,906 restricted shares of our common stock on May 12, 2020 to InvestCloud pursuant to an agreement.
The above shares were issued without registration under the Securities Exchange Act of 1933, as amended in reliance upon the exemption provided in Section 4(a)(2) and or Regulation D thereunder.
ITEM 6. EXHIBITS
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Exhibit No. |
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Description of Document |
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Certification of Andrew H. Reich pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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Certification of Andrew H. Reich of Periodic Financial Report under Section 906 of the Sarbanes-Oxley Act of 2002. |
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Common Stock Purchase Agreement, dated as of January 31, 2021, between Siebert Financial Corp. and OpenHand Holdings, Inc. |
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101.INS |
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XBRL Instance Document |
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101.SCH |
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XBRL Taxonomy Extension Schema |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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SIEBERT FINANCIAL CORP. |
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By: |
/s/ Andrew H. Reich |
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Andrew H. Reich |
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Executive Vice President, Chief Operating Officer, Chief Financial Officer, and Secretary |
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(Principal executive, financial and accounting officer) |
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Dated: May 17, 2021 |
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-36-
Exhibit 10.15
COMMON STOCK PURCHASE AGREEMENT
TIDS STOCK PURCHASE AGREEMENT (this “Agreement”) dated as of January 31, 2021 is made by and between Siebert Financial Corp. (“Siebert”), a New York corporation (the “Buyer”), and OpenHand Holdings, Inc. (“OpenHand”), a Delaware corporation (the “Seller” or “Company”).
W I T N E S S E T H
WHEREAS, the Company and the Buyer are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”);
WHEREAS, the Buyer wishes to purchase from the Company and the Company desires to issue and sell to the Buyer shares of the Company’s restricted common stock with $0.0001 par value per share (the “Common Stock”);
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements, representations, warranties and covenants herein contained, and for other good and valuable consideration, the value, receipt and sufficiency of which are acknowledged, the parties hereto agree as follows:
| 1. | Purchase and Sale. |
1.1. The Purchase. On and subject to the terms and conditions of this Agreement, at the Closing (as hereinafter defined) the Buyer shall purchase from the Company, and the Company shall issue, sell, convey and deliver to the Buyer, legal and beneficial ownership of shares of the Company’s restricted Common Stock (the “Shares”) for the consideration specified below, free and clear of all encumbrances.
1.2. Closing. As soon as practicable after all the conditions precedent set forth in this Agreement have been satisfied or waived (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions at the Closing), or on such other date as the Parties hereto may agree in writing, the transactions contemplated by this Agreement shall take place at a closing (the “Closing”) that shall be held no later than 10:00 a.m., New York City time, at the New York City offices of Gusrae Kaplan Nusbaum PLLC, 120 Wall Street, New York, New York 10005, or at such other time or place as the Parties hereto may agree in writing (the date on which the Closing takes place being the “Closing Date”).
1.3. Purchase Price. For purposes of determining the purchase price (the “Purchase Price”) of the Purchased Interest, the parties establish the value of OpenHand at $42.5 million with the purchase equal to 5% of the issued and outstanding common stock of OpenHand for a purchase price of $2,125,000.
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Siebert shall pay the Purchase Price by issuing to the Selling Members that number of shares of Siebert common stock, par value $0.01 per share (the “Siebert Common Stock”) having a total Adjusted Value (defined below) equal to $1,275,000. The determination of the per share value of the shares of Siebert Common Stock shall be valued on the 30 day trailing average of SIEB’s per share closing prices on NASDAQ on the date of execution of this Agreement. The trailing 30 day commencement date will commence on the date of execution of the Transaction Documents effecting this binding letter of intent. It is understood that to arrive at a 5% stake in the post-investment valuation of OpenHand, additional consideration of approximately $100k, +/-, will be required.
The parties agree that the Siebert Common Stock shall bear a restrictive legend prohibiting their transfer except in compliance with relevant securities laws and NASDAQ rules.
In addition to the issuance of the Siebert Common Stock described above, Siebert shall pay $850,000 in cash to OpenHand and at the discretion of OpenHand’s board will allocate no less than 50% to OpenHand’s operating requirements.
Siebert agrees to take all necessary steps to register the Siebert Common Stock issued to OpenHand as part of the Purchase Price. Siebert will upon execution of this binding Agreement commence the efforts to file a Shelf Registration with the SEC. Shelf Registration to be completed within six months of Closing. If not, a penalty of 10% in cash (based on the valuation attributable to the Siebert Common Stock as a part of the Purchase Price) will be incurred and an additional 10% cash penalty at each subsequent sixth month anniversary of the date of this Agreement that the shares continue to bear a restrictive legend.
