Siebert Financial Corp SIEB US Equity☆

ITEM 1A. RISK FACTORS

Regulatory Risks

Legislation has and may continue to result in changes to rules and regulations applicable to our business, which may negatively impact our business and financial results.

New laws, rules, regulations and guidance, or changes in the interpretation and enforcement of existing federal, state, foreign and self-regulatory organization ("SRO") laws, rules, regulations and guidance may directly affect our business and the profitability of Siebert or the operation of specific business lines. In addition, new and changing laws, rules, regulation and guidance could result in limitations on the lines of business we conduct, modifications to our business practices, more stringent capital and liquidity requirements or other costs and could limit our ability to return capital to stockholders.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), enacted in 2010, required many federal agencies to adopt new rules and regulations applicable to the financial services industry and called for many studies regarding various industry practices. In particular, the Dodd-Frank Act gave the SEC discretion to adopt rules regarding standards of conduct for broker-dealers providing investment advice to retail customers.

The rules and interpretations adopted by the SEC in June 2019 include Regulation Best Interest and the new Form CRS Relationship Summary, which are intended to enhance the quality and transparency of retail investors' relationships with broker-dealers and investment advisers. Regulation Best Interest enhances the broker-dealer standard of conduct beyond existing suitability obligations, requiring compliance with disclosure, care, conflict of interest and compliance obligations. The regulation requires that a broker-dealer or natural person who is an associated person of the broker-dealer shall act in the best interest of the retail customer at the time it makes a recommendation of any securities transaction or investment strategy involving securities, prioritizing the interests of the customer above any interests of the broker-dealer or its associated persons. Among other things, this requires the broker-dealer to mitigate conflicts of interest arising from financial incentives in selling securities products.

The new rules and processes related thereto have and will most likely continue to involve increased costs, including, but not limited to, compliance costs associated with new or enhanced technology. In addition to the foregoing laws affecting regulation of our industry, Congress is considering various proposals to increase taxation relating to investments, which may adversely impact the volume of trading and other transactions from which we derive our revenue.

It is not possible to determine the extent of the impact of any new laws, regulations or initiatives that may be imposed, or whether any existing proposals will become law. Conformance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in which we conduct business.

We are subject to extensive government regulation and to third party litigation risk and regulatory risk which could result in significant liabilities and reputational harm which, in turn, could materially adversely affect our business, results of operations and financial condition.

Our business is subject to extensive regulation in the U.S., at both the federal and state level. We are also subject to regulation by SROs and other regulatory bodies in the U.S., such as the SEC, the NYSE, FINRA, MSRB, the Commodity Futures Trading Commission (“CFTC”) and the National Futures Association (“NFA”). MSCO is registered as a broker-dealer in 50 states, the District of Columbia, and Puerto Rico, and RISE is registered as a broker-dealer in 22 states and territories. The regulations to which MSCO and RISE are subject as broker-dealers cover all aspects of the securities business including training of personnel, sales methods, trading practices, uses and safe keeping of customers’ funds and securities, capital structure, record keeping, fee arrangements, disclosure and the conduct of directors, officers and employees.

SNXT is registered as an investment adviser with the SEC under the Advisers Act, and its business is highly regulated. The Advisers Act imposes numerous obligations on RIAs, including fiduciary, record keeping, operational and disclosure obligations. Moreover, the Advisers Act grants broad administrative powers to regulatory agencies such as the SEC to regulate investment advisory businesses. If the SEC or other government agencies believe that SNXT has failed to comply with applicable laws or regulations, these agencies have the power to impose fines, suspensions of a registrant and individual employees or other sanctions, which could include revocation of SNXT’s registration under the Advisers Act. SNXT is also subject to the provisions and regulations of ERISA, to the extent that SNXT acts as a “fiduciary” under ERISA with respect to certain of its clients. ERISA and the applicable provisions of the federal tax laws impose a number of duties on persons who are fiduciaries under ERISA and prohibit certain transactions involving the assets of each ERISA plan which is a client, as well as certain transactions by the fiduciaries (and certain other related parties) to such plans. Our subsidiaries, RISE and MSCO, are also regulated by the National Futures Association (“NFA”) and function as a registered introducing broker.

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The laws, rules and regulations, as well as governmental policies and accounting principles, governing our business and the financial services and banking industries generally have changed significantly over recent years and are expected to continue to do so. We cannot predict which changes in laws, rules, regulations, governmental policies or accounting principles will be adopted. Any changes in the laws, rules, regulations, governmental policies or accounting principles relating to our business could materially and adversely affect our business, results of operations and financial condition.

Additionally, like other participants in the financial services industry, we and our subsidiaries face the risks of lawsuits by clients and risks of regulatory proceeding against us. The outcome of regulatory proceedings and client lawsuits is uncertain and difficult to predict. An adverse resolution of any regulatory proceeding or client lawsuit against us could result in substantial costs or reputational harm to us. Further, adverse proceedings could have an adverse effect on our ability to retain key registered representatives, investment advisers and wealth managers, and to retain existing clients or attract new clients, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Refer to Item 3 – Legal Proceedings for additional detail.

We are subject to net capital requirements.

The SEC, FINRA, and various other securities and commodities exchanges and other regulatory bodies in the U.S. have rules with respect to net capital requirements which affect us. These rules have the effect of requiring that at least a substantial portion of a broker-dealer’s assets be kept in cash or highly liquid investments. Our compliance with the net capital requirements could limit operations that require intensive use of capital, such as underwriting or trading activities. These rules could also restrict our ability to withdraw our capital, even in circumstances where we have more than the minimum amount of required capital, which, in turn, could limit our ability to implement growth strategies. In addition, a change in such rules, or the imposition of new rules, affecting the scope, coverage, calculation or amount of such net capital requirements, or a significant operating loss or any unusually large charge against net capital, could have similar adverse effects.

Risks Related to Our Technology and Information Systems

We rely on information processing and communications systems to process and record our transactions.

Our operations rely heavily on information processing and communications systems. Our system for processing securities transactions is highly automated. Failure of our information processing or communications systems for a significant period of time could limit our ability to process a large volume of transactions accurately and rapidly. This could cause us to be unable to satisfy our obligations to customers and other securities firms and could result in regulatory violations. External events, such as an earthquake, terrorist attack or power failure, loss of external information feeds, such as security price information, as well as internal malfunctions such as those that could occur during the implementation of system modifications, could render part or all of these systems inoperative.

We rely on third-party platforms for information and communications systems.

We rely heavily on our data technology platforms and the platforms provided by our clearing agents. These platforms offer interfaces to our clearing service providers’ computing systems where customer account records are kept and are accessible through our data technology platforms. Our systems also utilize browser-based access and other types of data communications.

Our data technology platforms offers services used in direct relation to customer activities as well as support for corporate use. Some of these services include email and messaging, market data systems and third-party trading systems, business productivity tools and customer relationship management systems. Our data network is designed with redundancies in case a significant business disruption occurs.

We also rely on third parties that provide data center facilities, infrastructure, back-office systems for clearance, settlement and accounting, customer relationship management, compliance and risk software and systems, website functionality and access, databases, data center facilities and cloud computing, all of which are critical to our operations. To ensure reliability and to conform to regulatory requirements related to business continuity, we maintain backup systems and backup data, leverage cloud-based technology, and have a full-time offsite disaster recovery site to ensure business continuity during a potential wide-spread disruption. However, despite the preventive and protective measures in place, in the event of a wide-spread disruption of our systems or those of the third-parties upon whom we rely, our ability to satisfy the obligations to customers and other securities firms may be significantly hampered or completely disrupted.

Failure to protect client data or prevent breaches of our information systems could expose us to liability or reputational damage.

We are dependent on information technology networks and systems to securely process, transmit and store electronic information and to communicate among our branch offices and with our clients and vendors. As the breadth and complexity of this infrastructure continues to grow, the potential risk of security breaches and cyber-attacks increases. As a financial services company, we are continuously subject to cyber-attacks by third parties. Any such security breach could lead to shutdowns or disruptions of our systems and potential unauthorized disclosure of confidential information. In addition, vulnerabilities of our external service providers and other third parties could pose security risks to client information. The secure transmission of confidential information over public networks is also a critical element of our operations.

In providing services to clients, we manage, utilize and store sensitive and confidential client data, including personal data. As a result, we are subject to numerous laws and regulations designed to protect this information, such as U.S. federal and state laws governing the protection of personally identifiable information. These laws and regulations are increasing in complexity and number, change frequently and sometimes conflict. If any person, including any of our employees, negligently disregards or intentionally breaches our established controls with respect to client data, or otherwise mismanages or misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions. Unauthorized disclosure of sensitive or confidential client data, whether through systems failure, employee negligence, fraud or misappropriation, could damage our reputation and cause us to lose clients. Similarly, unauthorized access to or through our information systems, whether by our employees or third parties, including a cyber-attack by third parties who may deploy viruses, worms or other malicious software programs, could result in negative publicity, significant remediation costs, legal liability, and damage to our reputation and could have a material adverse effect on our results of operations. In addition, our liability insurance might not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.

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We may be exposed to damage to our business or our reputation by cybersecurity breaches.

As the world becomes more interconnected through the use of the Internet and users rely more extensively on the Internet and the cloud for the transmission and storage of data, such information becomes more susceptible to incursion by hackers and other parties intent on stealing or destroying data on which we or our customers rely. We face an evolving landscape of cybersecurity threats in which hackers use a complex array of means to perpetrate cyber-attacks, including the use of stolen access credentials, malware, ransomware, phishing, structured query language injection attacks, and distributed denial-of-service attacks, among other means. These cybersecurity incidents have increased in number and severity and it is expected that these trends will continue. Should we be affected by such an incident, we may incur substantial costs and suffer other negative consequences, which may include:

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Remediation costs, such as liability for stolen assets or information, repairs of system damage, and incentives to customers or business partners in an effort to maintain relationships after an attack;

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Increased cybersecurity protection costs, which may include the costs of making organizational changes, deploying additional personnel and protection technologies, training employees, and engaging third party experts and consultants;

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Lost revenues resulting from the unauthorized use of proprietary information or the failure to retain or attract customers following an attack;

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Litigation and legal risks, including regulatory actions by state and federal regulators; and

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Loss of reputation.

Increasingly, intruders attempt to steal significant amounts of data, including personally identifiable data and either hold such data for ransom or release it onto the Internet, exposing our clients to financial or other harm and thereby significantly increasing our liability in such cases. Our regulators have introduced programs to review our protections against such incidents which, if they determined that our systems do not reasonably protect our clients’ assets and their data, could result in enforcement activity and sanctions.

We have and continue to introduce systems and software to prevent any such incidents and review and increase our defenses to such issues through the use of various services, programs and outside vendors. We contract cybersecurity consultants and also review and revise our cybersecurity policy to ensure that it remains up to date. In the event that we experience a material cybersecurity incident or identify a material cybersecurity threat, we will make all reasonable efforts to properly disclose it in a timely fashion. It is impossible, however, for us to know when or if such incidents may arise or the business impact of any such incident.

As a result of such risks, we have and are likely to incur significant costs in preparing our infrastructure and maintaining it to resist any such attacks.

An increase in volume on our systems or other events could cause them to malfunction.

Most of our trade orders are received and processed electronically. This method of trading is heavily dependent on the integrity of the electronic systems supporting it. While we have never experienced a significant failure of our trading systems, heavy stress placed on our systems during peak trading times could cause our systems to operate at unacceptably low speeds or fail altogether. Any significant degradation or failure of our systems or the systems of third parties involved in the trading process (e.g., online and Internet service providers, record keeping and data processing functions performed by third parties, and third party software), even for a short time, could cause customers to suffer delays in trading. These delays could cause substantial losses for customers and could subject us to claims from these customers for losses. There can be no assurance that our network structure will operate appropriately in the event of a subsystem, component or software failure. In addition, we cannot assure that we will be able to prevent an extended systems failure in the event of a power or telecommunications failure, an earthquake, terrorist attack, fire or any act of God. Any systems failure that causes interruptions in our operations could have a material adverse effect on our business, financial condition and operating results.

