Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

The accompanying consolidated financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as established by the Financial Accounting Standards Board (“FASB”) to ensure consistent reporting of financial condition. The consolidated 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.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company makes significant estimates that affect the reported amounts of assets, liabilities, revenue, and expenses. The estimates relate primarily to revenue and expenses in the normal course of business as to which the Company receives no confirmations, invoices, or other documentation at the time the books are closed. The Company uses its best judgment, based on knowledge of these revenue transactions and expenses incurred, to estimate the amount of such revenue and expenses. The Company is not aware of any material differences between the estimates used in closing the Company’s books for the last five years and the actual amounts of revenue and expenses incurred when the Company subsequently receives the actual confirmations, invoices, or other documentation. Estimates are used in intangible asset valuations and useful lives, depreciation, income taxes, and the contingent liabilities related to legal and healthcare expenses. The Company also estimates the valuation allowance relating to its deferred tax assets based on the more likely than not criteria. The Company believes that its estimates are reasonable.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year’s presentation. These reclassifications have no effect on previously reported net income.

Cash and Cash Equivalents

Cash and cash equivalents are all cash balances that are unrestricted. The Company has defined cash equivalents as highly liquid investments, with original maturities of less than 90 days that are not held for sale in the ordinary course of business. As of the years ended December 31, 2018 and 2017, the Company did not hold any cash equivalents.

Receivables from Clearing and Other Brokers

Retail customer transactions are cleared, on a fully disclosed basis, through two clearing brokers, StockCross and NFS, the former of which is an affiliate. The Company operates on a month to month basis with both clearing brokers and they offset their fees against the Company's revenues on a monthly basis. Receivables from clearing and other brokers include amounts receivable as well as cash on deposit. As of the years ended December 31, 2018 and 2017, cash clearing deposits with StockCross and NFS were $75,000 and $50,000, respectively.

The Company evaluates receivables from clearing organizations and other brokers for collectability noting no amount was considered uncollectable as of the years ended December 31, 2018 and 2017. No valuation allowance is recognized for receivables from clearing and other brokers as the Company does not have a history of losses from receivables from clearing and other brokers and does not anticipate losses in the future.

Furniture, Equipment and Leasehold Improvements

Furniture, equipment and leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the lives of the assets, generally not exceeding four years. Leasehold improvements are amortized over the shorter of the useful life or remaining lease term unless the lease transfers ownership of the underlying asset to the lessee or lessee is reasonably certain to exercise an option to purchase the underlying asset, in which case the lessee will amortize over the useful life of the leasehold improvements.

Software

The Company capitalizes certain costs for software such as the Robo-Advisor, software license arrangements with a contract term of greater than 1 year, as well as other software, and amortizes the assets over the estimated useful life of the software or contract term, generally not exceeding 3 years. The Company accounts for software license arrangements with a contract term of 1 year as prepaid assets and amortizes them over the contract term. Other software costs such as routine maintenance and various data services to provide market information to customers are expensed as incurred.

Amortization of Intangible Assets

The Company has a finite-lived intangible asset in the Robo-Advisor acquired from KCAT. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. The Company acquired the Robo-Advisor from KCAT in August 2018. The Robo-Advisor has an estimated useful life of 3 years and the Company will start to amortize it in 2019.

Advertising Costs

Advertising costs are expensed as incurred and totaled $45,000 and $87,000 for the years ended December 31, 2018 and 2017, respectively.

Revenue Recognition and Other Income

On January 1, 2018, the Company adopted the new revenue recognition standard ASC 606, Revenue from Contracts with Customers, on the modified retrospective method (i.e., cumulative method). The Company has elected the modified retrospective method which did not result in a cumulative-effect adjustment at the date of adoption. The implementation of this new standard had no material impact on the Company's consolidated financial statements for the years ended December 31, 2018 and 2017.

Revenue from contracts with customers includes commissions and fees, principal transactions and advisory fees. The recognition and measurement of revenue is based on the assessment of individual contract terms. Significant judgment is required to determine whether performance obligations are satisfied at a point in time or over time; how to allocate transaction prices where multiple performance obligations are identified; when to recognize revenue based on the appropriate measure of the Company’s progress under the contract; and whether constraints on variable consideration should be applied due to uncertain future events.

The primary sources of revenue for the Company are as follows:

Margin Interest, Marketing and Distribution fees

Margin interest, marketing and distribution fees consists of two components: margin interest and 12b1 fees. Margin interest is the net interest charged to customers for holding financed margin positions, and 12b1 fees are fees paid to the Company related to trailing payments from mutual funds as a result of prior sales of mutual funds to customers. Margin interest, marketing and distribution fees are recorded as earned.

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.

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.

Advisory Fees

The Company earns advisory fees associated with managing client assets. The performance obligation related to its 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.