1.4. Payment. Payment of the cash amount of the Purchase Price shall be made by Purchaser on the Closing Date by wire transfer, in immediately available funds, to an account specified in writing by the Company.
| 2. | Representations and Warranties of the Company. |
The Seller hereby represents and warrants to the Buyer as follows:
2.1. Authorization; Enforcement; Validity. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and to carry out its obligations hereunder. The Company’s execution and delivery of this Agreement and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, and no further corporate action is required by the Company, its board of directors or its stockholders in connection therewith. This Agreement has been (or upon delivery will have been) duly executed by the Company and constitutes, or when delivered in accordance with the terms hereof, will constitute, the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application, (ii) as limited by laws relating to the availability of specific
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performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
2.2. Organization and Qualification. The Company has been duly organized and is validly existing and in good standing under the laws of its jurisdictions of organization, is duly qualified to do business and is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of its respective businesses requires such qualification, and has all power and authority necessary to own or hold its property and to conduct the business in which it is engaged, except where the failure to be so qualified or have such power or authority would not, individually or in the aggregate, have a material adverse effect on the results of operations, assets, business or financial condition of the Company (a “Material Adverse Effect”).
2.3. Non-contravention. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby do not and will not:
(a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Company’s certificate of incorporation and bylaws,
(b) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Company has knowledge of and is subject to, or
(c) constitute an event of default under any material agreement to which the Company is a party.
| 2.4. | Capitalization. |
(a) The authorized capital stock of the Company consists of 5,000,000 shares of Common Stock of which 2,553,191 shares are issued and outstanding as of the date hereof. All of the issued and outstanding shares of the Common Stock have been duly and validly authorized, are fully paid and nonassessable. There (a) are no outstanding or authorized options, warrants, or other rights, agreements, arrangements, commitments or any obligation of the Company to issue or sell any of its shares of Common Stock; and (b) is no obligation of the Company to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof.
(b) Upon the issuance of the Shares to the Buyer at the Closing, the Shares shall represent not less than 5% of the issued and outstanding shares of Common Stock of the Company.
2.5. Issuance of the Shares. The Shares have been duly and validly authorized and, when issued upon the Closing, the Shares will be validly issued, fully paid and nonassessable, and shall be free and clear of all encumbrances and restrictions, except for restrictions on transfer set forth in this Agreement or imposed by applicable securities laws.
2.6. Rule 506 Compliance. The Company is not disqualified from relying on Rule 506 of Regulation D for any of the reasons stated in Rule 506(d) in connection with the issuance and sale of the Shares pursuant to this Agreement. The Company has exercised reasonable care,
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including without limitation, conducting a factual inquiry that is appropriate in light of the circumstances, into whether any such disqualification under Rule 506(d) exists.
| 3. | Representations and Warranties of the Buyer. |
Buyer hereby represents and warrants to the Company as of the date of this Agreement and as of the Closing Date (as hereinafter defined) as follows:
3.1. Authorization: Enforcement; Validity. The Buyer has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and to carry out its obligations hereunder. The Buyer’s execution and delivery of this Agreement and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Buyer, and no further corporate action is required by the Buyer, its board of directors or its stockholders in connection therewith. This Agreement has been (or upon delivery will have been) duly executed by the Buyer and constitutes, or when delivered in accordance with the terms hereof, will constitute, the legal, valid and binding obligation of the Buyer enforceable against the Buyer in accordance with its terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
3.2. Organization and Qualification. The Buyer has been duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization, is duly qualified to do business and is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of its respective businesses requires such qualification, and has all power and authority necessary to own or hold its property and to conduct the business in which it is engaged, except where the failure to be so qualified or have such power or authority would not, individually or in the aggregate, have a Material Adverse Effect.
3.3. Non-contravention. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby do not and will not:
(a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Buyer’s certificate of incorporation and bylaws,
(b) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Buyer has knowledge of and is subject to, or
(c) constitute an event of default under any material agreement to which the Buyer is a party.
3.4. Accredited Investor Status. Buyer is an accredited investor as that term is defined by Rule 501 of Regulation D promulgated under the Securities Act.