Rapid market or technological changes may render our technology obsolete or decrease the attractiveness of our products and services to our clients.

We must continue to enhance and improve our technology and electronic services. The electronic financial services industry is characterized by significant structural changes, increasingly complex systems and infrastructures, changes in clients’ needs and preferences, and new business models. If new industry standards and practices emerge and our competitors release new technology before us, our existing technology, systems and electronic trading services may become obsolete or our existing business may be harmed.

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Our future success will depend on our ability to:

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Enhance our existing products and services;

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Develop and/or license new products and technologies that address the increasingly sophisticated and varied needs of our clients and prospective clients;

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Continue to attract highly-skilled technology personnel; and

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Respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.

Developing our electronic services, our implementation and utilization of our Robo-Advisor and other technology entails significant technical and business risks. We may use new technologies ineffectively or we may fail to adapt our electronic trading platform, information databases and network infrastructure to client requirements or emerging industry standards. If we face material delays in introducing new services, products and enhancements, our clients may forego the use of our products and use those of our competitors.

Further, the adoption of new Internet, networking or telecommunications technologies may require us to devote substantial resources to modify and adapt our services. We cannot assure that we will be able to successfully implement new technologies or adapt our proprietary technology and transaction-processing systems to client requirements or emerging industry standards. We cannot assure that we will be able to respond in a timely manner to changing market conditions or client requirements.

Risks Related to Our Business Operations

Potential strategic acquisitions and other business growth could increase costs and regulatory and integration risks.

Acquisitions involve risks that could adversely affect our business. We may pursue acquisitions of businesses and technologies. Acquisitions and other transactions entail numerous risks, including:

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Difficulties in the integration of acquired operations, services and products;

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Failure to achieve expected synergies;

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Diversion of management’s attention from other business concerns;

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Assumption of unknown material liabilities of acquired companies;

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Amortization of acquired intangible assets, which could reduce future reported earnings;

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Potential loss of clients or key employees of acquired companies; and

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Dilution to existing stockholders.

As part of our growth strategy, we regularly consider and from time to time engage in discussions and negotiations regarding transactions such as acquisitions, mergers, combinations and partnerships within our industry. The purchase price for possible acquisitions could be paid in cash, through the issuance of Common Stock or other securities, borrowings or a combination of these methods.

Our transactions are typically subject to closing conditions including regulatory approvals and the absence of material adverse changes in the business, operations or financial condition of the entity or part of an entity being acquired or sold. To the extent we enter into an agreement to buy or sell an entity or part of an entity, there can be no guarantee that the transaction will close when expected or at all. If a material transaction does not close our stock price could decline.

We cannot be certain that we will be able to identify, consummate and successfully integrate acquisitions, and no assurance can be given with respect to the timing, likelihood or business effect of any possible transaction. For example, we could begin negotiations that we subsequently decide to suspend or terminate for a variety of reasons. However, opportunities may arise that we will evaluate and any transactions that we consummate would involve risks and uncertainties to us. These risks could cause the failure of any anticipated benefits of an acquisition to be realized, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may be unable to realize the anticipated benefits of our cost cutting efforts or it may take longer than anticipated for us to realize any benefits from increased cost efficiencies or economies of scale, if at all.

Our realization of the benefits anticipated as a result of cost cutting efforts and other business efforts and changes will depend in part on the ability of our management team to implement our business plan. We cannot assure shareholders that there will not be substantial costs associated with these activities or other negative consequences as a result of these changes. These effects include, but are not limited to, incurring unexpected costs or delays in connection with implementation of a modified business model, or the failure of our business to perform as expected, which could harm our results of operations.

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We depend on our ability to attract and retain key personnel.

We are dependent upon our key personnel for our success and the loss of the services of any of these individuals could significantly harm our business, financial condition and operating results.

Our customers may fail to pay us.

A principal credit risk to which we are exposed on a regular basis is that our customers may fail to pay for their purchases or fail to maintain the minimum required collateral for amounts borrowed against securities positions maintained by them. We cannot assure that our practices and/or the policies and procedures we have established will be adequate to prevent a significant credit loss.

Our advisory services subject us to additional risks.

We provide investment advisory services to investors. Through our RIA, SNXT, we offer robo-advisory and investment services. The risks associated with these investment advisory activities include those arising from possible conflicts of interest, unsuitable investment recommendations, inadequate due diligence, inadequate disclosure and fraud. Realization of these risks could lead to liability for client losses, regulatory fines, civil penalties and harm to our reputation and business.

Certain employees, directors and affiliates of RISE and Siebert own equity in RISE Financial Services, LLC

From January 31, 2022 to the date of this Report, RISE issued and Siebert sold membership interests in RISE to certain employees, directors, and affiliates of RISE and Siebert ranging from 1% to 2% individually. This amount represented, as of the date of this Report, an aggregate of 7% of the total issued and outstanding membership interests in RISE. As of the date of this Report, Tigress owns approximately 22% of RISE. Cynthia DiBartolo is the founder and majority owner of Tigress, as well as the Chief Executive Officer of RISE and a director of Siebert. As a result, the interests of the employees, directors, and affiliates of RISE and Siebert who own equity in RISE may differ from the interests of shareholders of Siebert.

Risks Related to COVID-19

The continuation of the COVID-19 pandemic could adversely affect our business, financial condition, liquidity and results of operations.

The COVID-19 outbreak has caused significant volatility and disruption in the financial markets both globally and in the U.S. If COVID-19, or another highly infectious or contagious disease, continues to spread or the response to contain it is unsuccessful, we could experience material adverse effects on our business, financial condition, liquidity, and results of operations. The extent of such effects will depend on future developments which are highly uncertain and cannot be predicted, including the geographic spread of the virus, the overall severity of the disease, the duration of the outbreak, the measures that may be taken by various governmental authorities in response to the outbreak (such as quarantines and travel restrictions) and the possible further impacts on the global economy. The continued spread of COVID-19 could also negatively impact the availability of key personnel necessary to conduct our business.

Certain actions taken by U.S. or other governmental authorities, including the Federal Reserve, to reduce interest rates may adversely affect our results of operations.

During the first quarter of 2020, the Federal Reserve cut the federal funds target overnight rate twice for a total of 150 basis points to near zero. These developments have had, and may continue to have, a negative impact on our revenue from interest, marketing and distribution fees.

Investor behavior may fundamentally change as a result of COVID-19 in both the near and long term which could have an adverse effect on our operations.

We cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration of its impact. As such, impacts of COVID-19 to our business are highly uncertain and we will continue to assess the impact as the situation develops. The disruptions to the U.S. and global economies and financial markets may cause investors to be more cautious and to limit their investments. Trading of securities may be materially and adversely affected with more investors seeking stability. Investment activity may also be negatively impacted by general macroeconomic conditions and consumer confidence, including the impacts of job losses and any recession, resulting from the COVID-19 pandemic. Clients holding savings with us in retirement or investment accounts may be required to liquidate some or all of their savings to pay living expenses. All of these factors could materially and adversely impact our revenue streams.

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Risks Related to Our Common Stock

There may be a limited public market for our Common Stock; Volatility.

11,635,458 shares of Common Stock, or approximately 36% of our shares of Common Stock outstanding, are currently held by non-affiliates as of March 14, 2022. A stock with a small number of shares held by non-affiliates, known as the “float,” will generally be more volatile than a stock with a large float. Although our Common Stock is traded on the Nasdaq Capital Market, there can be no assurance that an active public market will continue.

Our principal shareholder has the ability to control key decisions submitted to a vote of our shareholders.

Gloria E. Gebbia, who is a director of Siebert and the managing member of Kennedy Cabot Acquisition, LLC (“KCA”), has, along with other family members, the power to elect the entire Board of Directors and, except as otherwise provided by law or our Certificate of Incorporation or by-laws, to approve any action requiring shareholder approval without a shareholders meeting.

Future sales of our Common Stock in the public market could cause the market price of our Common Stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our Common Stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Common Stock and make it more difficult for investors to sell Common Stock at a time and price that investors deem appropriate.

In addition, on February 18, 2022, we filed a shelf registration statement on Form S-3 that was declared effective on March 2, 2022 by the SEC for the potential offering, issuance and sale by us of up to $100.0 million, subject to certain limitations, of our Common Stock, preferred stock, warrants to purchase our Common Stock and/or preferred stock, units consisting of all or some of these securities and subscription rights to purchase all or some of these securities. If we sell our Common Stock, preferred stock, convertible securities and other equity securities in other transactions pursuant to our shelf registration statement on Form S-3, existing investors may be materially diluted by such subsequent sales, new investors could gain rights superior to our existing shareholders and the market price of our Common Stock may drop significantly.

The price of our Common Stock in the public markets has experienced, and may in the future experience, extreme volatility due to a variety of factors, many of which are beyond our control.

Since our Common Stock started trading on the Nasdaq Capital Market, our Common Stock has been relatively thinly traded and at times been subject to price volatility. From January 1, 2021 to January 28, 2021, the average close price of our Common Stock was $3.94 per share. On January 29, 2021, the price increased to a high of $18.50 per share and approximately 34 million shares were traded. From February 1, 2021 to February 28, 2021, the average close price was $5.60 per share. The average daily trading volume from March 1, 2021 to March 1, 2022 was approximately 271,000 shares.

We believe that the trading price of our Common Stock has at times been influenced by trading factors other than industry or Company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media sites), speculation in the press, in the investment community, or on the internet, including on online forums and social media, about Siebert, our industry or our security’s access to margin debt, trading in options and other derivatives on our Common Stock, and the amount and status of short interest in our securities (including a “short squeeze”). A “short squeeze” is a technical market condition that occurs when the price of a stock increases substantially, forcing market participants who had taken a position that its price would fall (i.e., who had sold the stock “short”), to buy it, which in turn may create significant, short-term demand for the stock not for fundamental reasons, but rather due to the need for such market participants to acquire the stock in order to forestall the risk of even greater losses. A “short squeeze” condition in the market for a stock can lead to short-term conditions involving very high volatility and trading that may or may not track fundamental valuation models.

As a result of the foregoing, investors in our Common Stock may be subject to the risk of significant, short-term price volatility of our Common Stock and the trading price of our Common Stock could decline for reasons unrelated to our business, financial condition, or results of operations. Further, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

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Our future ability to pay dividends to holders of our Common Stock is subject to the discretion of our Board of Directors and will be limited by our ability to generate sufficient earnings and cash flows.

Payment of future cash dividends on our Common Stock will depend on our ability to generate earnings and cash flows. However, sufficient cash may not be available to pay such dividends. Payment of future dividends, if any, will be at the discretion of our Board of Directors and will depend upon a number of factors that the Board of Directors deems relevant, including future earnings, the success of our business activities, capital requirements, the general financial condition and future prospects of our business and general business conditions. If we are unable to generate sufficient earnings and cash flows from our business, we may not be able to pay dividends on our Common Stock.

Our ability to pay cash dividends on our Common Stock is also dependent on the ability of our subsidiaries to pay dividends or capital distributions to Siebert. MSCO and RISE are subject to various regulatory requirements relating to liquidity, capital standards and the use of client funds and securities, which may limit funds available for payments to Siebert. The ability of our subsidiaries to pay dividends or capital distributions to Siebert may also be subject to regulatory approval.

Risks Related to Our Industry and Market

Securities market volatility and other securities industry risk could adversely affect our business.

Most of our revenues are derived from our securities brokerage business. Like other businesses operating in the securities industry, our business is directly affected by volatile trading markets, fluctuations in the volume of market activity, economic and political conditions, upward and downward trends in business and finance at large, legislation and regulation affecting the national and international business and financial communities, currency values, inflation, market conditions, the availability and cost of short-term or long-term funding and capital, the credit capacity or perceived credit-worthiness of the securities industry in the marketplace and the level and volatility of interest rates. We also face risks relating to losses resulting from the ownership of securities, counterparty failure to meet commitments, customer fraud, employee fraud, issuer fraud, errors and misconduct, failures in connection with the processing of securities transactions and litigation. A reduction in our revenues or a loss resulting from our ownership of securities or sales or trading of securities could have a material adverse effect on our business, results of operations and financial condition. In addition, as a result of these risks, our revenues and operating results may be subject to significant fluctuations from quarter to quarter and from year to year.

