10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	June 30, 2018
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ____________________________ to __________________________
	Commission file number	0-5703

Siebert Financial Corp.

(Exact Name of Registrant as Specified in its Charter)

New York	11-1796714
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
120 Wall Street, New York, NY 10005
(Address of Principal Executive Offices) (Zip Code)

(212) 644-2400

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes x No o

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.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x
	Emerging growth company o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of August 13, 2018, there were 27,157,188 shares of our common stock (“Common Stock”), par value $.01 per share outstanding.

Unless expressly otherwise indicated or the context requires otherwise, the terms “Siebert,” “Company,” “we,” “us,” and “our” in this document refer to Siebert Financial Corp., a New York corporation, and its wholly-owned subsidiaries. The term “MSCO” shall refer to Muriel Siebert & Co., Inc., a Delaware corporation and registered broker-dealer, the term “NXT” shall refer to Siebert AdvisorNXT, Inc., a New York corporation registered with the Securities and Exchange Commission (“SEC”) as a Registered Investment Advisor (“RIA”), and the term “PWC” shall refer to Park Wilshire Companies Inc., a registered Texas corporation and licensed insurance agency. MSCO, NXT, and PWC are wholly-owned subsidiaries of the Company.

Special Note Regarding Forward-Looking Statements

Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below and elsewhere in this report, as well as oral statements that may be made by us or by our officers, directors or employees acting on our behalf, that are not statements of historical or current fact constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and known and unknown factors that could cause our actual results to be materially different from our historical results or from any future results expressed or implied by such forward-looking statements, including, without limitation: changes in general economic and market conditions; changes and prospects for changes in interest rates; fluctuations in volume and prices of securities; changes in demand for brokerage services; competition from brokerage or other financial institutions, including the offer of broader services; competition from electronic discount brokerage firms offering greater discounts on commissions than we offer; the prevalence of a flat fee environment; our customers’ methods of placing trades; computer and telephone system failures; our level of spending on advertising and promotion; trading errors and the possibility of losses from customer non-payment of amounts due; other increases in expenses; and changes in net capital or other regulatory requirements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date when such statements were made, or to reflect the occurrence of unanticipated events. An investment in Siebert involves various risks, including those mentioned above and those which are detailed from time to time in our SEC filings.

1

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

Siebert Financial Corp. & Subsidiaries

Condensed Consolidated Statements of Financial Condition

	June 30, 2018		December 31, 2017
	(unaudited)
ASSETS
Cash and cash equivalents	$	6,686,000	$	3,765,000
Receivable from brokers		2,457,000		1,396,000
Prepaid expenses and other assets		432,000		234,000
Furniture, equipment, and leasehold improvements, net		406,000		347,000
Securities owned, at fair value		329,000		—
Receivable from related party		—		283,000
	$	10,310,000	$	6,025,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities	$	678,000	$	561,000
Income tax payable		598,000		125,000
Payable to clearing broker		329,000		—
Due to related party		—		127,000
		1,605,000		813,000
Commitments and Contingencies
Stockholders’ equity:
Common Stock, $.01 par value; 49,000,0000 shares authorized, 27,157,188 shares issued and outstanding as of June 30, 2018 and December 31, 2017		271,000		271,000
Additional paid-in capital		7,641,000		7,641,000
Retained earnings/(Accumulated deficit)		793,000		(2,700,000	)
		8,705,000		5,212,000
	$	10,310,000	$	6,025,000

See notes to condensed consolidated financial statements. 

2

Siebert Financial Corp. & Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited) 

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Revenue:
Margin interest, marketing and distribution fees	$	2,687,000	$	1,545,000	$	5,222,000	$	2,626,000
Commissions and fees		2,512,000		1,037,000		5,186,000		2,219,000
Principal transactions		2,263,000		98,000		5,204,000		206,000
Interest and dividends		24,000		3,000		35,000		5,000
Advisory fees		2,000		6,000		18,000		12,000
Total Revenue		7,488,000		2,689,000		15,665,000		5,068,000
Expenses:
Employee compensation and benefits		3,289,000		1,000,000		6,951,000		2,038,000
Clearing fees, including floor brokerage		679,000		304,000		1,581,000		568,000
Other general and administrative		675,000		393,000		1,224,000		744,000
Professional fees		487,000		468,000		1,095,000		893,000
Occupancy		247,000		79,000		489,000		221,000
Communications		154,000		55,000		249,000		135,000
Advertising and promotion		21,000		25,000		34,000		45,000
Total Expenses		5,552,000		2,324,000		11,623,000		4,644,000
Income before provision for income taxes		1,936,000		365,000		4,042,000		424,000
Provision for income taxes		137,000		—		550,000		—
Net Income	$	1,799,000	$	365,000	$	3,492,000	$	424,000
Net income per share of Common Stock
Basic and diluted	$	.07	$	.02	$	.13	$	.02
Weighted average shares outstanding
Basic and diluted		27,157,188		22,085,126		27,157,188		22,085,126

See notes to condensed consolidated financial statements.

3

Siebert Financial Corp. & Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)

	Six Months Ended June 30,
	2018			2017
Cash Flows From Operating Activities:
Net income	$	3,492,000		$	424,000
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization		50,000			71,000
Changes in:
Securities owned, at fair value		(329,000	)		92,000
Receivable from brokers		(1,061,000	)		(290,000	)
Payable to clearing broker		329,000			—
Prepaid expenses and other assets		(198,000	)		61,000
Income tax payable		474,000			—
Due to related party		(127,000	)		—
Receivable from related party		283,000			—
Accounts payable and accrued liabilities		117,000			(431,000	)
Other assets		—			(125,000	)
Net cash provided by/(used in) operating activities		3,030,000			(198,000	)
Cash Flows From Investing Activities:
Purchase of furniture, equipment, and leasehold improvements		(109,000	)		(268,000	)
Net cash used in investing activities		(109,000	)		(268,000	)
Net increase/(decrease) in cash and cash equivalents		2,921,000			(466,000	)
Cash and cash equivalents - beginning of period		3,765,000			2,730,000
Cash and cash equivalents - end of period	$	6,686,000		$	2,264,000
Supplemental Schedule Of Non-Cash Financing Activities:
Payment by related party of expenses	$	—		$	803,000
Supplemental Cash Flow Information
Taxes paid	$	76,662		$	37,893

See notes to condensed consolidated financial statements.