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3.5. Investment Intent. The Buyer is acquiring the Shares for its own account and for investment purposes and not with a view to distribution or resale, nor with the intention of selling, transferring or otherwise disposing of all or any part of the Shares except in compliance with all applicable provisions of the Securities Act, the rules and regulations promulgated by the Securities and Exchange Commission thereunder, and applicable state securities laws.
3.6. Restricted Securities. The Buyer understands that the Shares have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Buyer’s representations as expressed herein. The Buyer understands that the Shares are “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Buyer must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Buyer acknowledges that the Company has no obligation to register or qualify the Shares for resale. The Buyer further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and on requirements relating to the Company which are outside of the Buyer’s control, and which the Company is under no obligation and may not be able to satisfy.
3.7. No Public Market. The Buyer understands that no public market now exists for the Shares, and that the Company has made no assurances that a public market will ever exist for the Shares.
3.8. Legends. The Buyer understands that the Shares and any securities issued in respect of or exchange for the Shares, may be notated with one or all of the following legends:
(a) “THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.”
(b) Any legend required by the securities laws of any state to the extent such laws are applicable to the Shares represented by the certificate, instrument, or book entry so legended.
3.10 No Bad Actor Disqualifications. Neither the Buyer nor any of its officers or directors is subject to disqualifying event described in Rule 506(d)(l)(i)-(viii) of the Securities Act (a “Disqualification Event”), except for Disqualification Events covered by Rule 506(d)(2)(ii) or (iii) under the Securities Act and disclosed in writing in reasonable detail to the Company.
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| 4. | Additional Considerations. |
OpenHand and its affiliates agree OpenHand will provide Siebert’s broker dealer subsidiary Muriel Siebert & Co., Inc. (“MSCO”), with the right to create an OpenHand division (the “Division”), which shall have the right to OpenHand’s software including, without limitation, the OpenHand version of InteliClear’s post trade processing software for equities, options, mutual funds, fixed income, fractional shares, and digital assets and Trade Zero and Trade Zero’s OMS for OpenHand customer-facing technology (digital onboarding, ACH integration, mobile, pro and web trading platforms and digital communications inclusive of related updates) to create a subscription/membership brokerage unit within MSCO. The specifics of such Division and its participants and control are set forth below.
| 5. | Future Acts. |
a. The acquisition of OpenHand by an affiliate of OpenHand is prohibited and such prohibition is a material term of this Agreement.
b. While the OpenHand Division of MSCO is functioning, MSCO will not set up a subscription based competing division or activity within MSCO.
c. If OpenHand is sold to an independent third party, MSCO shall have no less then ninety (90) days from written notification of the sale to cease using the OpenHand software and name. If and in such event, MSCO may in its discretion set up a subscription based zero commission division within MSCO, with no restrictions or limitations.
d. OpenHand and its affiliates are prohibited directly or indirectly from authorizing and/or participating in any third partys’ attempt to compete with the OpenHand division of MSCO, including but not limited to, being investors or advisors to such a competing entity.
e. In the event that OpenHand and/or InteliClear Corp. is sold to an independent party, then and in such event, MSCO will have the option to receive a license directly from InteliClear Corp. for $60,000 month, for 36 months following the launch of Siebert’s current business lines on the InteliClear platform. Siebert also will have an option to purchase a license directly from InteliClear.
f. Muriel Siebert & Co., Inc. will be the self-clearing broker-dealer (under a new DTCC number, to be determined, which will be rolled up to the master DTCC #0445 currently in place) for OpenHand accounts with utilization of OpenHand’s version oflnteliClear for post trade processing of OpenHand member products (equities, options, mutual funds, fixed income, fractional shares, and digital assets) and Trade Zero’s OMS for OpenHand customer-facing technology (digital onboarding, ACH integration, mobile, pro and web trading platforms and digital communications inclusive of related updates).
g. MSCO may in its discretion utilize the InteliClear license for InteliClear’s back office at a fee of $60,000 @month payable to InteliClear. The conversion of current MSCO
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business line onto lnteliClear may, in MSCO’s discretion, be commenced following the launch of OpenHand, at such conversion, MSCO shall commence payments to OpenHand.
| 6. | Division. |
a. Daniel Pipitone and John Paul DeVito will determine with MSCO which personnel, resources, and technologies will be needed for OpenHand’s integration and day-to-day operations for the creation of the Division.
b. The Division will be overseen by a management committee (the “Management Committee”), within MSCO that will control the day-to-day activities of the Division. The Management Committee will initially consist of Daniel A. Pipitone, John Paul DeVito, Michael J. Colombino and John M. Gebbia.
c. MSCO/SIEB will maintain all required capital (operating and net capital) for DTCC, NSCC, OCC, FICC and Securities Lending.
d. 5/95 (pro rata to ownership) split between SIEB/OH depending on source of the account, subject to MSCO/SIEB’s existing business arrangements upon mutually agreed upon terms.
e. agreed upon terms.