A prolonged economic slowdown, volatility in the markets, a recession, and uncertainty in the markets could impair our business and harm our operating results.

Our businesses are, and will continue to be, susceptible to economic slowdowns, recessions and volatility in the markets, which may lead to financial losses for our customers, and a decrease in revenues and operating results. In addition, global macroeconomic conditions and U.S. financial markets remain vulnerable to the potential risks posed by exogenous shocks, which could include, among other things, political and financial uncertainty in the U.S. and the European Union, renewed concern about China’s economy, conflict with Russia and Ukraine, complications involving terrorism and armed conflicts around the world, or other challenges to global trade or travel, such as might occur in the event of a wider pandemic involving COVID-19. More generally, because our business is closely correlated to the macroeconomic outlook, a significant deterioration in that outlook or an exogenous shock would likely have an immediate negative impact on our overall results of operations.

There is intense competition in the brokerage industry.

We encounter significant competition from full-commission, no commission, online and other discount brokerage firms, as well as from financial institutions, mutual fund sponsors, venture-backed technology and cryptocurrency firms, and other organizations. Over the past several years, price wars and lower or no commission rates in the discount brokerage business in general have strengthened our competitors. In addition, while the decline of commissions has been ongoing for decades, some of our competitors charging zero commissions on trades could potentially have an adverse effect on our commission revenue.

The securities brokerage industry has experienced significant consolidation, which may continue in the future, likely increasing competitive pressures in the industry. Consolidation could enable other firms to offer a broader range of products and services than we do, or offer them on better terms, such as higher interest rates paid on cash held in client accounts. We believe that such changes in the industry will continue to strengthen existing competitors and attract additional competitors such as banks, insurance companies, providers of online financial and information services, and others. Many of these competitors are larger, more diversified, have greater capital resources, and offer a wider range of services and financial products than we do. We compete with a wide variety of vendors of financial services for the same customers. Many of these competitors conduct extensive marketing campaigns and may have or achieve exceptional market name recognition. We may not be able to compete effectively with current or future competitors with stronger capital position, greater name recognition or who partner or combine with other larger firms.

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Some competitors in the discount brokerage business offer services which we may not offer. In addition, some competitors have continued to offer flat rate execution fees that are lower than some of our published rates. Industry-wide changes in trading practices are expected to cause continuing pressure on fees earned by discount brokers for the sale of order flow. Continued or increased competition from ultra-low cost, flat-fee brokers and broader service offerings from other discount brokers could limit our growth or lead to a decline in our customer base which would adversely affect our business, results of operations and financial condition. Further, if we are not able to update or adapt our products and services to take advantage of the latest technologies and standards, or are otherwise unable to offer services to mobile and desktop computing platforms to a growing self-directed investor market, it could have a material adverse effect on our ability to compete.

Lower price levels in the securities markets may reduce our profitability.

Lower price levels of securities may result in (i) reduced volumes of securities, options and futures transactions, with a consequent reduction in our commission revenues, and (ii) losses from declines in the market value of securities we hold in investment. In periods of low volume, our levels of profitability are further adversely affected because certain of our expenses remain relatively fixed. Sudden sharp declines in market values of securities and the failure of issuers and counterparties to perform their obligations can result in illiquid markets which, in turn, may result in us having difficulty selling securities. Such negative market conditions, if prolonged, may lower our revenues. A reduction in our revenues could have a material adverse effect on our business, results of operations and financial condition.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We currently maintain 12 branch offices and customers can visit our branch offices to obtain market information, place orders, open accounts, deliver and receive checks and securities, and obtain related customer services in person. Nevertheless, most of our activities are conducted on the Internet or by telephone and mail. We operate our business out of the following branch offices:

Approximate Square Feet

Corporate Headquarters

New York, NY - 535 Fifth Avenue 1,200

Branch Offices

Beverly Hills, CA – 190 N Canon 900

Seal Beach, CA 800

ITEM 3. LEGAL PROCEEDINGS

We are party to certain claims, suits and complaints arising in the ordinary course of business.

For activity related to operations of StockCross prior to our acquisition of StockCross, FINRA’s Division of Enforcement is currently investigating UIT transactions that were executed by StockCross that the enforcement staff believes were terminated early. We believe that many of these transactions were UIT transactions that were the subject of our prior settlements with the Commonwealth of Massachusetts and the State of California. All of these transactions occurred prior to our acquisition of StockCross on January 1, 2020.

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Management cannot at this time assess either the duration or the likely outcome or consequences of the FINRA investigation. Nevertheless, FINRA has the authority to impose sanctions on Siebert or require that it make offers of restitution to other customers who FINRA believes incurred sales charges in early liquidations of UITs. No assurances can be given that a mutual settlement with FINRA regarding the investigation can be reached or that any amount paid in settlement will not be material. Refer to Note 22 – “Commitments, Contingencies and Other” for more detail.

As of December 31, 2021, in the opinion of management, all other legal matters are without merit, or involve amounts which would not have a significant effect on our results of operations or financial position.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock traded on the Nasdaq Global Market until June 29, 2011 when our Common Stock started trading on the Nasdaq Capital Market, under the symbol “SIEB.”

The closing sale price of our Common Stock as reported on the Nasdaq Capital Market on March 14, 2022 was $2.00 per share. As of March 14, 2022, there were 84 holders of record of our Common Stock based on information provided by our transfer agent. The number of stockholders of record does not reflect the number of individual or institutional stockholders that beneficially own our stock because most stock is held in the name of nominees. Based on information available to us, we believe there are approximately 4,731 beneficial holders of our Common Stock as of March 14, 2022.

Dividend Policy

Our Board of Directors periodically considers whether to declare dividends. In considering whether to pay such dividends, our Board of Directors will review our earnings, capital requirements, economic forecasts and such other factors as are deemed relevant. Some portion of our earnings will be retained to provide capital for the operation and expansion of our business.

Share Price Volatility

Since our Common Stock started trading on the Nasdaq Capital Market, our Common Stock has been relatively thinly traded and at times been subject to price volatility. From January 1, 2021 to January 28, 2021, the average close price of our Common Stock was $3.94 per share. On January 29, 2021, the price increased to a high of $18.50 per share and approximately 34 million shares were traded. From February 1, 2021 to February 28, 2021, the average close price was $5.60 per share. The average daily trading volume from March 1, 2021 to March 1, 2022 was approximately 271,000 shares. We have not experienced any material changes in our financial condition or results of operations that explain such price volatility or trading volume.

Equity Compensation Plan Information

(a) (b) (c)

Equity compensation plans approved by security holders — NA 3,000,000

Equity compensation plans not approved by security holders — NA NA

Unregistered Sales of Equity Securities and Use of Proceeds

On November 16, 2021, we issued 1,449,525 shares of our common stock to Tigress in consideration of an equity interest in Tigress pursuant to a certain contribution agreement, by and among Siebert, RISE, and Tigress. The common stock was issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. Refer to Note 10 – “Equity Method Investment in Related Party” for more detail.

On August 18, 2021, we amended our common stock purchase agreement with OpenHand Holdings, Inc. (“OpenHand”), dated January 31, 2021, and, pursuant to the amendment, cancelled 329,654 shares of our common stock that we issued to OpenHand pursuant to the original stock purchase agreement. Refer to Note 11 – “Investments, Cost” for more detail.

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On January 31, 2021, Siebert and OpenHand entered into a stock purchase agreement whereby Siebert acquired an interest of 5% of OpenHand common stock for consideration of a total of $2,231,000 consisting of $850,000 in cash and 329,654 restricted shares of Siebert’s common stock valued at $1,381,000 or $4.19 per share. The common stock was issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. Refer to Note 11 – “Investments, Cost” for more detail.

On November 10, 2020, Siebert issued 150,000 shares of its restricted common stock to each of Anthony Palmeri and Gerard Losurdo, each an employee of MSCO, as part of their employment agreements. Mr. Palmeri and Mr. Losurdo each paid Siebert approximately $400,000 for their shares, which was equal to 70% of the closing price of Siebert’s common stock as reported on Nasdaq on November 9, 2020. The common stock issued to Mr. Palmeri and Mr. Losurdo was subject to a three-year restriction on transfer commencing on the day of issuance. The issuance of common stock was approved by unanimous written consent of Siebert’s board of directors. The common stock was issued to Mr. Palmeri and Mr. Losurdo as part of their employment agreements in accordance with Nasdaq Listing Rule 5635(c)(4) and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. Refer to Note 17 – “Employee Stock Purchases” for more detail.

On April 21, 2020, we entered into an agreement with InvestCloud pursuant to which InvestCloud acquired 193,906 shares of our restricted common stock. The common stock was issued on May 12, 2020 at a per share price of $5.81 (Siebert’s share price as of the close of May 12, 2020) for a total of $1.1 million for professional services to integrate InvestCloud’s software into Siebert’s existing platforms as well as its Robo-Advisor. The common stock was issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. Refer to Note 5 – “Prepaid Service Contract” for more detail.

Effective January 1, 2020, we acquired the remaining 85% of StockCross’ outstanding shares in exchange for 3,298,774 shares of our common stock, and StockCross was merged with and into MSCO. The common stock was issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. Refer to Note 3 – “Acquisitions” for more detail.

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ITEM 7. MANAGEMENT’S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in Part II, Item 8 - Financial Statements and Supplementary Data of this Annual Report on Form 10-K. In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A - Risk Factors.

Overview

We are a financial services company and provide a wide variety of financial services to our clients. We operate in the following business lines through our wholly-owned and majority-owned subsidiaries:

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Retail brokerage business through Muriel Siebert & Co., Inc. (“MSCO”), a Delaware corporation and broker-dealer registered with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (“Exchange Act”) and the Commodity Exchange Act of 1936, and member of the Financial Industry Regulatory Authority (“FINRA”), the New York Stock Exchange (“NYSE”), the Securities Investor Protection Corporation (“SIPC”), and the National Futures Association (“NFA”). MSCO engages in the business of providing brokerage services for retail customers and trading securities for its own account.

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Investment advisory services through Siebert AdvisorNXT, Inc. (“SNXT”), a New York corporation registered with the SEC as a Registered Investment Adviser (“RIA”) under the Investment Advisers Act of 1940. SNXT engages in providing investment advisory services to retail and high net worth clients.

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Insurance services through Park Wilshire Companies, Inc. (“PW”), a Texas corporation and licensed insurance agency. PW provides insurance agency services to retail and institutional accounts.

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Robo-advisory technology development through Siebert Technologies, LLC (“STCH”), a Nevada limited liability company.

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Prime brokerage services through RISE Financial Services, LLC (“RISE”), formerly known as WPS Prime Services, LLC (“WPS”), a Delaware limited liability company and a broker-dealer registered with the SEC and NFA. RISE is a woman-owned and operated financial services firm that offers a comprehensive suite of prime brokerage services aligned with the growing mission-driven Environmental Social and Governance (“ESG”) initiatives of institutional investors.

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StockCross Digital Solutions, Ltd. (“STXD”), an inactive subsidiary headquartered in Bermuda.

Results in the businesses in which we operate are highly correlated to general economic conditions and, more specifically, to the direction of the U.S. equity and fixed-income markets. Market volatility, overall market conditions, interest rates, economic, political, and regulatory trends, and industry competition are among the factors which could affect us and which are unpredictable and beyond our control. These factors affect the financial decisions made by market participants who include investors and competitors, impacting their level of participation in the financial markets. In addition, in periods of reduced financial market activity, profitability is likely to be adversely affected because certain expenses remain relatively fixed, including salaries and related costs, as well as portions of communications costs and occupancy expenses. Accordingly, earnings for any period should not be considered representative of earnings to be expected for any other period.

COVID-19

Impact

Overview

The World Health Organization declared the spread of COVID-19 a worldwide pandemic in March 2020. The COVID‐19 pandemic has adversely impacted the economic environment, leading to lower interest rates across the curve and heightened volatility in the financial markets. We are actively monitoring the impact of COVID-19 and the possible effects of the roll-out of various vaccines on our business, financial condition, liquidity, operations, employees, clients and business partners.