4

Siebert Financial Corp. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six Months Ended June 30, 2018 and 2017
(unaudited)

1. Business and Basis of Presentation

Siebert Financial Corp. (“SFC”), a New York corporation, incorporated in 1934, is a holding company that conducts its retail discount brokerage business through its wholly-owned subsidiary, Muriel Siebert & Co., Inc. (“MSCO”), a Delaware corporation and registered broker-dealer, and its investment advisory business through its wholly-owned subsidiary, Siebert AdvisorNXT, Inc. (“NXT”), a New York corporation registered with the Securities and Exchange Commission (“SEC”) as a Registered Investment Advisor (“RIA”), and its insurance business through its wholly-owned subsidiary, Park Wilshire Companies Inc. (“PWC”), a registered Texas corporation and licensed insurance agency. For purposes of this Quarterly Report on Form 10-Q, the terms “Siebert,” “Company,” “we,” “us,” and “our” refer to Siebert Financial Corp., MSCO, NXT, and PWC collectively, unless the context otherwise requires.

Our principal offices are located at 120 Wall Street, New York, NY 10005, and our phone number is (212) 644-2400. Our Internet address is www.siebertnet.com. Our SEC filings are available through our website at www.siebertnet.com, where investors are able to obtain copies of the Company’s public filings free of charge. Our common stock (“Common Stock”), par value $.01 per share, trades on the NASDAQ Capital Market under the symbol “SIEB.”

The condensed consolidated financial statements presented herein are unaudited and include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of our management, necessary for a fair presentation of the financial position and results of operations of the interim periods pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”) have been condensed or omitted pursuant to the SEC rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The balance sheet as of December 31, 2017 has been derived from the consolidated statements of financial condition at that date, but does not include all information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”). Due to the nature of our business, the results of operations for the three months and six months ended June 30, 2018 are not necessarily indicative of operating results for the full year.

As further disclosed in our 2017 Form 10-K, the Company acquired certain retail broker-dealer assets of StockCross Financial Services, Inc. (“StockCross”), an affiliate of the Company. The impact of this acquisition has resulted in a significant improvement in operations for the three months and the six months ended June 30, 2018 as compared to the three months and the six months ended June 30, 2017.

2. Per Share Data

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 $1,799,000 for the three months ended June 30, 2018 as compared to net income of $365,000 for the three months ended June 30, 2017. The Company had net income of $3,492,000 for the six months ended June 30, 2018 as compared to net income of $424,000 for the six months ended June 30, 2017.

5

3. Net Capital

MSCO is subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1 or “Uniform Net Capital Rule”), which requires the maintenance of minimum net capital. MSCO has elected to use the alternative method, permitted by the Uniform Net Capital Rule, which requires that MSCO maintain minimum net capital, as defined, equal to the greater of $250,000 or 2% of aggregate debit balances arising from customer transactions, as defined. The Uniform Net Capital Rule also provides that equity capital may not be withdrawn or cash dividends paid if the resulting net capital would be less than 5% of aggregate debits. As of June 30, 2018, MSCO had net capital of $7,672,000 as compared with net capital requirement of $250,000. MSCO claims exemption from the reserve requirement under Section 15c3-3(k)(2)(ii).

4. Revenue Recognition

On January 1, 2018, we adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606 by applying the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

The adoption of FASB ASC Topic 606 did not have an impact on the recognition of our primary sources of revenue such as principal transactions, commissions and fees, as well as margin interest, marketing and distribution fees. The timing of recognition of substantially all of our remaining revenue was also not impacted, and we therefore did not record any cumulative effect adjustment to opening equity.

6

Disaggregation of Revenue

Below is a breakdown of the Company’s revenue:

		Three Months Ended June 30,				Six Months Ended June 30,
Revenue Stream	Statements of Operations Classification	2018		2017		2018		2017
Revenue from Principal transactions:
Principal transactions – non StockCross	Principal transactions	$	505,000	$	98,000	$	1,077,000	$	206,000
Principal transactions attributed to assets acquired from StockCross	Principal transactions		1,758,000		—		4,127,000		—
Total revenue from Principal transactions			2,263,000		98,000		5,204,000		206,000
Revenue from Commissions and fees:
Commissions and fees – non StockCross	Commissions and fees		2,162,000		1,037,000		4,117,000		2,219,000
Commissions and fees attributed to assets acquired from StockCross	Commissions and fees		350,000		—		1,069,000		—
Total revenue from Commissions and fees			2,512,000		1,037,000		5,186,000		2,219,000
Revenue from Margin interest, marketing and distribution fees:
Margin interest, marketing and distribution fees – non StockCross	Margin interest, marketing and distribution fees		2,312,000		1,545,000		4,640,000		2,626,000
Margin interest, marketing and distribution fees attributed to assets acquired from StockCross	Margin interest, marketing and distribution fees		375,000		—		582,000		—
Total revenue from Margin interest, marketing and distribution fees	Margin interest, marketing and distribution fees		2,687,000		1,545,000		5,222,000		2,626,000
Other revenue:
Interest and dividends – non StockCross	Interest and dividends		24,000		3,000		35,000		5,000
Advisory fees – non StockCross	Advisory fees		2,000		6,000		18,000		12,000
Total Revenue	Total Revenue	$	7,488,000	$	2,689,000	$	15,665,000	$	5,068,000

Principal transactions are recorded on a trade-date basis and primarily represent riskless principal transactions in which the Company, after receiving an order, buys or sells securities as principal and at the same time buys or sells the securities with a markup or markdown to complete the order.

Commission and fees, margin interest, marketing and distribution fees, and related clearing expenses are recorded on a trade-date basis. Fees, consisting primarily of revenue participation with the Company’s clearing brokers in distribution fees and interest are recorded as earned.