All direct and indirect expenses come off top line revenue upon mutually
| 7. | Conditions Precedent to Obligations of the Buyer. |
The obligations of the Buyer to effect the Closing and the performance of the other transactions contemplated hereby are conditioned upon the following, any one or more of which may be waived by the Buyer:
7.1. No Material Adverse Change. Prior to the Closing Date, there shall be no material adverse change in the assets or liabilities, the business or financial condition or the results of operations of the Company.
7.2. No Injunction. There shall not be in effect any injunction, order or decree of a court of competent jurisdiction that prohibits or delays the Buyer’s acquisition of the Shares pursuant hereto.
7.3. Representations, Warranties. The material representations and warranties of the Company set forth in this Agreement shall be materially true and correct as of the Closing Date.
| 8. | Conditions Precedent to Obligations of the Seller |
The obligations of the Company to effect the Closing and the performance of the other transactions contemplated hereby is conditioned upon the following, any one or more of which may be waived by the Company:
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8.1. Representations and Warranties. The representations and warranties of the Buyer set forth in this Agreement shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made at such time.
8.2. No Injunction. There shall not be in effect any injunction, order or decree of a court of competent jurisdiction that prohibits or delays the Buyer’s acquisition of the Shares or consummation of any or all of the contemplated transactions, or that will require any divestiture as a result of Buyer’s acquisition of the Shares.
8.3. Further Assurances. The Buyer shall have furnished such further documents and instruments, taken such further actions, and given such further assurances as requested by Seller.
9. Closing Deliveries.
9.1. Deliveries by the Company. At the Closing, the Company shall deliver stock certificates to the Buyer representing the Shares in form and substance reasonably acceptable to the Buyer;
9.2. Deliveries by the Buyer. At the Closing, the Buyer shall deliver payment of that part of the Purchase Price, payable in cash and restricted securities representing that part of the Purchase Price paid in Siebert Shares as set forth above.
10. Limitations on Transfer. In addition to any other limitation on transfer created by applicable securities laws, Buyer shall not assign, encumber or dispose of any interest in the Shares except in compliance with applicable laws.
10.1. Right of Notice. Should OpenHand receive an offer to buy all or any part of OpenHand, OpenHand will give notice of same to Siebert as will be more fully set forth in the Transaction Documents.
10.2. Options. Siebert or its designees shall be granted an option to purchase an additional seven and one half (7.5%) percent of OpenHand for eighteen (18) months following the actual launching of the OpenHand platform, at a $60,000,000 valuation with payment methodology and proportions as paid for the Shares.
In addition, Siebert or its designees will have the right to participate in all future funding to maintain its percentage ownership interest in OpenHand provided Siebert pays its prorata share of the funding.
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| 11. | Miscellaneous |
11.1. Modification; Waiver. This Agreement may be modified, amended or supplemented in any manner and at any time only by a written instrument executed by each of the parties hereto. No waiver by any party of any term or condition hereof, or the breach of any covenant, agreement, warranty, representation or provision contained herein, in any one or more instances, shall be made or construed as a further continuing waiver of any such term, condition or breach or a waived of any other term, condition or breach.
11.2. Entire Agreement. This Agreement, including the other docwnents referred to herein, constitute the entire agreement and understanding of the parties with respect to the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.
11.3. Notices. All notices to a party shall be addressed to such party at the address set forth below or to such other place as may be designated by written notice to the other party. Notice shall be sufficient when delivered by hand; when sent by telecopy with the original thereof posted first-class mail, postage prepaid, within two (2) business days thereafter; when posted certified mail, postage prepaid, return receipt requested; or when delivered by a overnight or private courier, requesting evidence of receipt as part of its service. Any such notice shall be addressed to the party at its email address and its address described below, and shall be effective when first received. Unless otherwise notified in writing, each party shall direct all swns payable to the other party at its address for notice purposes. For purposes hereof, the addresses of the parties shall be as follows:
If to the Buyer, to:
Siebert Financial Corp.
120 Wall
Street
New York, New York 10005
Attention: Andrew Reich, Chief Financial Officer
If to the Company, to:
OpenHand Holdings, Inc.