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Financial Impact

In the first quarter of 2020, the Federal Reserve cut the federal funds target overnight rate to near zero. This decline in interest rates led to a decrease in our revenue from interest, marketing and distribution fees, and may continue to have a negative impact on these revenue streams in the near future.

The primary financial impact on Siebert from the COVID-19 pandemic for both the year ended December 31, 2021 and 2020 was lower interest revenue resulting from lower benchmark interest rates beginning in the first quarter of 2020.

Management Response

Operations

In response to the pandemic and for the protection of our employees, clients and business partners, we implemented remote work arrangements for nearly 100% of our employees, restricted business travel and temporarily closed some of our branch offices. With our ability to meet a vast majority of our clients' needs through our technology-based platforms and services, these arrangements did not materially affect our ability to maintain our business operations. As of the date of this Report we have reopened all of our branch offices.

Expense Reduction

As of the date of this Report, we are actively involved in contract negotiations with key vendors to reduce many of our fixed costs. In addition, we successfully transitioned certain branch offices out of legacy office space into more cost-efficient locations resulting in savings related to rent and occupancy expense. We do not believe any of the changes described above will have a negative impact on the operations or financials of our business.

Liquidity and Capital Resources

The situation surrounding COVID-19 has not materially impacted our liquidity position or future outlook as we have been able to meet all obligations and believe we will be able to do so in the foreseeable future.

Conclusion

We note that the ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the possible effects of the roll-out of various vaccines, which are uncertain and cannot be predicted at this time. We are currently monitoring the COVID-19 situation and will continue to respond to meet the demands of our clients as well as protect our employees.

Significant Events

Purchase of Office Building in Miami

On December 30, 2021, we acquired a commercial office building and associated property located at 653 Collins Ave, Miami Beach, FL (“Miami office building”) for approximately $6.8 million. The Miami office building contains approximately 12,000 square feet of office space and will be used as one of our primary operating centers.

Transaction with Tigress Holdings, LLC

On November 16, 2021, we entered into an agreement with Tigress, a Delaware limited liability company. As part of the agreement, (i) Tigress transferred to us limited liability company membership interests representing twenty-four percent (24%) of the outstanding membership interests in Tigress; and (ii) we transferred to Tigress limited liability company membership interests representing twenty-four percent (24%) of the outstanding membership interests of RISE and 1,449,525 shares of Siebert common stock. For the year ended December 31, 2021, we recognized $172,000 from our equity method investment in Tigress, which is within the line item titled, “Earnings of equity method investment in related party” on the statements of income.

Tigress Financial Partners is a disabled and woman-owned financial services firm providing institutional and high net worth investors with expertise in investment banking, capital markets, research, corporate advisory and global trade execution services, asset management and global wealth management. Tigress Financial Partners serves as a strategic diversity partner to corporate issuers, bookrunners, hedge funds and private equity firms.

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Relaunch of RISE Financial Services, LLC

As part of the transaction with Tigress, WPS Prime Services, LLC was renamed to RISE Financial Services, LLC, and Tigress’ founder, Cynthia DiBartolo, will continue as CEO of Tigress, and assumed the position as CEO of RISE. Gloria E. Gebbia, one of Siebert’s and RISE’s directors, assumed the position of Chief Impact Officer at RISE. Ms. DiBartolo was appointed to Siebert’s and RISE’s Board of Directors and Ms. Gebbia was appointed to Tigress’ Board of Directors.

RISE relaunched its business as a woman-owned and operated prime brokerage with a specific emphasis on aligning the mission-driven initiatives with the technological needs of institutional customers.

While we believe our expertise and industry relationships will enable us to execute our new strategic direction, our business plan for RISE is new and untested, and it is uncertain whether our efforts will attract the prime brokerage customers and revenue necessary to compete in a new market for prime customers. Any failure to adapt to these evolving trends may reduce our revenue or operating margins and could have a material adverse effect on our business, results of operations and financial condition.

Arrangements with JonesTrading and Goldman Sachs

On August 30, 2021, Goldman Sachs & Co. LLC ("GSCO") notified RISE that its clearing arrangement with RISE will be terminated.

Due to the termination of RISE’s clearing arrangement with GSCO, substantially all the revenue producing customers of RISE have transitioned to other prime service providers. Revenue from customers that have transitioned to other prime service providers was approximately $12.6 million and $13.9 million for the year ended December 31, 2021 and 2020, respectively. Pre-tax income from these customers was approximately $1.8 million and $1.3 million for the year ended December 31, 2021, and 2020, respectively.

As a result of this development, we recorded a full impairment of the RISE customer relationships intangible asset of $699,000 and RISE collected its clearing deposit from GSCO of approximately $2 million as of December 31, 2021. In addition, RISE’s institutional customer assets under management were significantly reduced in the year ended December 31, 2021.

On October 7, 2021, RISE signed an agreement with JonesTrading Institutional Services, LLC (“JonesTrading”) to transfer certain customers of RISE to JonesTrading. In exchange, JonesTrading agreed to pay RISE a percentage of the net revenue produced by those clients less any related expenses. The percentage paid to RISE related to this agreement will decline every year and the arrangement will end in October 2024. For the year ended December 31, 2021, this agreement resulted in a net expense of $22,000 as RISE was in the process of transitioning certain customers to JonesTrading. We do not anticipate the revenue related to this agreement will offset the reduction in revenue from customers that have transitioned to other prime service providers.

Contract with NFS

Effective August 1, 2021, MSCO entered into an amendment to its clearing agreement with NFS that, among other things, extends the term of their arrangement for an additional four-year period commencing on August 1, 2021 and ending July 31, 2025. As part of this agreement, we received a one-time business development credit of $3 million, and NFS will pay us four annual credits of $100,000, which are recorded within the line item “Deferred contract incentive” on the statements of financial condition. The business development credit and annual credits will be recognized as contra expense over four years and one year, respectively, in the line item “Clearing fees, including execution costs” on the statements of income. These credits reduced our expenses for clearing fees, including executions, by $354,000 for the year ended December 31, 2021, and we anticipate an annual expense reduction of approximately $850,000 for the years thereafter through the end of the agreement.

OpenHand

On January 31, 2021, we entered into a stock purchase agreement with OpenHand Holdings, Inc. (“OpenHand”) whereby we acquired an interest of 5% of OpenHand common stock for consideration of a total of $2,231,000 consisting of $850,000 in cash and 329,654 restricted shares of our common stock valued at $1,381,000 or $4.19 per share. We intended to develop a subscription-based brokerage platform with OpenHand, providing zero-commission trading for equity and option transactions and crediting its members daily with rebates of revenues generated by the clients, less operational expenses.

The value of our restricted stock was determined using the thirty-day trading average. We agreed to register the shares issued to OpenHand by filing a selling shareholder registration statement. We also received an option to purchase an additional 7.5% of OpenHand for approximately $4.5 million, based upon a $60 million valuation of OpenHand. This option expires 18 months after the launch of the OpenHand platform.

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On August 18, 2021, we agreed with OpenHand to terminate our working relationship. In connection therewith, Siebert and OpenHand amended and restated their January 31, 2021 stock purchase agreement to provide that we would pay $850,000 in cash in exchange for 2% of the outstanding common stock of OpenHand as of January 31, 2021, and receive a 15-month option to purchase an additional 2% of the outstanding common stock of OpenHand at an exercise price equal to a company valuation of $42.5 million. The parties agreed to rescind OpenHand’s purchase of the 329,654 restricted shares of our common stock.

StockCross Acquisition

Overview

Established in 1971, StockCross was one of the largest privately-owned brokerage firms in the nation and its operations consisted primarily of market making, fixed-income products distribution, online and broker-assisted equity trading, securities lending, and equity stock plan services.

In January 2019, we acquired approximately 15% ownership of StockCross. Effective January 1, 2020, we acquired the remaining 85% of StockCross’ outstanding shares in exchange for 3,298,774 shares of our common stock, and StockCross was merged with and into MSCO. As of January 1, 2020, the business and operations of StockCross became part of MSCO, and all clearing and other services provided by StockCross were performed by MSCO.

StockCross Highlights

We have completed the merger of StockCross into MSCO and the acquired business lines have added new revenue streams and supplemented existing ones within MSCO. In addition, the nature of StockCross’ self-clearing business line requires the presentation of various assets and corresponding liabilities on the statements of financial condition.

Operationally, the merger resulted in the expansion of our client services areas and provided additional resources for the combined client base without any material loss of clients during the transition. Further, at the time of acquisition, StockCross added approximately $1.5 billion in retail customer net worth and approximately 30,000 retail accounts to Siebert.

Effective March 16, 2021, MSCO received approval to become an IRA nonbank custodian and trustee. MSCO successfully completed the custodian conversion from StockCross, and MSCO continues to offer IRA services to its clients.

Client Account and Activity Metrics

The following tables set forth metrics we use in analyzing our client account and activity trends for the periods indicated.

Client Account Metrics – Total Assets Under Management

As of December 31,

Total assets under management (in billions) $ 17.3 $ 16.2

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Total assets under management represents the total of our retail and institutional customer net worth

Client Account Metrics – Retail Customers

As of December 31,

Retail customer net worth (in billions) $ 16.8 $ 14.6

Retail customer margin debit balances (in billions) $ 0.5 $ 0.5

Retail customer credit balances (in billions) $ 0.8 $ 0.7

Retail customer money market fund value (in billions) $ 0.8 $ 0.8

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

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

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Retail customer credit balances represents client cash held in brokerage accounts

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

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Retail customer accounts represents the number of retail customers

Client Account Metrics – Institutional Customers

As of December 31,

Institutional customer net worth (in billions) $ 0.5 $ 1.6

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Institutional customer net worth represents the total value of securities and cash in the institutional customer accounts after deducting margin debits and short positions.

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Client Activity Metrics

Year Ended December 31,

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Total retail trades represent client trades through our subsidiary MSCO

Statements of Income and Financial Condition

Overview

The following table sets forth metrics we use in analyzing our financial performance for the periods indicated:

Year Ended December 31,

Statements of Income for the Year Ended December 31, 2021 and 2020

Revenue

Commissions and fees for the year ended December 31, 2021 were $18,252,000 and decreased by $1,927,000 from the corresponding period in the prior year, primarily due to a loss in institutional customers due to the termination of GSCO’s clearing agreement with RISE.

Interest, marketing and distribution fees for the year ended December 31, 2021 were $12,897,000 and decreased by $1,298,000 from the corresponding period in the prior year, primarily due to the reduction of 12b-1 fees from money market funds and lower interest received on bank deposits from our retail customers of an aggregate of approximately $2 million. This decrease was partially offset by an increase of approximately $0.7 million in interest revenue from institutional customers that have since transitioned to other prime brokerages.

Principal transactions for the year ended December 31, 2021 were $15,647,000 and increased by $3,797,000 from the corresponding period in the prior year, primarily due to strong market conditions during 2021.

Market making for the year ended December 31, 2021 was $5,897,000 and increased by $3,855,000 from the corresponding period in the prior year, primarily due to favorable market conditions during 2021.

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Stock borrow / stock loan for the year ended December 31, 2021 was $11,864,000 and increased by $7,819,000 from the corresponding period in the prior year, primarily due to the addition of key personnel, expansion of our stock locate revenues, and additional securities lending and locate counterparty relationships. The increase in this business line was a significant component of the increase in our income before provision for income taxes for the year ended December 31, 2021 from the corresponding period in the prior year.

Advisory fees for the year ended December 31, 2021 were $1,668,000 and increased by $526,000 from the corresponding period in the prior year, primarily due to overall expansion of the advisory business line and favorable market conditions.

Other income for the year ended December 31, 2021 was $1,282,000 and decreased by $137,000 from the corresponding period in the prior year, primarily due to a reduction in foreign exchange volumes and a decrease in institutional custody fees.