Advisory fees are earned typically on a quarterly basis in accordance with the terms of the client agreements.

Interest is recorded on the accrual basis. Dividends are recorded as of the ex-dividend date.

5. Fair Value Measurements

FASB 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 FASB ASC 820, are used to measure fair value.

7

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. Accordingly, 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.

Exchange-Traded Equity Securities. Exchange-traded 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; otherwise, they are categorized in level 2 or level 3 of the fair value hierarchy.

Certificates of Deposit. Certificates of deposit included in investments are valued at cost, which approximates fair value. These are categorized within segregated investments 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.

8

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of June 30, 2018:

	Level 1		Level 2		Level 3		Total
Assets
Securities owned
Municipal obligations		—		326,063		—		326,063
Corporate obligations		—		2,773		—		2,773
Total		—	$	328,836		—	$	328,836

6. Commitments and Contingencies

Retail customer transactions are cleared through two clearing brokers, one of which is a related party, on a fully disclosed basis. If customers do not fulfill their contractual obligations, the clearing broker may charge MSCO for any loss incurred in connection with the purchase or sale of securities at prevailing market prices to satisfy the customers’ obligations. MSCO regularly monitors the activity in its customer accounts for compliance with its margin requirement. MSCO is exposed to the risk of loss on unsettled customer transactions if customers fail to fulfill their contractual obligations. There were no material losses for unsettled customer transactions for the six months ended June 30, 2018 and June 30, 2017.

7. Provision for Income Taxes       

For interim financial reporting, we estimate the effective tax rate for tax jurisdictions which is applied to the year to date income before taxes. For the three months ended June 30, 2018, our effective tax rate was 7%. We recognized a $224,000 reduction in taxable income for the three months ended June 30, 2018 from net operating loss carry-forwards expected to be realized during 2018 which resulted in $26,000 of tax benefits. For the six months ended June 30, 2018, our effective tax rate was 14%. We recognized a $448,000 reduction in taxable income for the six months ended June 30, 2018 from net operating loss carry-forwards expected to be realized during 2018 which resulted in $66,000 of tax benefits.

As of June 30, 2018, the Company had federal and state net operating loss carry-forwards of $22,881,000 and $16,058,000, respectively, which expire between 2029 and 2036. Utilization of the Company’s net operating loss carry-forwards is subject to annual limitations of approximately $900,000 per year under Internal Revenue Code Section 382 due to a previous change in ownership.

Due to the cumulative previous losses incurred by the Company, the Company is unable to conclude it is more likely than not that it will realize its deferred tax assets in excess of the deferred tax liability. Accordingly, the Company has recorded a valuation allowance to fully offset such amounts as of December 31, 2017 and as of June 30, 2018.

8. Non-Recurring Charges

Included in the expenses in the condensed consolidated statements of operations for the three months and the six months ended June 30, 2017 is $110,000 and $342,000, respectively, of non-recurring charges primarily due to relocating the firm’s call center and costs associated with staff reductions.

9. Related Party Transactions

The Company earned revenue and incurred expenses of $2,483,000 and $382,000, respectively, from StockCross for the three months ended June 30, 2018. The Company earned revenue and incurred expenses of $5,778,000 and $964,000, respectively, from StockCross for the six months ended June 30, 2018.

As of June 30, 2018, the Company is owed a receivable from StockCross of $862,000 and owes StockCross $329,000 for the financing of securities. 

10. Liabilities

Included in the June 30, 2018 condensed consolidated statements of financial condition is $490,000 of commissions payable as part of accounts payable and accrued liabilities.

9

11. Leases

In addition to the leases stated in our 2017 Form 10-K, the Company committed to the below lease. The future minimum base rental payments under this operating lease are as follows:

Year	Amount
2019	$	417,000
2020		429,000
2021 and thereafter		1,367,000
Total	$	2,213,000

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with our consolidated financial statements for the year ended December 31, 2017, and our condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report.

Business Environment 

Our cash is invested primarily in bank accounts with large financial institutions. Our cash and working capital are sufficient to service the firm’s operations.

The following table presents certain metrics for, and as of, various periods within 2018 and 2017, which we use in evaluating our business.

	Three Months				Six Months
	Ended June 30,				Ended June 30,
Retail Customer Activity	2018		2017		2018		2017
Total retail trades		84,271		50,769		180,490		110,139
Average commission per retail trade	$	22.02	$	19.56	$	22.62	$	19.80

	As of June 30,
Retail Customer Balances	2018		2017
Retail customer net worth (in billions)	$	11.2	$	7.3
Retail customer money market fund value (in billions)	$	.6	$	.7
Retail free credit balances (in billions)	$	.4	$	.3
Retail customer margin debit balances (in billions)	$	.4	$	.2
Retail customer accounts with positions		39,877		28,953

Description

· Total retail trades represents retail trades that generate commissions.

· Average commission per retail trade represents the average commission generated for all types of retail customer trades.

· Retail customer net worth represents the total value of securities and cash in the retail customer accounts before deducting margin debits.

· Retail customer money market fund value represents all retail customers accounts invested in money market funds.

· Retail customer margin debit balances represents credit extended to our customers to finance their purchases against current positions.

· Retail customer accounts with positions represents retail customers with cash and/or securities in their accounts.

We, like other securities firms, are directly affected by general economic and market conditions including fluctuations in volume and prices of securities, changes and prospects for changes in interest rates, and demand for brokerage and advisory services, all of which can affect our relative profitability. In periods of reduced financial market activity, profitability is likely to be adversely affected because certain expenses remain relatively fixed, such as salaries and related costs, and portions of communications and occupancy expenses. Accordingly, earnings for any period should not be considered representative of any other period.

10

Critical Accounting Policies

We generally follow accounting policies standard in the brokerage industry and believe that our policies appropriately reflect our financial position and results of operations. Our management makes significant estimates that affect the reported amounts of assets, liabilities, revenue, and expenses as well as the related disclosure of contingent assets and liabilities included in the financial statements. The estimates relate primarily to revenue and expenses in the normal course of business as to which we receive no confirmations, invoices, or other documentation at the time the books are closed. We use our best judgment, based on our knowledge of these revenue transactions and expenses incurred, to estimate the amount of such revenue and expenses. We are not aware of any material differences between the estimates used in closing our books for the last five years and the actual amounts of revenue and expenses incurred when we subsequently receive the actual confirmations, invoices, or other documentation. Estimates are also used in determining the useful lives of intangible assets and the fair market value of intangible assets. Our management believes that its estimates are reasonable.