2 King Arthur Ct., Suite 1OOA
North Brunswick, New Jersey 08890
Attention: John
Paul DeVito, CEO
11.4. Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns pennitted hereby, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, by operation of law or otherwise, by any party hereto without the express prior written consent of the other party. Except as aforesaid, nothing in this Agreement, express or implied, is intended to confer upon any person other than the parties hereto and their said successors and assigns permitted hereby, any rights, remedies or obligations under or by reason of this Agreement.
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11.5. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule oflaw or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby are fulfilled to the extent possible.
11.6. Counterparts. This Agreement and any amendments, waivers, consents, or supplements may be executed in one or more counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. Delivery of an executed counterpart of a signature page to this Agreement, any amendments, waivers, consents or supplements, by facsimile or email shall be as effective as delivery of a manually executed counterpart thereof.
11.7. References. The section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. Any reference herein to a section shall be deemed to refer to the applicable section of this Agreement unless otherwise stated herein. Any reference to a Schedule or Exhibit shall be deemed to refer to the applicable Schedule or Exhibit attached hereto, incorporated herein by this reference.
11.8. Governing Law. This Agreement shall be governed by and construed solely and exclusively in accordance with the internal laws of the State of New York without regard to the conflicts oflaws principles thereof. The parties hereto hereby expressly and irrevocably agree that any suit or proceeding arising directly and/or indirectly pursuant to or under this Agreement shall be brought solely in a federal or state court located in the City, County and State of New York. By its execution hereof, the parties hereby covenant and irrevocably submit to the in personam jurisdiction of the federal and state courts located in the City, County and State of New York and agree that any process in any such action may be served upon any of them personally, or by certified mail or registered mail upon them or their agent, return receipt requested, with the same full force and effect as if personally served upon them in New York City. The parties hereto expressly and irrevocably waive any claim that any such jurisdiction is not a convenient forum for any such suit or proceeding and any defense or lack of in personam jurisdiction with respect thereto. In the event of any such action or proceeding, the party prevailing therein shall be entitled to payment from the other party hereto of all of its reasonable counsel fees and disbursements.
11.9. Pronouns and Plurals. Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.
11.10 No Presumption Against Drafter. Neither of the parties hereto shall be considered to be the drafter of this Agreement or any provision hereof for the purpose of any statute, case law, or rule of interpretation or construction that would or might cause any provision to be construed
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against the drafter hereof. No reliance was placed on any representation other than those contained herein.
11.11. Advice of Counsel. The parties acknowledge and agree that they have had the opportunity to be represented by independent counsel in the negotiation, preparation and execution of this Agreement and that each of them has read this Agreement and has had the opportunity to have it fully explained by his or its counsel prior to execution and is fully aware of its contents and legal effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above.
| Siebert Financial Corp. | ||
| /s/ Andrew Reich | ||
| Name: Andrew Reich | ||
| Title: Chief Financial Officer | ||
| OpenHand Holdings, Inc. | ||
| /s/ John Paul Devito | ||
| Name: John Paul DeVito | ||
| Title: Chief Executive Officer | ||
| /s/ Daniel Pipitone | ||
| Name: Daniel Pipitone | ||
| Title: Founder | ||
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As to paragraph 5(e)
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| InteliClear Corp. | ||
| /s/ Martin Barretto | ||
| Name: Martin Barretto | ||
| Title: Managing Member | ||
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Exhibit 31.1
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-
OXLEY ACT OF 2002
I, Andrew H. Reich, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Siebert Financial Corp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
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/s/ Andrew H. Reich |
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Date: May 12, 2021 |
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Andrew H. Reich |
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Executive Vice President, Chief Operating Officer, |
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Chief Financial Officer, and Secretary |
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(Principal executive, financial and accounting officer) |
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Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C.
SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Siebert Financial Corp. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew H. Reich, in my capacity as Executive Vice President, Chief Operating Officer, Chief Financial Officer, and Secretary hereby certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and the results of operations of the Company for the period covered by the Report.
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/s/ Andrew H. Reich |
Date: May 12, 2021 |
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Andrew H. Reich |
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Executive Vice President, Chief Operating Officer, |
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Chief Financial Officer, and Secretary |
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(Principal executive, financial and accounting officer) |
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A signed original of this written statement required by Section 906, or other documents authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Siebert Financial Corp. and will be retained by Siebert Financial Corp. and furnished to the Securities and Exchange Commission or its staff upon request.