Operating Expenses

Employee compensation and benefits for the year ended December 31, 2021 were $36,424,000 and increased by $7,922,000 from the corresponding period in the prior year, primarily due to increased commission payouts corresponding to the increase in principal transactions, market making, and stock borrow / stock loan revenue in 2021. This increase was partially offset by a decrease in commissions payouts from RISE related to the loss of institutional customers.

Clearing fees, including execution costs for the year ended December 31, 2021 were $4,817,000 and decreased by $290,000 from the corresponding period in the prior year, primarily due to the recognition of the business development credit and annual credits from NFS as contra expense in 2021.

Technology and communications expenses for the year ended December 31, 2021 were $4,762,000 and increased by $140,000 from the corresponding period in the prior year, primarily due to an increase in software licenses and technology support services.

Other general and administrative expenses for the year ended December 31, 2021 were $3,686,000 and increased by $1,322,000 from the corresponding period in the prior year, primarily due to an increase in regulatory fees and exchange fees related to incremental trading volumes and counterparties, as well as an increase in office expenses and insurance cost.

Data processing expenses for the year ended December 31, 2021 were $2,849,000 and increased by $52,000 from the corresponding period in the prior year, primarily due to an increase in our service bureau costs.

Rent and occupancy expenses for the year ended December 31, 2021 were $1,930,000 and decreased by $837,000 from the corresponding period in the prior year, primarily due to a decrease in rent from our transition out of legacy office space into more cost-efficient locations as well as the termination of certain leases within RISE.

Professional fees for the year ended December 31, 2021 were $2,695,000 and decreased by $169,000 from the corresponding period in the prior year, primarily due to a decrease in legal fees.

Depreciation and amortization expenses for the year ended December 31, 2021 were $1,445,000 and decreased by $121,000 from the corresponding period in the prior year, primarily due to the full impairment of the RISE customer relationships intangible asset in August 2021.

Referral fees for the year ended December 31, 2021 were $1,213,000 and increased by $475,000 from the corresponding period in the prior year, primarily due to RISE entering into a referral fee arrangement with a significant customer in 2021.

Impairment loss for the year ended December 31, 2021 was $699,000 and increased by $699,000 from the corresponding period in the prior year, primarily due to the impairment of the RISE customer relationships intangible asset due to the termination of RISE’s clearing arrangement with GSCO.

Interest expense for the year ended December 31, 2021 was $361,000 and increased by $12,000 from the corresponding period in the prior year, primarily due to a full year of interest on the line of credit with East West Bank in 2021, partially offset by a reduction in notes payable related party in 2021.

Advertising expense for the year ended December 31, 2021 was $44,000 and increased by $44,000 from the corresponding period in the prior year, due to an increase in various promotional expenses.

Earnings of Equity Method Investment in Related Party

Earnings of equity method investment in related party for the year ended December 31, 2021 was $172,000 and increased by $172,000 from the corresponding period in the prior year, due to the Company recognizing its proportional earnings from Tigress for 2021.

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Provision For Income Taxes

Provision for income taxes for the year ended December 31, 2021 was $1,721,000 and increased by $1,500,000 from the corresponding period in the prior year. Refer to Note 19 – “Income Taxes” for additional detail.

Net Loss Attributable to Noncontrolling Interests

We are the majority owner of RISE, as such, operate and control all of the business and affairs of RISE and consolidate RISE’s financial results into our financial statements. As of December 31, 2021, we held approximately 76% ownership interest in RISE, and Tigress held 24% ownership interest in RISE. We reflect Tigress’ ownership of RISE as a noncontrolling interest in our financial statements. The net loss attributable to noncontrolling interests for the two months and the year ended December 31, 2021 was $30,000, and increased by $30,000 from the corresponding period in the prior year.

Statements of Financial Condition as of December 31, 2021 and 2020

Assets

Assets as of December 31, 2021 were $1,404,235,000 and increased by $31,248,000 from December 31, 2020, primarily due to an increase in securities borrowed. In addition, there was an increase in property related to the purchase of the Miami office building and our equity method investment in Tigress; however, these were substantially offset by a decrease in receivables from customers and receivables from broker-dealers and clearing organizations.

Liabilities

Liabilities as of December 31, 2021 were $1,353,729,000 and increased by $18,728,000 from December 31, 2020, primarily due to an increase in securities loaned, debt from the mortgage with East West Bank, as well as the deferred contract incentive from NFS.

Liquidity and Capital Resources

Overview

In terms of the overall performance of the business in relation to liquidity, for the periods presented, we have had strong operating cash flows despite lower interest rates and the effects of COVID-19. We also have had sufficient cash flows to meet liquidity needs and believe our ability to generate cash flows will continue into the foreseeable future.

As of December 31, 2021, we had a variety of sources of borrowing capability such as a short-term overnight demand borrowing with BMO Harris Bank, notes payable to Gloria E. Gebbia, and a line of credit and a mortgage with East West Bank.

The indicators of our liquidity are cash and cash equivalents, and as of the date of this Report, there are no known or material events that would require us to use large amounts of our liquid assets to cover expenses. As of December 31, 2021, we had a sufficient amount of remaining availability on our various credit lines to facilitate incremental capital needs.

We believe that our operating cash flows, cash and cash equivalents, borrowing capacity, and overall access to capital markets are sufficient to fund our operating, investing and financing requirements for the next twelve months.

Shelf Registration Statement

On February 18, 2022, we filed a shelf registration statement on Form S-3 that was declared effective on March 2, 2022 by the SEC for the potential offering, issuance and sale by us of up to $100.0 million of our Common Stock, preferred stock, warrants to purchase our Common Stock and/or preferred stock, units consisting of all or some of these securities and subscription rights to purchase all or some of these securities. The registration statement was filed in reliance on General Instruction I.B.6 of Form S-3, which imposes a limitation on the maximum amount of securities that we may sell pursuant to the registration statement during any twelve-month period. Assuming we remain subject to General Instruction I.B.6, at the time we sell securities pursuant to the registration statement, the amount of securities to be sold plus the amount of any securities we have sold during the prior twelve months in reliance on Instruction I.B.6 may not exceed one-third of the aggregate market value of our outstanding Common Stock held by non-affiliates as of a day during the 60 days immediately preceding such sale as computed in accordance with Instruction I.B.6. Whether we sell securities under the registration statement will depend on a number of factors, including the market conditions at that time, our cash position at that time and the availability and terms of alternative sources of capital.

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Cash and Cash Equivalents

Our cash and cash equivalents are unrestricted and are used primarily to fund our working capital needs. Our cash and cash equivalents as of December 31, 2021 and 2020 were approximately $3.8 million and $3.6 million, respectively.

Net Capital, Reserve Accounts, Segregation of Funds, and Other Regulatory Requirements

MSCO is subject to the Uniform Net Capital Rules of the SEC (Rule 15c3-1) and the Customer Protection Rule (15c3-3) of the Securities Exchange Act of 1934 and maintains capital and segregated cash reserves in excess of regulatory requirements. Requirements under these regulations may vary; however, MSCO has adequate reserves and continency funding plans in place to sufficiently meet any regulatory requirements. In addition to net capital requirements, as a self-clearing broker-dealer, MSCO is subject to cash deposit and collateral requirements with clearing houses, such as the DTCC and the Options Clearing Corporation, which may fluctuate significantly from time to time based upon the nature and size of clients’ trading activity and market volatility.

RISE, as a member of FINRA, is subject to the SEC Uniform Net Capital Rule 15c3-1. This rule requires the maintenance of minimum net capital and that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1 and that equity capital may not be withdrawn, or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. RISE is also subject to the CFTC's minimum financial requirements which require that RISE maintain net capital, as defined, equal to the greater of its requirements under Regulation 1.17 under the Commodity Exchange Act or Rule 15c3-1.

MSCO can transfer funds to Siebert as long as it maintains its liquidity and regulatory capital requirements. RISE can transfer funds to its shareholders, of which Siebert is entitled to its proportional ownership interest, as long as RISE maintains its liquidity and regulatory capital requirements. For the year ended December 31, 2021 and 2020, MSCO and RISE had sufficient net capital to meet their respective liquidity and regulatory capital requirements. Refer to Note 20 – “Capital Requirements” for more detail on our capital requirements.

Sources of Liquidity

Mortgage with East West Bank

On December 30, 2021, we entered into a mortgage with East West Bank for approximately $4 million to finance part of the purchase of the Miami office building.

Our obligations under the mortgage are secured by a lien on the Miami office building and the term of the loan is ten years. The repayment schedule will utilize a 30-year amortization period, with a balloon on the remaining amount due at the end of ten years. The agreement contains certain financial and non-financial covenants, and as of December 31, 2021, we have an unused commitment of $338,000 with East West Bank which we intend to use for the build out of the Miami office building. Refer to Note 13 – “Long-Term Debt” for additional detail on this agreement.

Future remaining annual minimum principal payments for the mortgage with East West Bank as of December 31, 2021 were as follows:

Amount

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Line of Credit with East West Bank

On July 22, 2020, we entered into a loan and security agreement with East West Bank. In accordance with the terms of this agreement, we have the ability to borrow term loans in an aggregate principal amount not to exceed $10 million during the two-year period after July 22, 2020. The agreement contains certain financial and non-financial covenants, and our obligation under the agreement is guaranteed pursuant to a guarantee agreement by and among, John J. Gebbia, Gloria E. Gebbia and a trust for which they are mutually co-trustees.

As of December 31, 2021, we have drawn down a $5.0 million term loan under this agreement which has an outstanding balance of $3.7 million. We have an additional $5.0 million remaining to draw down from this line of credit. Both lending agreements with East West Bank are considered senior debt facilities. Refer to Note 13 – “Long-Term Debt” for additional detail on this agreement.

Future remaining annual minimum principal payments for the line of credit with East West Bank as of December 31, 2021 were as follows:

Amount

Notes Payable – Related Party

As of December 31, 2021 and 2020, we had $7 million and $5.2 million, respectively, in notes payable to Gloria E. Gebbia. As of December 31, 2021, these notes payable have maturity dates in 2022 and we have sufficient liquidity to meet all maturities of these notes. Refer to Note 14 – “Notes Payable - Related Party” for additional detail.

Overnight Financing

As of December 31, 2021, we had an available line of credit for short term overnight demand borrowing of up to $15 million with BMO Harris Bank. As of December 31, 2020, we had $15 million line of credit with BMO Harris Bank and a $15 million line of credit with Texas Capital Bank, the latter of which was not renewed as of December 31, 2021. The removal of this line of credit was the result of Texas Capital Bank exiting the business line and did not impact our ability to meet liquidity requirements.

As of December 31, 2021, we had no outstanding loan balance and there were no commitment fees or other restrictions on this line of credit. MSCO utilizes customer or firm securities as a pledge for short-term borrowing needs.

Statements of Cash Flows

The total changes in our statements of cash flows are not necessarily indicative of the ongoing results of our business as we have customer assets and liabilities on our statements of financial condition.

For the year ended December 31, 2021, we had positive operating cash flow. We had investing cash outflows related to the purchase of the Miami office building, equity of OpenHand, software assets and miscellaneous office facilities. We had financing cash inflow related to the mortgage from East West Bank to finance part of the purchase of the Miami office building as well as an incremental notes payable from Gloria E. Gebbia.

For the year ended December 31, 2020, we had positive operating cash flow and a minor investing cash outflow related to software development. We had a financing cash inflow for the line of credit secured with East West Bank and for the shares issued for employee stock purchases, which was partially offset by a financing cash outflow for the maturation of a portion of the notes payable from Gloria E. Gebbia.

Our cash and cash equivalents as of December 31, 2021 were approximately $3.8 million and increased from the same period in the prior year. There is an estimated $700,000 in build out costs for the Miami office building that will be incurred in 2022, of which approximately 50% will be financed by East West Bank. We believe we will have sufficient cash flows to fund our operations for the foreseeable future.

Siebert 2021 Form-10K 30

Leases

As of December 31, 2021, the remaining balance of our lease payments for 2022 for operating leases with initial terms of greater than one year was $1.3 million. The remaining balance of the lease payments for these leases after 2022 was $1.8 million. Refer to Note 9 – “Leases” for more detail on our lease arrangements and corresponding disclosures.