Results of Operations

Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017

Net income for the three months ended June 30, 2018 was $1,799,000, an increase of $1,434,000 or 393% from the corresponding period in 2017 primarily due to the retail assets acquired from StockCross and an increase in interest bearing earnings. Included in the net income for the three months ended June 30, 2017 is $110,000 of non-recurring costs primarily due to relocating the firm’s call center and costs associated with staff reductions.

Total revenue for the three months ended June 30, 2018 was $7,488,000, an increase of $4,799,000 or 178% from the corresponding period in 2017 primarily due to the retail assets acquired from StockCross.

Margin interest, marketing and distribution fees for the three months ended June 30, 2018 were $2,687,000, an increase of $1,142,000 or 74% from the corresponding period in 2017 primarily due to the retail assets acquired from StockCross and rising interest rates.

Commissions and fees for the three months ended June 30, 2018 were $2,512,000, an increase of $1,475,000 or 142% from the corresponding period in 2017 primarily due to the retail assets acquired from StockCross.

Principal transactions arising primarily from riskless principal transactions for the three months ended June 30, 2018 were $2,263,000, an increase of $2,165,000 or 2,209% from the corresponding period in 2017 primarily due to the retail assets acquired from StockCross.

Income from interest and dividends for the three months ended June 30, 2018 was $24,000, an increase of $21,000 or 700% from the corresponding period in 2017 primarily due to the retail assets acquired from StockCross.

Advisory fees for the three months ended June 30, 2018 were $2,000, a decrease of $4,000 or 67% from the corresponding period in 2017.

Total expenses for the three months ended June 30, 2018 were $5,552,000, an increase of $3,228,000 or 139% from the corresponding period in 2017 primarily due to additional offices and increased personnel associated with the retail assets acquired from StockCross.

Employee compensation and benefit costs for the three months ended June 30, 2018 were $3,289,000, an increase of $2,289,000 or 229% from the corresponding period in 2017 primarily due to additional sales representatives and general personnel associated with the retail assets acquired from StockCross.

Clearing fees and floor brokerage costs for the three months ended June 30, 2018 were $679,000, an increase of $375,000 or 123% from the corresponding period in 2017 primarily due to increased retail customer trading volume and increased activity associated with the retail assets acquired from StockCross.

Other general and administrative expenses for the three months ended June 30, 2018 were $675,000, an increase of $282,000 or 72% from the corresponding period in 2017 primarily due to expenses attributed to the increased activity associated with the retail assets acquired from StockCross.

Professional fees for the three months ended June 30, 2018 were $487,000, an increase of $19,000 or 4% from the corresponding period in 2017 primarily due to an increase in business activities and development.

11

Occupancy costs for the three months ended June 30, 2018 were $247,000, an increase of $168,000 or 213% from the corresponding period in 2017 primarily due to an increase in the number of offices associated with the retail assets acquired from StockCross.

Communications expenses for the three months ended June 30, 2018 were $154,000, an increase of $99,000 or 180% from the corresponding period in 2017 primarily due to increased activity associated with the retail assets acquired from StockCross.

Advertising and promotion expenses for the three months ended June 30, 2018 were $21,000, a decrease of $4,000 or 16% from the corresponding period in 2017 primarily due to a reduction in print media.

Provision for income taxes for the three months ended June 30, 2018 was $137,000, an increase of $137,000 from the corresponding period in 2017 primarily due to the increase in income before provision for income taxes.

Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Net income for the six months ended June 30, 2018 was $3,492,000, an increase of $3,068,000 or 724% from the corresponding period in 2017 primarily due to the retail assets acquired from StockCross and an increase in interest bearing earnings. Included net income for the six months ended June 30, 2017 is $342,000 of non-recurring costs primarily due to relocating the firm’s call center and costs associated with staff reductions.

Total revenue for the six months ended June 30, 2018 was $15,665,000, an increase of $10,597,000 or 209% from the corresponding period in 2017 primarily due to the retail assets acquired from StockCross.

Margin interest, marketing and distribution fees for the six months ended June 30, 2018 were $5,222,000, an increase of $2,596,000 or 99% from the corresponding period in 2017 primarily due to the retail assets acquired from StockCross and rising interest rates.

Commissions and fees for the six months ended June 30, 2018 were $5,186,000, an increase of $2,967,000 or 134% from the corresponding period in 2017 primarily due to the retail assets acquired from StockCross.

Principal transactions arising primarily from riskless principal transactions for the six months ended June 30, 2018 were $5,204,000, an increase of $4,998,000 or 2,426% from the corresponding period in 2017 primarily due to the retail assets acquired from StockCross.

Income from interest and dividends for the six months ended June 30, 2018 was $35,000, an increase of $30,000 or 600% from the corresponding period in 2017 primarily due to the retail assets acquired from StockCross.

Advisory fees for the six months ended June 30, 2018 were $18,000, an increase of $6,000 or 50% from the corresponding period in 2017.

Total expenses for the six months ended June 30, 2018 were $11,623,000, an increase of $6,979,000 or 150% from the corresponding period in 2017 primarily due to additional offices and increased personnel associated with the retail assets acquired from StockCross.

Employee compensation and benefit costs for the six months ended June 30, 2018 were $6,951,000, an increase of $4,913,000 or 241% from the corresponding period in 2017 primarily due to additional sales representatives and general personnel associated with the retail assets acquired from StockCross.

Clearing fees and floor brokerage costs for the six months ended June 30, 2018 were $1,581,000, an increase of $1,013,000 or 178% from the corresponding period in 2017 primarily due to increased retail customer trading volume and increased activity associated with the retail assets acquired from StockCross.