The following table presents the major revenue categories and when each category is recognized:

	Year Ended December 31,
Revenue Category	2018		2017		Timing of Recognition
Trading Execution and Clearing Services
Commissions and fees	$	9,504,000	$	4,801,000	Recorded on trade date
Principal transactions	$	9,020,000	$	1,639,000	Recorded on trade date
Advisory fees and additional income	$	584,000	$	70,000	Recorded as earned

Other Income
Margin interest, marketing and distribution fees
Margin interest	$	7,663,000	$	3,726,000	Recorded as earned
12b1 fees		3,265,000		2,874,000	Recorded as earned
Total Margin interest, marketing and distribution fees	$	10,928,000	$	6,600,000

Total Revenue	$	30,036,000	$	13,110,000

The following table presents each revenue category and its related performance obligation:

Revenue Stream	Performance Obligation
Principal transactions, Commissions and fees, Advisory fees and additional income	Provide security trading services to customer and act as agent
Margin interest, marketing and distribution fees	n/a

Disaggregation of Revenue

The following table presents a breakdown of the Company’s revenue between the amounts attributed to the legacy Siebert customer base vs. the accounts acquired from the StockCross Retail Assets:

	Year Ended December 31,
	2018		2017
Revenue from Principal transactions:
Principal transactions – Legacy Siebert	$	1,894,000	$	490,000
Principal transactions – StockCross Retail Assets		7,126,000		1,149,000
Total Revenue from Principal transactions	$	9,020,000	$	1,639,000

Revenue from Commissions and fees:
Commissions and fees – Legacy Siebert	$	7,792,000	$	4,527,000
Commissions and fees – StockCross Retail Assets		1,712,000		274,000
Total Revenue from Commissions and fees	$	9,504,000	$	4,801,000

Revenue from Margin interest, marketing and distribution fees:
Margin interest, marketing and distribution fees – Legacy Siebert	$	9,674,000	$	6,409,000
Margin interest, marketing and distribution fees – StockCross Retail Assets		1,254,000		191,000
Total Revenue from Margin interest, marketing and distribution fees	$	10,928,000	$	6,600,000

Additional Revenue:
Advisory fees – Legacy Siebert		478,000		51,000
Interest – Legacy Siebert		106,000		19,000

Total Revenue	$	30,036,000	$	13,110,000

Income Taxes

The results of operations are included in the consolidated federal income tax return of the Company as well as the consolidated or standalone state and local income tax returns of the Company and/or its subsidiaries. The amount of current and deferred taxes payable or refundable is recognized as of the date of the financial statements, utilizing currently enacted tax laws and rates. Deferred tax expenses or benefits are recognized in the financial statements for the changes in deferred tax liabilities or assets between years.

The Company records accruals for uncertain tax positions when the Company believes that it is not 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 Company makes adjustments to these accruals when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. The Company had no uncertain tax positions as of December 31, 2018 and 2017.

The Company recognizes deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversal of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. To the extent the Company determines that realization of deferred tax assets is not "more likely than not," the Company establishes a valuation allowance. As a result, the amount of the deferred tax assets considered realizable could be reduced in the near term if estimates of future taxable income are reduced. Such an occurrence could materially impact the Company’s results of operations and financial condition.

Evaluation of Subsequent Events

The Company has evaluated events that have occurred subsequent to December 31, 2018 and through March 26, 2019, the date of the filing of this report. As previously disclosed in a Current Report on Form 8-K on January 18, 2019, the Company purchased approximately 15% of StockCross’ outstanding shares. The number of shares purchased by the Company was 922,875 at a per share price of approximately $3.97.

There have been no additional 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 December 31, 2018.

Capital Stock

The authorized capital stock of the Company consists of a single class of common stock.

Per Share Data

Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average outstanding common shares during the year. Diluted earnings per share is calculated by dividing net income by the number of shares outstanding under the basic calculation and adding, all dilutive securities, which consist of options.

Recently Issued Accounting Pronouncements

ASU 2016-02 – In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective for the Company on January 1, 2019, with early adoption permitted. The Company expects to adopt the new standard on its effective date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company adopted the new standard on January 1, 2019 and used the effective date as the date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The Company expects to recognize a material asset and a corresponding liability with no material impact to operating results.

Recently Adopted Accounting Pronouncements

ASU 2014-09 – In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards (IFRS). In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)." ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing." ASU 2016-10 clarifies the implementation guidance on identifying performance obligations. These ASUs apply to all companies that enter into contracts with customers to transfer goods or services. These ASUs are effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company adopted this guidance starting the first quarter of 2018. Entities have the choice to apply these ASUs either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying these standards at the date of initial application and not adjusting comparative information. The Company has adopted ASC 606 using the modified retrospective method (i.e., cumulative effect method).