Off-Balance Sheet Arrangements

We enter into various transactions to meet the needs of customers, conduct trading activities, and manage market risks and are, therefore, subject to varying degrees of market and credit risk.

In the normal course of business, our customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose us to off-balance sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and we are forced to purchase or sell the financial instrument underlying the contract at a loss.

Our customer securities activities are transacted on either a cash or margin basis. In margin transactions, we extend credit to our customers, subject to various regulatory and internal margin requirements, collateralized by cash and securities in the customers' accounts. In connection with these activities, we execute and clear customer transactions involving the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual exchange regulations. As of December 31, 2021, we had margin loans extended to customers of approximately $0.6 billion, of which $84.2 million is within the line item “Receivables from customers” on the statements of financial condition.

Such transactions may expose us to off-balance sheet risk in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event the customer fails to satisfy obligations, we may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer's obligations.

We seek to control the risks associated with our customer activities by requiring customers to maintain margin collateral in compliance with various regulatory requirements and internal guidelines which meet or exceed regulatory requirements. We monitor required margin levels daily and pursuant to such guidelines, require customers to deposit additional collateral or to reduce positions when necessary.

Our customer financing and securities settlement activities may require us to pledge customer securities as collateral in support of various secured financing sources such as bank loans and securities loaned. In the event the counterparty is unable to meet its contractual obligation to return customer securities pledged as collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy customer obligations. We seek to mitigate this risk by monitoring the market value of securities pledged on a daily basis and by requiring adjustments of collateral levels in the event of excess market exposure. In addition, we establish credit limits for such activities and continuously monitor compliance.

Our securities lending transactions are subject to master netting agreements with other broker-dealers; however, amounts are presented gross in the statements of financial condition. We further mitigate risk by using a program with a clearing organization which guarantees the return of cash to us as well as using industry standard software to ensure daily changes to market value are continuously updated and any changes to collateralization are immediately covered.

There were no material losses for unsettled customer transactions for the year ended December 31, 2021 and 2020.

Uncertain Tax Positions

We account for uncertain tax positions in accordance with the authoritative guidance issued under ASC 740-10, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure requirements.

Siebert 2021 Form-10K 31

As of December 31, 2021, we recorded an uncertain tax position of $2,418,000 related to various tax matters. As of December 31, 2020, we recorded an uncertain tax position of $1,105,000 related primarily to our 2017 to 2019 amended tax returns, as the anticipated tax refunds exceed the amount that meets the more-likely-than-not recognition threshold.

We recognize interest and penalties related to unrecognized tax benefits on the provision for income taxes line item in the statements of income. Accrued interest and penalties would be included on the related tax liability line in the statements of financial condition.

Long Term Contracts

Contract with NFS

Effective August 1, 2021, MSCO entered into an amendment to its clearing agreement with NFS that, among other things, extends the term of their arrangement for an additional four-year period commencing on August 1, 2021 and ending July 31, 2025. As part of this agreement, we received a one-time business development credit of $3 million, and NFS will pay us four annual credits of $100,000 over the term of the agreement. The amendment also provides for an early termination fee; however, as of December 31, 2021, we do not expect to terminate the contract with NFS before the end of the contract term. Refer to Note 15 – “Deferred Contract Incentive” and Note 22 – “Commitments, Contingencies and Other” for additional detail.

Prepaid Service Contract

We entered into an agreement with InvestCloud for development work related to our online platform. As part of this agreement, we have an obligation to pay for the license fees associated with the InvestCloud Platform for a three-year term. Refer to Note 5 – “Prepaid Service Contract” for additional detail.

Related Party Disclosures

During the course of business, we enter into various agreements and transactions with related parties. Refer to Note 24 – “Related Party Disclosures” for additional detail.

Fair Value Measurements

We have securities that are valued using the fair value framework under ASC 820 within our assets and liabilities as of December 31, 2021 and 2020. The majority of these assets are level 1 U.S. government securities and equity securities and level 2 equity securities in the line item “Securities owned, at fair value” on the statements of financial condition. The liabilities consist of relatively small amounts of level 2 equity securities in the line item “Securities sold, not yet purchased, at fair value.” Refer to Note 6 – “Fair Value Measurements” for additional detail.

Impairment

We have concluded as of December 31, 2021 that there has been no impairment to the carrying value of Siebert’s goodwill and tangible assets. However, due to the termination of RISE’s clearing arrangement with GSCO, substantially all of the revenue producing customers of RISE have transitioned to other prime service providers. The forecasted revenue associated with RISE’s historical customer base was determined to be minimal. As such, we determined that the RISE customer relationships intangible asset was fully impaired, resulting in an impairment loss of $699,000 for the year ended December 31, 2021. Refer to Note 12 – “Goodwill and Intangible Assets, Net” for additional information.

Segment

We concluded as of December 31, 2021, Siebert is comprised of a single operating segment based on the factors related to management’s decision-making framework as well as management evaluating performance and allocating resources based on assessments of Siebert from a consolidated perspective.

Subsequent Events

From January 31, 2022 to the date of this Report, RISE issued and Siebert sold membership interests in RISE to certain employees, directors, and affiliates of RISE and Siebert. This amount represented, as of the date of this Report, an aggregate of 7% of the total issued and outstanding membership interests in RISE.

Siebert 2021 Form-10K 32

Transaction with Hedge Connection

On January 21, 2022, RISE entered into an agreement with Hedge Connection, Inc. (“Hedge Connection”), a Florida corporation and a woman-owned fintech company founded by Lisa Vioni that provides capital introduction software solutions for the prime brokerage industry.

Pursuant to the agreement, Hedge Connection transferred to RISE common stock representing twenty percent (20%) of the outstanding post-closing issued and outstanding capitalization in Hedge Connection and an option from Ms. Vioni to acquire 100% of the remaining interest in Hedge Connection at fair value market at the time of the option exercise, provided such valuation of Hedge Connection is not less than $5 million for a consideration of $1,000,000. This consideration is to be paid in three cash installments over 180 days totaling $600,000 as well as approximately 3.33% of the issued and outstanding membership interests of RISE.

In addition, RISE acquired a technology license agreement from Hedge Connection to use its capital introduction software, Fintroz, for an annual license fee of $250,000, Ms. Vioni provided RISE with the right to appoint one director to the Board of Directors of Hedge Connection, and Ms. Vioni was appointed to the Board of Directors of RISE as well as to the position of President of RISE Prime – Capital Introduction, a division of RISE.

Shelf Registration Statement

On February 18, 2022, Siebert filed a shelf registration statement on Form S-3 with the SEC, File No. 333-262895, pursuant to General Instruction I.B.6 to Form S-3 (the “Baby Shelf Rule”), that was declared effective on March 2, 2022 (the “Registration Statement”). Siebert may from time to time sell any combination of the securities described in the Registration Statement in one or more offerings up to an aggregate offering price of $100.0 million; provided, however, at the time Siebert sells securities pursuant to the Registration Statement, the amount of securities to be sold plus the amount of any securities it has sold during the prior twelve months in reliance on General Instruction I.B.6 may not exceed one-third of the aggregate market value of Siebert’s outstanding Common Stock held by non-affiliates as of a day during the 60 days immediately preceding such sale as computed in accordance with Instruction I.B.6 while Siebert remains subject to the Baby Shelf Rule.

Other Items

On September 17, 2021, Siebert’s shareholders approved the Siebert Financial Corp. 2021 Equity Incentive Plan (the “Plan”) at Siebert’s 2021 Annual Meeting of Shareholders. The Plan provides for the grant of stock options, restricted stock, and other equity awards of Siebert’s common stock to employees, officers, consultants, directors, affiliates, and other service providers of Siebert. There are 3 million shares reserved under the Plan, and Siebert issued no securities under the Plan for the year ended December 31, 2021.

Legal and Regulatory Matters

We are party to certain claims, suits and complaints arising in the ordinary course of business. All of the below legal matters are related to activities related to operations of StockCross Financial Services, Inc. (“StockCross”), prior to our acquisition of StockCross on January 1, 2020.

On July 14, 2021, StockCross entered into a Letter of Acceptance, Waiver, and Consent with FINRA in connection with alleged excessive trading and suitability violations by a registered representative of StockCross in a customer’s account, supervisory failures to comply with supervisory requirements relating to certain equity and options and stock lending transactions, and certain record keeping requirements. Pursuant to the consent, we agreed to a censure, pay a fine of $250,000, and made an undertaking to retain an independent consultant to conduct a comprehensive review of our compliance with suitability rules in connection with solicited equity and options transactions, as well as possession-or-control requirements in connection with the firm’s stock loan business. As of December 31, 2021, this legal matter has been resolved and we paid $250,000 for the year ended December 31, 2021, which is within the line item “Other general and administrative” in the statement of income.

On July 9, 2021, StockCross entered into a Consent Order with the California Department of Financial Protection and Innovation in connection with alleged supervisory failures relating to the sale of Unit Investment Trusts to six customers. Pursuant to the consent order, we agreed to desist and refrain from violations of California law relating to supervision by broker-dealers, to make a payment of $100,000 to the California Department of Financial Protection and Innovation for administrative costs, and to offer restitution of commissions of approximately $315,000 in aggregate to the six customers. We paid $100,000 for the year ended December 31, 2021 related to this legal matter, which is within the line item “Other general and administrative” in the statements of income. As of December 31, 2021, this legal matter has been resolved and the six customers rejected the offer of restitutions.

For activity related to operations of StockCross prior to our acquisition of StockCross, FINRA’s Division of Enforcement is currently investigating UIT transactions that were executed by StockCross that the enforcement staff believes were terminated early. We believe that many of these transactions were UIT transactions that were the subject of our prior settlements with the Commonwealth of Massachusetts and the State of California. All of these transactions occurred prior to our acquisition of StockCross on January 1, 2020. Management cannot at this time assess either the duration or the likely outcome or consequences of the FINRA investigation. Nevertheless, FINRA has the authority to impose sanctions on us or require that it make offers of restitution to other customers who FINRA believes incurred sales charges in early liquidations of UITs. No assurances can be given that a mutual settlement with FINRA regarding the investigation can be reached or that any amount paid in settlement will not be material.

Siebert 2021 Form-10K 33

As of December 31, 2021, all other legal matters are without merit or involve amounts which would not have a material impact on our results of operations or financial position.

New Accounting Standards

We have determined that all accounting standards and policies adopted in the year ended December 31, 2021 did not have a material impact on our financial statements. Refer to Note 2 – “Summary of Significant Accounting Policies” for additional detail.

Critical Accounting Policies

Overview

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 team makes significant estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities included in the consolidated financial statements. The estimates relate primarily to revenue and expense items in the normal course of business as to which we receive no confirmations, invoices, or other documentation, at the time the books are closed for a period. We use our best judgment, based on our knowledge of 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.

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of our consolidated financial statements requires us to make judgments and estimates that may have a significant impact on our financial results. We believe that the following areas are particularly subject to management's judgments and estimates and could materially affect our results of operations and financial position. Refer to Note 2 – “Summary of Significant Accounting Policies” for additional detail on our significant accounting policies.

Revenue recognition

We have appropriate revenue recognition policies for each our revenue streams. Refer to Note 16 – “Revenue Recognition” for additional detail on our revenue recognition policies.

Estimates of effective income tax rates, uncertain tax positions, deferred income taxes and related valuation allowances.

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize deferred taxes in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Siebert 2021 Form-10K 34

We recognize interest and penalties related to unrecognized tax benefits on the provision for income taxes line in the statements of income. Accrued interest and penalties would be included on the related tax liability line in the statements of financial condition.

Goodwill and other intangible assets

Goodwill is recognized as a result of business combinations and represents the excess of the purchase price over the fair value of net tangible assets and identifiable intangible assets acquired.

The valuation of goodwill and acquired intangible assets requires significant judgment and estimates by management. For example, the valuation of certain intangible assets required management’s estimates of future earnings and cash flows as well as judgment in determining market approaches. The useful life of the finite lived intangible assets was determined based on management's estimate of the period over which those intangible assets were expected to provide economic benefit. Management applies judgment in conducting impairment testing for goodwill and intangible assets, including estimates of fair value based on the income or market approach and estimates required to determine the useful lives of finite lived intangible assets.