Other general and administrative expenses for the six months ended June 30, 2018 were $1,224,000, an increase of $480,000 or 65% from the corresponding period in 2017 primarily due to expenses attributed to the increased activity associated with the retail assets acquired from StockCross.

Professional fees for the six months ended June 30, 2018 were $1,095,000, an increase of $202,000 or 23% from the corresponding period in 2017 primarily due to an increase in business activities and development.

Occupancy costs for the six months ended June 30, 2018 were $489,000, an increase of $268,000 or 121% from the corresponding period in 2017 primarily due to an increase in the number of offices associated with the retail assets acquired from StockCross.

12

Communications expenses for the six months ended June 30, 2018 were $249,000, an increase of $114,000 or 84% from the corresponding period in 2017 primarily due to increased activity associated with the retail assets acquired from StockCross.

Advertising and promotion expenses for the six months ended June 30, 2018 were $34,000, a decrease of $11,000 or 24% from the corresponding period in 2017 primarily due to a reduction in print media.

Provision for income taxes for the six months ended June 30, 2018 was $550,000, an increase of $550,000 from the corresponding period in 2017 primarily due to the increase in income before provision for income taxes.

Liquidity and Capital Resources

Our working capital is invested in cash and cash equivalents. Our total assets as of June 30, 2018 were $10,310,000, of which $6,686,000, or 65%, is highly liquid.

MSCO is subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1 or “Uniform Net Capital Rule”), which requires the maintenance of minimum net capital. As of June 30, 2018, MSCO’s regulatory net capital was $7,672,000, which was $7,422,000 in excess of its minimum capital requirement of $250,000.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Working capital is generally invested temporarily in dollar-denominated money market funds. These investments are not subject to material changes in value due to interest rate movements.

Retail customer transactions are cleared through two clearing brokers, one of which is a related party, on a fully disclosed basis. If customers do not fulfill their contractual obligations, the clearing broker may charge MSCO for any loss incurred in connection with the purchase or sale of securities at prevailing market prices to satisfy the customers’ obligations. MSCO regularly monitors the activity in its customer accounts for compliance with its margin requirement. MSCO is exposed to the risk of loss on unsettled customer transactions if customers fail to fulfill their contractual obligations. There were no material losses for unsettled customer transactions for the six months ended June 30, 2018 and June 30, 2017.

Item 4. Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our 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 Securities Exchange Act of 1934, as amended. Based on that evaluation, our management, including the 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 Securities Exchange Act of 1934, as amended, 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 Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in our internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

We identified certain material weaknesses in our internal controls over financial reporting in our 2017 Form 10-K. We are in the process of developing a remediation plan under the supervision of the Audit Committee and Board of Directors to improve the effectiveness of our controls.

13

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 2017 Form 10-K, which could materially affect our business, financial position, and results of operations in addition to the following risk factor which updates and replaces the risk factor captioned “There may be no public market for our common stock” previously disclosed in our 2017 Form 10-K:

“There may be no public market for our common stock.

Approximately 6,470,081 shares of our Common Stock (approximately 23.8% of the total outstanding), are currently held by the public. Although our Common Stock is traded on the NASDAQ Capital Market, there can be no assurance that an active public market will continue.”

Except for the foregoing, there are no material changes from the risk factors set forth in Part I, Item 1A - “Risk Factors,” in our 2017 Form 10-K.

14

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.

SIEBERT FINANCIAL CORP.
By:	/s/ Andrew H. Reich
	Andrew H. Reich
	Executive Vice President, Chief Operating Officer, Chief Financial Officer, and Secretary
	(Principal executive, financial and accounting officer)
Dated: August 13, 2018

15

Item 5. Exhibits

Exhibit No.	Description of Document
31.1	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.
32.1	Certification of Andrew H. Reich of Periodic Financial Report under Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

16

EX-31.1

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.

/s/ Andrew H. Reich	Date: August 13, 2018
Andrew H. Reich
Executive Vice President, Chief Operating Officer,
Chief Financial Officer, and Secretary
(Principal executive, financial and accounting officer)

EX-32.1

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 June 30, 2018, 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.

/s/ Andrew H. Reich	Date: August 13, 2018
Andrew H. Reich
Executive Vice President, Chief Operating Officer,
Chief Financial Officer, and Secretary
(Principal executive, financial and accounting officer)

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.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 13, 2018
Document And Entity Information
Entity Registrant Name	Siebert Financial Corp
Entity Central Index Key	0000065596
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		27,157,188
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2018

XML

Consolidated Statements of Financial Condition - USD ($)	Jun. 30, 2018	Dec. 31, 2017
ASSETS
Cash and cash equivalents	$ 6,686,000	$ 3,765,000
Receivable from brokers	2,457,000	1,396,000
Prepaid expenses and other assets	432,000	234,000
Furniture, equipment and leasehold improvements, net	406,000	347,000
Securities owned, at fair value	329,000	0
Receivable from related party	0	283,000
Total assets	10,310,000	6,025,000
Liabilities:
Accounts payable and accrued liabilities	678,000	561,000
Income tax payable	598,000	125,000
Payable to clearing broker	329,000	0
Due to related party	0	127,000
Total liabilities	1,605,000	813,000
Commitments and Contingencies
Stockholders' equity:
Common Stock, $.01 par value; 49,000,0000 shares authorized, 27,157,188 shares issued and outstanding as of June 30, 2018 and December 31, 2017	271,000	271,000
Additional paid-in capital	7,641,000	7,641,000
Retained earnings/(Accumulated deficit)	793,000	(2,700,000)
Total stockholders' equity	8,705,000	5,212,000
Total liabilities and stockholders' equity	$ 10,310,000	$ 6,025,000

XML

Consolidated Statements of Financial Condition (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Stockholder's equity:
Common stock, par value	$ 0.01	$ 0.01
Common stock, authorized shares	49,000,000	49,000,000
Common stock, issued shares	27,157,188	27,157,188
Common stock, outstanding shares	27,157,188	27,157,188

XML

Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenue:
Margin interest, marketing and distribution fees	$ 2,687,000	$ 1,545,000	$ 5,222,000	$ 2,626,000
Commissions and fees	2,512,000	1,037,000	5,186,000	2,219,000
Principal transactions	2,263,000	98,000	5,204,000	206,000
Interest and dividends	24,000	3,000	35,000	5,000
Advisory fees	2,000	6,000	18,000	12,000
Total revenues	7,488,000	2,689,000	15,665,000	5,068,000
Expenses:
Employee compensation and benefits	3,289,000	1,000,000	6,951,000	2,038,000
Clearing fees, including floor brokerage	679,000	304,000	1,581,000	568,000
Other general and administrative	675,000	393,000	1,224,000	744,000
Professional fees	487,000	468,000	1,095,000	893,000
Occupancy	247,000	79,000	489,000	221,000
Communications	154,000	55,000	249,000	135,000
Advertising and promotion	21,000	25,000	34,000	45,000
Total Expenses	5,552,000	2,324,000	11,623,000	4,644,000
Income before provision for income taxes	1,936,000	365,000	4,042,000	424,000
Provision for income taxes	137,000	0	550,000	0
Net Income	$ 1,799,000	$ 365,000	$ 3,492,000	$ 424,000
Net income per share of common stock - Basic and diluted	$ 0.07	$ 0.02	$ 0.13	$ 0.02
Weighted average shares outstanding - Basic and diluted	27,157,188	22,085,126	27,157,188	22,085,126

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net income	$ 3,492,000	$ 424,000
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization	50,000	71,000
Changes in:
Securities owned, at fair value	(329,000)	92,000
Receivable from brokers	(1,061,000)	(290,000)
Payable to clearing broker	329,000	0
Prepaid expenses and other assets	(198,000)	61,000
Income tax payable	474,000	0
Due to related party	(127,000)	0
Receivable from related party	283,000	0
Accounts payable and accrued liabilities	117,000	(431,000)
Other assets	0	(125,000)
Net cash provided by (used in) operating activities	3,030,000	(198,000)
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements	(109,000)	(268,000)
Net cash used in investing activities	(109,000)	(268,000)
Cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents	2,921,000	(466,000)
Cash and cash equivalents - beginning of period	3,765,000	2,730,000
Cash and cash equivalents - end of period	6,686,000	2,264,000
Supplemental Schedule Of Non-Cash Financing Activities:
Payment by related party of expenses	0	803,000
Supplemental Cash Flow Information
Taxes paid	$ 76,662	$ 37,893

XML

1. Business and Basis of Presentation

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

1. Business and Basis of Presentation:

Siebert Financial Corp. (“SFC”), a New York corporation, incorporated in 1934, is a holding company that conducts its retail discount brokerage business through its wholly-owned subsidiary, Muriel Siebert & Co., Inc. (“MSCO”), a Delaware corporation and registered broker-dealer, and its investment advisory business through its wholly-owned subsidiary, Siebert AdvisorNXT, Inc. (“NXT”), a New York corporation registered with the Securities and Exchange Commission (“SEC”) as a Registered Investment Advisor (“RIA”), and its insurance business through its wholly-owned subsidiary, Park Wilshire Companies Inc. (“PWC”), a registered Texas corporation and licensed insurance agency. For purposes of this Quarterly Report on Form 10-Q, the terms “Siebert,” “Company,” “we,” “us,” and “our” refer to Siebert Financial Corp., MSCO, NXT, and PWC collectively, unless the context otherwise requires.

Our principal offices are located at 120 Wall Street, New York, NY 10005, and our phone number is (212) 644-2400. Our Internet address is www.siebertnet.com. Our SEC filings are available through our website at www.siebertnet.com, where investors are able to obtain copies of the Company’s public filings free of charge. Our common stock (“Common Stock”), par value $.01 per share, trades on the NASDAQ Capital Market under the symbol “SIEB.”

The condensed consolidated financial statements presented herein are unaudited and include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of our management, necessary for a fair presentation of the financial position and results of operations of the interim periods pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America (“U.S.”) have been condensed or omitted pursuant to the SEC rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The balance sheet as of December 31, 2017 has been derived from the consolidated statements of financial condition at that date, but does not include all information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”). Due to the nature of our business, the results of operations for the three months and six months ended June 30, 2018 are not necessarily indicative of operating results for the full year.

As further disclosed in our 2017 Form 10-K, the Company acquired certain retail broker-dealer assets of StockCross Financial Services, Inc. (“StockCross”), an affiliate of the Company. The impact of this acquisition has resulted in a significant improvement in operations for the three months and the six months ended June 30, 2018 as compared to the three months and the six months ended June 30, 2017.

XML

2. Per Share Data

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

2. Per Share Data

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 $1,799,000 for the three months ended June 30, 2018 as compared to net income of $365,000 for the three months ended June 30, 2017. The Company had net income of $3,492,000 for the six months ended June 30, 2018 as compared to net income of $424,000 for the six months ended June 30, 2017.

XML

3. Net Capital

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

3. Net Capital

MSCO is subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1 or “Uniform Net Capital Rule”), which requires the maintenance of minimum net capital. MSCO has elected to use the alternative method, permitted by the Uniform Net Capital Rule, which requires that MSCO maintain minimum net capital, as defined, equal to the greater of $250,000 or 2% of aggregate debit balances arising from customer transactions, as defined. The Uniform Net Capital Rule also provides that equity capital may not be withdrawn or cash dividends paid if the resulting net capital would be less than 5% of aggregate debits. As of June 30, 2018, MSCO had net capital of $7,672,000 as compared with net capital requirement of $250,000. MSCO claims exemption from the reserve requirement under Section 15c3-3(k)(2)(ii).

XML

4. Revenue Recognition

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

4. Revenue Recognition

On January 1, 2018, we adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606 by applying the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

The adoption of FASB ASC Topic 606 did not have an impact on the recognition of our primary sources of revenue such as principal transactions, commissions and fees, as well as margin interest, marketing and distribution fees. The timing of recognition of substantially all of our remaining revenue was also not impacted, and we therefore did not record any cumulative effect adjustment to opening equity.