We test goodwill and all intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, or at least annually. If our estimates of fair value change due to future events differing significantly from the forecasts used to determine fair value or there are changes in our business or other factors, we will assess the amount of impairment and recognize it in our financial statements during that reporting period.

We also evaluate the useful life of finite lived intangible assets on an annual basis to determine if events or trends warrant a change in estimate of the useful life. Changes in the estimated useful lives of finite lived intangible assets could result in the recognition of an impairment or a change in the remaining life of these assets.

We have concluded that as of December 31, 2021, there has been no impairment to the carrying value of Siebert’s goodwill; however, there has been an impairment of $699,000 to the RISE customer relationships intangible asset for the year ended December 31, 2021 due to the termination of GSCO’s clearing arrangement with RISE.

Refer to Note 2 – “Summary of Significant Accounting Policies” and Note 12 – “Goodwill and Intangible Assets, Net” for additional detail.

Accruals for contingent liabilities

Accruals for contingent liabilities related to legal and regulatory claims as well as employee healthcare expenses under our self-insured plan reflect an estimate of probable losses. In making such estimates for legal and regulatory claims, we consider many factors, including the progress of the matter, prior experience and the experience of others in similar matters, available defenses, insurance coverage, indemnification provisions and the advice of legal counsel and other experts. In making such estimates for employee healthcare expenses, we consider many factors, including trends of our health insurance expenses and our insurance reserve limits. We believe that our present insurance coverage and reserves are sufficient to cover currently estimated exposures, but there can be no assurance that we will not incur liabilities in excess of recorded reserves or in excess of our insurance limits. Significant judgment is required in making these estimates, and the actual cost may be materially different than the estimated costs. Refer to Note 22 – “Commitments, Contingencies and Other” for additional detail.

Allowance for credit losses

Management adopted CECL for Siebert which changed the methodology for estimating the allowance for credit losses from an incurred loss model to current expected loss model. Management applied quantitative and qualitative assessments in determining the risk characteristics and pooling different assets that are carried at amortized cost. Management applied the collateral maintenance practical expedient for the secured receivables and fully reserved the unsecured assets that are greater than 90 days past due. Adoption of CECL did not have a material impact on the financial statements due to the existing credit management policies and short-term nature of the assets.

Siebert 2021 Form-10K 35

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Financial Instruments Held For Trading Purposes

We do not directly engage in derivative transactions, have no interest in any special purpose entity and have no liabilities, contingent or otherwise, for the debt of another entity.

Financial Instruments Held For Purposes Other Than Trading

We generally invest our cash and cash equivalents temporarily in dollar denominated bank account(s). These investments are not subject to material changes in value due to interest rate movements.

Customer transactions are cleared through clearing brokers on a fully disclosed basis and are also self-cleared by MSCO. If customers do not fulfill their contractual obligations, any loss incurred in connection with the purchase or sale of securities at prevailing market prices to satisfy customer obligations may be incurred by Siebert. We regularly monitor the activity in customer accounts for compliance with margin requirements. We are exposed to the risk of loss on unsettled customer transactions if customers and other counterparties are unable to fulfill their contractual obligations. There were no material losses for unsettled customer transactions in the last five years.

Siebert 2021 Form-10K 36

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

SIEBERT FINANCIAL CORP.

Page

Report of Independent Registered Public Accounting Firm 38

Notes to Consolidated Financial Statements 43

Siebert 2021 Form-10K 37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 23)

To the Shareholders and the Board of Directors of Siebert Financial Corp.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial condition of Siebert Financial Corp. & Subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, changes in stockholders' equity and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Baker Tilly US, LLP

We have served as the Company's auditor since 2017.

New York, New York

March 30, 2022

Siebert 2021 Form-10K 38

SIEBERT FINANCIAL CORP. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

ASSETS

Current assets

Receivables from broker-dealers and clearing organizations 8,185,000 15,815,000

Receivables from non-customers 81,000 —

Deposits with broker-dealers and clearing organizations 5,541,000 7,209,000

Equity method investment in related party 8,156,000 —

Intangible assets, net — 809,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities

Current liabilities

Payables to broker-dealers and clearing organizations 254,000 1,810,000

Securities sold, not yet purchased, at fair value 24,000 21,000

Current portion of deferred contract incentive 808,000 —

Deferred contract incentive, less current portion 1,938,000 —

Commitments and Contingencies

Stockholders’ equity

Noncontrolling interests 1,243,000 —

Numbers are rounded for presentation purposes. See notes to consolidated financial statements.

Siebert 2021 Form-10K 39

SIEBERT FINANCIAL CORP. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31,

Revenue

Expenses

Advertising and promotion 44,000 —

Earnings of equity method investment in related party 172,000 —

Less net loss attributable to noncontrolling interests (30,000) —

Net income available to common stockholders per share of common stock

Basic and diluted $ 0.16 $ 0.10

Weighted average shares outstanding

Numbers are rounded for presentation purposes. See notes to consolidated financial statements.

Siebert 2021 Form-10K 40

SIEBERT FINANCIAL CORP. & SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Numbers are rounded for presentation purposes. See notes to consolidated financial statements.

Siebert 2021 Form-10K 41

SIEBERT FINANCIAL CORP. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

Cash Flows From Operating Activities

Loss on sale of OpenHand common stock 63,000 —

Earnings of equity method investment in related party (172,000 ) —

Changes in

Receivables from non-customers (81,000 ) —

Payables to broker-dealers and clearing organizations (1,556,000 ) 1,287,000

Securities sold, not yet purchased, at fair value 3,000 (95,000 )

Interest payable — (10,000 )

Deferred contract incentive 2,746,000 —

Cash Flows From Investing Activities

Equity method investment in related party (64,000 ) —

Purchase of Openhand common stock (850,000 ) —

Purchase of office facilities and equipment (296,000 ) (13,000 )

Cash Flows From Financing Activities

Employee stock purchases — 800,000

Supplemental cash flow information

Non-cash investing and financing activities

Shares issued for payment of professional services $ — $ 1,127,000

Equity method investment in related party $ 7,920,000 $ —

Numbers are rounded for presentation purposes. See notes to consolidated financial statements.

Siebert 2021 Form-10K 42

SIEBERT FINANCIAL CORP. & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Overview

Siebert Financial Corp., a New York corporation, incorporated in 1934, is a holding company that conducts the following lines of business through its wholly-owned and majority-owned subsidiaries:

•

Retail brokerage business through Muriel Siebert & Co., Inc. (“MSCO”), a Delaware corporation and broker-dealer registered with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (“Exchange Act”) and the Commodity Exchange Act of 1936, and member of the Financial Industry Regulatory Authority (“FINRA”), the New York Stock Exchange (“NYSE”), the Securities Investor Protection Corporation (“SIPC”), and the National Futures Association (“NFA”). MSCO engages in the business of providing brokerage services for retail customers and trading securities for its own account.

•

Investment advisory services through Siebert AdvisorNXT, Inc. (“SNXT”), a New York corporation registered with the SEC as a Registered Investment Adviser (“RIA”) under the Investment Advisers Act of 1940. SNXT engages in providing investment advisory services to retail and high net worth clients.

•

Insurance services through Park Wilshire Companies, Inc. (“PW”), a Texas corporation and licensed insurance agency. PW provides insurance agency services to retail and institutional accounts.

•

Robo-advisory technology development through Siebert Technologies, LLC (“STCH”), a Nevada limited liability company.

•

Prime brokerage services through RISE Financial Services, LLC (“RISE”), formerly known as WPS Prime Services, LLC (“WPS”), a Delaware limited liability company and a broker-dealer registered with the SEC and NFA. RISE is a woman-owned and operated financial services firm that offers a comprehensive suite of prime brokerage services aligned with the growing mission-driven Environmental Social and Governance (“ESG”) initiatives of institutional investors.

•

StockCross Digital Solutions, Ltd. (“STXD”), an inactive subsidiary headquartered in Bermuda.

For purposes of this Annual Report on Form 10-K, the terms “Siebert,” “Company,” “we,” “us,” and “our” refer to Siebert Financial Corp., MSCO, SNXT, PW, STCH, RISE, and STXD collectively, unless the context otherwise requires.

The Company is headquartered in New York, NY, with primary operations in New Jersey, Florida, and California. The Company has 12 branch offices throughout the U.S. and clients around the world. The Company’s SEC filings are available through the Company’s website at www.siebert.com, where investors can obtain copies of the Company’s public filings free of charge. The Company’s common stock, par value $.01 per share, trades on the Nasdaq Capital Market under the symbol “SIEB.”

The Company primarily operates in the securities brokerage and asset management industry and has no other reportable segments. All of the Company's revenues for the year ended December 31, 2021 and 2020 were derived from its operations in the U.S.

As of December 31, 2021, the Company is comprised of a single operating segment based on the factors related to management’s decision-making framework as well as management evaluating performance and allocating resources based on assessments of the Company from a consolidated perspective.

Transaction with Tigress Holdings, LLC

On November 16, 2021, the Company entered into an agreement with Tigress, a Delaware limited liability company. As part of the agreement, (i) Tigress transferred to the Company limited liability company membership interests representing twenty-four percent (24%) of the outstanding membership interests in Tigress; and (ii) the Company transferred to Tigress limited liability company membership interests representing twenty-four percent (24%) of the outstanding membership interests of RISE and 1,449,525 shares of the Company’s common stock. The common stock was issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

Siebert 2021 Form-10K 43

As of December 31, 2021 and 2020, Siebert holds a controlling financial interest in RISE and therefore consolidates RISE within its financial statements. Siebert owns the majority of RISE’s membership interest which has voting rights in proportion to its ownership interest in RISE. Siebert’s ownership percentage of RISE as of December 31, 2021 and 2020 was 76% and 100%, respectively. These consolidated financial statements reflect the results of operations and financial position of RISE, including consolidation of its investment in RISE. The noncontrolling interests in RISE are reported as a component of total equity in the consolidated statement of financial condition.

As part of the transaction, WPS Prime Services, LLC was renamed to RISE Financial Services, LLC, and Tigress’ founder, Cynthia DiBartolo, will continue as CEO of Tigress, and assumed the position as CEO of RISE. Gloria E. Gebbia, one of the Company’s and RISE’s directors, assumed the position of Chief Impact Officer at RISE. Ms. DiBartolo was appointed to the Company’s and RISE’s Board of Directors and Ms. Gebbia was appointed to Tigress’ Board of Directors.

RISE relaunched its business as a woman-owned and operated prime brokerage with a specific emphasis on aligning the mission-driven initiatives with the technological needs of institutional customers.

Arrangements with JonesTrading and Goldman Sachs

On August 30, 2021, Goldman Sachs & Co. LLC ("GSCO") notified RISE that its clearing arrangement with RISE will be terminated.

Due to the termination of RISE’s clearing arrangement with GSCO, substantially all the revenue producing customers of RISE have transitioned to other prime service providers. Revenue from customers that have transitioned to other prime service providers was approximately $12.6 million and $13.9 million for the year ended December 31, 2021 and 2020, respectively. Pre-tax income from these customers was approximately $1.8 million and $1.3 million for the year ended December 31, 2021, and 2020, respectively.

As a result of this development, the Company recorded a full impairment of the RISE customer relationships intangible asset of $699,000 and RISE collected its clearing deposit from GSCO of approximately $2 million as of December 31, 2021. In addition, RISE’s institutional customer assets under management were significantly reduced in the year ended December 31, 2021.

On October 7, 2021, RISE signed an agreement with JonesTrading Institutional Services, LLC (“JonesTrading”) to transfer certain customers of RISE to JonesTrading. In exchange, JonesTrading agreed to pay RISE a percentage of the net revenue produced by those clients less any related expenses. The percentage paid to RISE related to this agreement will decline every year and the arrangement will end in October 2024. For the year ended December 31, 2021, this agreement resulted in a net expense of $22,000 as RISE was in the process of transitioning customers to JonesTrading.