Disaggregation of Revenue

Below is a breakdown of the Company’s revenue:

		Three Months Ended June 30,				Six Months Ended June 30,
Revenue Stream	Statements of Operations Classification	2018		2017		2018		2017
Revenue from Principal transactions:
Principal transactions – non StockCross	Principal transactions	$	505,000	$	98,000	$	1,077,000	$	206,000
Principal transactions attributed to assets acquired from StockCross	Principal transactions		1,758,000		—		4,127,000		—
Total revenue from Principal transactions			2,263,000		98,000		5,204,000		206,000
Revenue from Commissions and fees:
Commissions and fees – non StockCross	Commissions and fees		2,162,000		1,037,000		4,117,000		2,219,000
Commissions and fees attributed to assets acquired from StockCross	Commissions and fees		350,000		—		1,069,000		—
Total revenue from Commissions and fees			2,512,000		1,037,000		5,186,000		2,219,000
Revenue from Margin interest, marketing and distribution fees:
Margin interest, marketing and distribution fees – non StockCross	Margin interest, marketing and distribution fees		2,312,000		1,545,000		4,640,000		2,626,000
Margin interest, marketing and distribution fees attributed to assets acquired from StockCross	Margin interest, marketing and distribution fees		375,000		—		582,000		—
Total revenue from Margin interest, marketing and distribution fees	Margin interest, marketing and distribution fees		2,687,000		1,545,000		5,222,000		2,626,000
Other revenue:
Interest and dividends – non StockCross	Interest and dividends		24,000		3,000		35,000		5,000
Advisory fees – non StockCross	Advisory fees		2,000		6,000		18,000		12,000
Total Revenue	Total Revenue	$	7,488,000	$	2,689,000	$	15,665,000	$	5,068,000

Principal transactions are recorded on a trade-date basis and primarily represent riskless principal transactions in which the Company, after receiving an order, buys or sells securities as principal and at the same time buys or sells the securities with a markup or markdown to complete the order.

Commission and fees, margin interest, marketing and distribution fees, and related clearing expenses are recorded on a trade-date basis. Fees, consisting primarily of revenue participation with the Company’s clearing brokers in distribution fees and interest are recorded as earned.

Advisory fees are earned typically on a quarterly basis in accordance with the terms of the client agreements.

Interest is recorded on the accrual basis. Dividends are recorded as of the ex-dividend date.

XML

5. Fair Value Measurements

6 Months Ended

Jun. 30, 2018

Fair Value Measurements

5. Fair Value Measurements

FASB 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 FASB 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. Accordingly, 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.

Exchange-Traded Equity Securities. Exchange-traded 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; otherwise, they are categorized in level 2 or level 3 of the fair value hierarchy.

Certificates of Deposit. Certificates of deposit included in investments are valued at cost, which approximates fair value. These are categorized within segregated investments 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.

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of June 30, 2018:

	Level 1	Level 2	Level 3	Total
Assets
Securities owned
Municipal obligations	—	326,063	—	326,063
Corporate obligations	—	2,773	—	2,773
Total	—	$             328,836	—	$             328,836

XML

6. Contingencies and Commitments

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

6. Commitments and Contingencies

Retail customer transactions are cleared through two clearing brokers, one of which is a related party, on a fully disclosed basis. If customers do not fulfill their contractual obligations, the clearing broker may charge MSCO for any loss incurred in connection with the purchase or sale of securities at prevailing market prices to satisfy the customers’ obligations. MSCO regularly monitors the activity in its customer accounts for compliance with its margin requirement. MSCO is exposed to the risk of loss on unsettled customer transactions if customers fail to fulfill their contractual obligations. There were no material losses for unsettled customer transactions for the six months ended June 30, 2018 and June 30, 2017.

XML

7. Provision for Income Taxes

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

7. Provision for Income Taxes

For interim financial reporting, we estimate the effective tax rate for tax jurisdictions which is applied to the year to date income before taxes. For the three months ended June 30, 2018, our effective tax rate was 7%. We recognized a $224,000 reduction in taxable income for the three months ended June 30, 2018 from net operating loss carry-forwards expected to be realized during 2018 which resulted in $26,000 of tax benefits. For the six months ended June 30, 2018, our effective tax rate was 14%. We recognized a $448,000 reduction in taxable income for the six months ended June 30, 2018 from net operating loss carry-forwards expected to be realized during 2018 which resulted in $66,000 of tax benefits.

As of June 30, 2018, the Company had federal and state net operating loss carry-forwards of $22,881,000 and $16,058,000, respectively, which expire between 2029 and 2036. Utilization of the Company’s net operating loss carry-forwards is subject to annual limitations of approximately $900,000 per year under Internal Revenue Code Section 382 due to a previous change in ownership.

Due to the cumulative previous losses incurred by the Company, the Company is unable to conclude it is more likely than not that it will realize its deferred tax assets in excess of the deferred tax liability. Accordingly, the Company has recorded a valuation allowance to fully offset such amounts as of December 31, 2017 and as of June 30, 2018.

XML

8. Non Recurring Changes

6 Months Ended

Jun. 30, 2018

Non Recurring Changes

8. Non Recurring Changes

Included in the expenses in the condensed consolidated statements of operations for the three months and the six months ended June 30, 2017 is $110,000 and $342,000, respectively, of non-recurring charges primarily due to relocating the firm’s call center and costs associated with staff reductions.

XML

9. Related Party Transactions

6 Months Ended

Jun. 30, 2018

Related Party Transactions [Abstract]

9. Related Party Transactions

The Company earned revenue and incurred expenses of $2,483,000 and $382,000, respectively, from StockCross for the three months ended June 30, 2018. The Company earned revenue and incurred expenses of $5,778,000 and $964,000, respectively, from StockCross for the six months ended June 30, 2018.

As of June 30, 2018, the Company is owed a receivable from StockCross of $862,000 and owes StockCross $329,000 for the financing of securities. 

XML

10. Liabilities

6 Months Ended

Jun. 30, 2018

Liabilities:

10. Liabilities

Included in the June 30, 2018 condensed consolidated statements of financial condition is $490,000 of commissions payable as part of accounts payable and accrued liabilities.

XML

11. Leases

6 Months Ended

Jun. 30, 2018

Leases [Abstract]

11. Leases

In addition to the leases stated in our 2017 Form 10-K, the Company committed to the below lease. The future minimum base rental payments under this operating lease are as follows:

Year	Amount
2019	$        417,000
2020	429,000
2021 and thereafter	1,367,000
Total	$     2,213,000

XML

4. Revenue Recognition (Tables)

6 Months Ended

Jun. 30, 2018

Revenue Recognition

Disaggregation of revenue

		Three Months Ended June 30,				Six Months Ended June 30,
Revenue Stream	Statements of Operations Classification	2018		2017		2018		2017
Revenue from Principal transactions:
Principal transactions – non StockCross	Principal transactions	$	505,000	$	98,000	$	1,077,000	$	206,000
Principal transactions attributed to assets acquired from StockCross	Principal transactions		1,758,000		—		4,127,000		—
Total revenue from Principal transactions			2,263,000		98,000		5,204,000		206,000
Revenue from Commissions and fees:
Commissions and fees – non StockCross	Commissions and fees		2,162,000		1,037,000		4,117,000		2,219,000
Commissions and fees attributed to assets acquired from StockCross	Commissions and fees		350,000		—		1,069,000		—
Total revenue from Commissions and fees			2,512,000		1,037,000		5,186,000		2,219,000
Revenue from Margin interest, marketing and distribution fees:
Margin interest, marketing and distribution fees – non StockCross	Margin interest, marketing and distribution fees		2,312,000		1,545,000		4,640,000		2,626,000
Margin interest, marketing and distribution fees attributed to assets acquired from StockCross	Margin interest, marketing and distribution fees		375,000		—		582,000		—
Total revenue from Margin interest, marketing and distribution fees	Margin interest, marketing and distribution fees		2,687,000		1,545,000		5,222,000		2,626,000
Other revenue:
Interest and dividends – non StockCross	Interest and dividends		24,000		3,000		35,000		5,000
Advisory fees – non StockCross	Advisory fees		2,000		6,000		18,000		12,000
Total Revenue	Total Revenue	$	7,488,000	$	2,689,000	$	15,665,000	$	5,068,000

XML

5. Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2018

Fair Value Measurements Tables Abstract

Assets and liabilities measured at fair value on a recurring basis

	Level 1	Level 2	Level 3	Total
Assets
Securities owned
Municipal obligations	—	326,063	—	326,063
Corporate obligations	—	2,773	—	2,773
Total	—	$             328,836	—	$             328,836

XML

11. Leases (Tables)

6 Months Ended

Jun. 30, 2018

Leases

Future minimum base rental payments

Year	Amount
2019	$        417,000
2020	429,000
2021 and thereafter	1,367,000
Total	$     2,213,000

XML

2. Per Share Data (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Notes to Financial Statements
Net income (loss)	$ 1,799,000	$ 365,000	$ 3,492,000	$ 424,000

XML

3. Net Capital (Details Narrative)	Jun. 30, 2018 USD ($)
Notes to Financial Statements
Net capital	$ 7,672,000
Net capital requirements	$ 250,000

XML

4. Revenue Recognition (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Total revenue from Principal transactions	$ 2,263,000	$ 98,000	$ 5,204,000	$ 206,000
Total revenue from Commissions and fees	2,512,000	1,037,000	5,186,000	2,219,000
Total revenue from Margin interest, marketing and distribution fees	2,687,000	1,545,000	5,222,000	2,626,000
Interest and dividends - non StockCross	24,000	3,000	35,000	5,000
Advisory fees - non StockCross	2,000	6,000	18,000	12,000
Total Revenue	7,488,000	2,689,000	15,665,000	5,068,000
Principal transactions | non StockCross
Total revenue from Principal transactions	505,000	98,000	1,077,000	206,000
Principal transactions | Assets acquired from StockCross
Total revenue from Principal transactions	1,758,000	0	4,127,000	0
Commissions and fees | non StockCross
Total revenue from Commissions and fees	2,162,000	1,037,000	4,117,000	2,219,000
Commissions and fees | Assets acquired from StockCross
Total revenue from Commissions and fees	350,000	0	1,069,000	0
Margin interest, marketing and distribution fees | non StockCross
Total revenue from Margin interest, marketing and distribution fees	2,312,000	1,545,000	4,640,000	2,626,000
Margin interest, marketing and distribution fees | Assets acquired from StockCross
Total revenue from Margin interest, marketing and distribution fees	$ 375,000	$ 0	$ 582,000	$ 0

XML

5. Fair Value Measurements (Details)	Jun. 30, 2018 USD ($)
Total	$ 328,836
Level 1 [Member]
Total	0
Level 2 [Member]
Total	328,836
Level 3 [Member]
Total	0
Municipal obligations
Total	326,063
Municipal obligations | Level 1 [Member]
Total	0
Municipal obligations | Level 2 [Member]
Total	326,063
Municipal obligations | Level 3 [Member]
Total	0
Corporate obligations
Total	2,773
Corporate obligations | Level 1 [Member]
Total	0
Corporate obligations | Level 2 [Member]
Total	2,773
Corporate obligations | Level 3 [Member]
Total	$ 0

XML

7. Provision for Income Taxes (Details Narrative)	Jun. 30, 2018 USD ($)
Federal
Net operating loss carryforward	$ 22,881,000
State
Net operating loss carryforward	$ 16,058,000

XML

9. Related Party Transactions (Details Narrative) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Due from related party	$ 0	$ 0	$ 283,000
StockCross
Related party revenues	2,483,000	5,778,000
Related party expenses	382,000	964,000
Due from related party	862,000	862,000
Due to related party	$ 329,000	$ 329,000

XML

10. Liabilities (Details Narrative)	Jun. 30, 2018 USD ($)
Liabilities
Commissions payable	$ 490,000

XML

11. Leases (Details)	Jun. 30, 2018 USD ($)
Leases Details Abstract
2019	$ 417,000
2020	429,000
2021 and thereafter	1,367,000
Total	$ 2,213,000