COVID-19

The challenges posed by the COVID-19 pandemic on the global economy increased significantly starting in the first quarter of 2020. COVID-19 spread across the globe during 2020 and impacted economic activity worldwide. In response to COVID-19, national and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing.

The primary financial impact on the Company from the COVID-19 pandemic for both the year ended December 31, 2021 and 2020 was lower interest revenue resulting from lower benchmark interest rates beginning in early 2020.

The Company is actively monitoring the impact of COVID-19 on its business, financial condition, liquidity, operations, employees, clients and business partners. Based on management’s assessment as of December 31, 2021, the ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

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Acquisition of StockCross

On January 25, 2019, the Company purchased approximately 15% of the outstanding shares of StockCross Financial Services, Inc. (“StockCross”). Subsequently, the Company acquired the remaining 85% of StockCross’ outstanding shares in exchange for 3,298,774 shares of the Company’s common stock. The Company’s common stock was issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. Effective January 1, 2020, StockCross was merged with and into MSCO, and as of January 1, 2020, all clearing and other services provided by StockCross were performed by MSCO.

Prior to and as of the date of the Company’s acquisition of StockCross, the Company and StockCross were entities under common control of Gloria E. Gebbia, the Company’s principal stockholder, and members of her immediate family (collectively, the “Gebbia Family”). The acquisition represented a change in reporting entity.

2. Summary of Significant Accounting Policies

Basis of Presentation

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 and majority-owned subsidiaries. Upon consolidation, all intercompany balances and transactions are eliminated. The U.S. dollar is the functional currency of the Company and numbers are rounded for presentation purposes.

The Company’s investments in non-majority-owned partnerships and affiliates are accounted for using the equity method until such time that they become wholly or majority-owned. Earnings attributable to noncontrolling interests are recorded on the statements of income relating to wholly or majority-owned subsidiaries with the appropriate noncontrolling interest that represents the portion of equity not related to the Company’s ownership interest recorded on the statements of financial condition in each period.

Use of Estimates

The preparation of consolidated 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 as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

These 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. Actual results could differ from those estimates. 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 the allowance for credit losses, valuation of certain investments, 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 for its deferred tax assets based on the more likely than not criteria. The Company believes that its estimates are reasonable.

Accounting for Acquisitions

ASC 805 is used for accounting in business acquisitions. ASC 805 requires that goodwill be recognized separately from assets acquired and liabilities assumed at their acquisition date fair values. Goodwill, as of the date of acquisition, is determined as the excess of the consideration transferred net of the acquisition date fair values of assets acquired and liabilities assumed. Fair value estimates at acquisition date may be assessed internally or externally using third parties. As part of the valuation and appraisal process, the third-party appraiser prepares a report assigning estimated acquisition date fair values to assets and liabilities. These fair value estimations are subjective and require careful consideration and sound judgment. Management reviews the third-party reports for fairness of the assigned values.

Concentrations of Credit Risk

The Company is engaged in various trading and brokerage activities whose contra-parties include broker-dealers, banks and other financial institutions.

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In the event contra-parties do not fulfill their obligations, the Company may sustain a loss if the market value of the instrument is different from the contract value of the transaction. The risk of default primarily depends upon the credit worthiness of the contra-parties involved in the transactions. It is the Company’s policy to review, as necessary, the credit standing of each contra-party with which it conducts business. The Company has experienced no material historical losses in relation to its contra-parties for the year ended December 31, 2021 and 2020.

As of December 31, 2021 and 2020, the Company maintained its cash balances at various financial institutions. These balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per institution. The Company is subject to credit risk to the extent that the financial institution with which it conducts business is unable to fulfill its contractual obligations and deposits exceed FDIC limits.

Allowance for Credit Losses

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial-Instruments.” This ASU amends several aspects of the measurement of credit losses on financial instruments, including replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses model (“CECL”). Under CECL, the allowance for credit losses on financial assets that are measured at amortized cost reflects management’s estimate of credit losses over the remaining expected life of the financial assets. Expected credit losses for newly recognized financial assets, as well as changes to expected credit losses during the period, would be recognized in earnings, and adoption of the ASU will generally result in earlier recognition of credit losses. Expected credit losses will be measured based on historical experience, current conditions and forecasts that affect the collectability of the reported amount, and credit losses will be generally recognized earlier than under previous U.S. GAAP.

The Company’s adoption of this ASU using the modified retrospective approach for all in-scope assets did not result in an adjustment to the opening balance in retained earnings. The ASU impacts only those financial instruments that are carried by the Company at amortized cost such as securities borrowed / loaned, receivables from customers, receivables from broker-dealers and clearing organizations, and other receivables. The adoption of this ASU did not have a material impact to the Company's financial statements.

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 December 31, 2021 and 2020, the Company did not hold any cash equivalents. At certain times, cash balances may exceed FDIC insured limits.

Cash and Securities Segregated For Regulatory Purposes

MSCO is subject to Exchange Act Rule 15c3-3, referred to as the “Customer Protection Rule,” which requires segregation of funds in a special reserve account for the exclusive benefit of customers. As of December 31, 2021, and 2020 the Company did not have any securities segregated for regulatory purposes. Effective upon the Company’s acquisition of StockCross on January 1, 2020, the requirements and special reserve accounts of MSCO and StockCross were combined.

Receivables From and Payables To Customers

Receivables from and payables to customers include amounts due and owed on cash and margin transactions. Receivables from customers include margin loans to securities brokerage clients and other trading receivables. Margin loans are collateralized by customers securities and are carried at the amount receivable, net of an allowance for credit losses. Collateral is required to be maintained at specified minimum levels at all times. The Company monitors margin levels and requires customers to provide additional collateral, or reduce margin positions, to meet minimum collateral requirements if the fair value of the collateral changes. The Company expects the borrowers will continually replenish the collateral as necessary because the Company subjects the borrowers to an internal qualification process to align investing objectives and risk tolerance in addition to monitoring customer activity.

The Company elected the practical expedient for Topic 326 which permits it to compare the amortized cost basis of the loaned amount with the fair value of collateral received at the reporting date to measure the estimate of expected credit losses. The Company has no expectation of credit losses for its receivables from customers as of December 31, 2021 and 2020. Securities beneficially owned by customers, including those that collateralize margin or other similar transactions, are not reflected in the statements of financial condition.

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Receivables From, Payables To, and Deposits With Broker-Dealers and Clearing Organizations

Receivables from and payables to broker-dealers includes receivables from or payables to MSCO and RISE clearing broker-dealers, fail-to-deliver and fail-to-receive items, and amounts receivable for unsettled regular-way transactions. Deposits with broker-dealers and clearing organizations include amounts held on deposit with broker-dealers and clearing organizations.

Amounts payables to broker-dealers and clearing organizations are offset against corresponding amounts receivables from broker-dealers and clearing organizations. Receivables from these broker-dealers and clearing organizations are subject to clearing agreements and include the net receivable from net monthly revenues as well as cash on deposit.

Receivables from and deposits with broker-dealers and clearing organizations are in scope of the amended guidance for Topic 326. The Company continually reviews the credit quality of its counterparties and historically has not experienced a default. Further, management reassessed the risk characteristics of its receivables and applied the collateral maintenance practical expedient for the secured receivables in line with the CECL guidance. As a result, the Company has no expectation of credit losses for these arrangements as of December 31, 2021 and 2020.

MSCO customer transactions for the year ended December 31, 2021 and 2020 were both self-cleared and cleared on a fully disclosed basis through National Financial Services Corp. (“NFS”). RISE customer transactions for the year ended December 31, 2021 and 2020 were cleared on fully disclosed basis through GSCO and Pershing LLC (“Pershing”).

The Company signed a four-year renewal with NFS commencing August 1, 2021 and ending on July 31, 2025, and NFS’s fees are offset against the Company’s revenues on a monthly basis. All other broker-dealer and clearing organization relationships operate on a month-to-month basis.

Securities Borrowed and Securities Loaned

Securities borrowed transactions are recorded at the amount of cash collateral delivered to the counterparty. Securities loaned are recorded at the amount of cash collateral received. For securities borrowed and loaned, the Company monitors the market value of the securities and obtains or refunds collateral as necessary.

The Company can elect to use an approach to measure the allowance for credit losses using the fair value of collateral where the borrower is required to, and reasonably expected to, continually adjust and replenish the amount of collateral securing the instrument to reflect changes in the fair value of such collateral. The Company has elected to use this approach for its allowance for credit losses on securities borrowed. As a result of this election, and the fully collateralized nature of these arrangements, the Company has no expectation of credit losses on its securities borrowed balances as of December 31, 2021 and 2020.

Securities Owned and Securities Sold, Not Yet Purchased at Fair Value

Securities owned, at fair value represent marketable securities owned by the Company at trade-date valuation. Securities sold, not yet purchased, at fair value represent marketable securities sold by the Company prior to purchase at trade-date valuation.

Property, Office Facilities, and Equipment, Net

Property, office facilities, and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation for equipment is calculated using the straight-line method over the estimated useful lives of the assets, generally not exceeding four years. Office facilities are amortized over the shorter of their estimated useful life or the remaining lease term unless the lease transfers ownership of the underlying asset to the lessee, or the lessee is reasonably certain to exercise an option to purchase the underlying asset, in which case the lessee will amortize over the estimated useful life of the leasehold improvements. Depreciation for property is calculated using the straight-line-method over the estimated useful life of the property, not exceeding 40 years.

Software, Net

The Company capitalizes certain costs for software such as website and other internal technology development and amortizes them over their useful life, generally not exceeding three years. Depending on the terms of the contract, the Company either records costs from software hosting arrangements as prepaid assets and amortizes them over the contract term, or the costs are expensed as incurred.

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The Company enters into certain software hosting arrangements where the cost for professional development services is capitalized and then amortized over the term of the contract.

Other software costs such as routine maintenance and various data services to provide market information to customers are expensed as incurred.

Equity Method Investments

Investments in which the Company has the ability to exercise significant influence, but does not control, are accounted for under the equity method of accounting and are included in the equity method investment in related party line item in the statements of financial condition. Under this method of accounting, the Company’s share of the net income or loss of the investee is presented before the income before provision for income taxes on the statements of income.

The Company evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If the impairment is determined to be other-than-temporary, the Company will recognize an impairment loss equal to the difference between the expected realizable value and the carrying value of the investment.

Investments, Cost

The Company measures equity investments (other than equity method investments, controlling financial interests that result in consolidation of the investee and certain other investments) at fair value and recognizes any changes in fair value in net income.

Pursuant to ASU 2020-01, the Company has made an accounting policy election to measure equity securities without readily determinable fair value at cost, less any impairment, adjusted for any changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

Intangible Assets, Net

Certain identifiable intangible assets the Company acquires such as customer relationships and trade names are amortized over their estimated useful lives on a straight-line basis. Amortization expense associated with such intangible assets is included in the line item “Depreciation and amortization” on the statements of income.

The Company evaluates intangible assets for impairment on an annual basis or when events or changes indicate the carrying value may not be recoverable. The Company also evaluates the remaining useful lives of intangible assets on an annual basis or when events or changes warrants the remaining period of amortization to be revised.

Goodwill

Goodwill is recognized as a result of business combinations and represents the excess of the purchase price over the fair value of net tangible assets and identifiable intangible assets. The Company evaluates goodwill for impairment on an annual basis or when events or changes indicate the carrying value may not be recoverable. The Company has the option of performing a qualitative assessment of goodwill to determine whether it is more likely than not that the fair value of its equity is less than the carrying value. If it is more likely than not that the fair value exceeds the carrying value, then no further testing is necessary; otherwise, the Company must perform a two-step quantitative assessment of goodwill. The Company may elect to bypass the qualitative assessment and proceed directly to performing a two-step quantitative assessment.

Payables to Non-Customers

Payables to non-customers includes amounts due on cash and margin transactions on accounts owned and controlled by principal officers and directors of MSCO. Payables to non-customers amounts include any amounts received from interest on credit balances. Effective upon the Company’s acquisition of StockCross on January 1, 2020, the Company no longer had any proprietary accounts of introducing broker-dealers.

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