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 consolidated financial
statements and the related notes included in Part II, Item 8 - Financial Statements and Supplementary Data of this Report. 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 Report, 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 business lines such as
retail brokerage, investment advisory, insurance, and technology development through our wholly-owned and majority-owned subsidiaries.
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.
Financial Overview
In
2024, earnings per share were $0.33, compared to earnings per share of $0.21 in 2023. In 2024, our net revenues were $83.9 million and
net income was $13.3 million, compared to net revenues of $71.5 million and net income of $7.8 million in 2023.
Financial
highlights as of December 31, 2024:
● Retail customer net worth increased by 13% to $18.0 billion compared to 2023
Trends and Key Factors
Affecting our Operations
Market Risk
Market
risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory and investment positions. We have
exposure to market risk primarily through our broker-dealer trading operations. Through our broker-dealer subsidiary, we trade debt obligations
and equity securities and maintain trading inventories to ensure availability of securities to facilitate client transactions. Inventory
levels may fluctuate daily as a result of client demand. Our primary market risks relate to interest rates and equity prices. Equity risk
results from changes in prices of equity securities, affecting the value of the equity securities and other instruments that derive their
value from a particular stock.
We
may enter into underwriting commitments and, as a result, we may be subject to market risk on any unsold securities issued in the offerings
to which we are committed. Risk exposure is controlled by limiting our participation, the transaction size, or through the syndication
process.
Interest Rates
We are exposed to market risk
from changes in interest rates. Such changes in interest rates primarily impact revenue from interest, marketing, and distribution fees.
We primarily earn interest, marketing and distribution fees from margin interest charged on clients’ margin balances, interest on
cash and securities segregated for regulatory purposes, and distribution fees from money market mutual funds in clients’ accounts.
Securities segregated for regulatory purposes consist solely of U.S. government securities. If prices of U.S. government securities within
our portfolio decline, we anticipate the impact to be temporary as we intend to hold these securities to maturity. We seek to mitigate
this risk by managing the average maturities of our U.S. government securities portfolio and setting risk parameters for securities owned,
at fair value.
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The following table presents
simulated changes to net interest revenue over the next 12 months beginning December 31, 2024 and 2023 of a gradual increase or decrease
in market interest rates relative to prevailing market rates at the end of each reporting period:
As of December 31,
Increase of 200 basis points 32 % 36 %
Increase of 100 basis points 18 % 20 %
Increase of 50 basis points 11 % 5 %
Decrease of 50 basis points (4 )% (3 )%
Decrease of 100 basis points (11 )% (10 )%
Decrease of 200 basis points (26 )% (25 )%
The difference in our simulated
incremental increases and decreases in the market interest rates as of December 31, 2024 compared to 2023 is primarily due to an increase
in the proportion of segregated cash to segregated securities and a decrease in the proportion of margin debit balances to cash credit
balances.
Technology Initiatives
At the end of 2023, we hired
new technology personnel, changed our primary software development vendor, and made investments in technology development.
Some of these technology investments
include the development of a Siebert mobile trading application, online platform for our retail customer base and corporate services clients,
as well as upgrades to our technological and operational infrastructure to support these platforms and future growth. We believe that
these ongoing investments in technology will be key to meeting the needs of our retail customers, correspondent clearing, corporate services
as well as expand into new markets and demographics.
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 – Retail Customers
As of December 31,
Retail customer net worth (in billions) $ 18.0 $ 15.9
Retail customer margin debit balances (in billions) $ 0.4 $ 0.3
Retail customer credit balances (in billions) $ 0.4 $ 0.5
Retail customer money market fund value (in billions) $ 0.8 $ 0.7
● Retail customer accounts represent the number of retail customers
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Consolidated Statements of Operations and Financial
Condition
Consolidated Statements of Operations for
the Years Ended December 31, 2024 and 2023
Revenue
Commissions and fees for the
year ended December 31, 2024 were $9,615,000 and increased by $2,339,000 from the corresponding
period in the prior year, primarily due to strong market conditions.
Interest, marketing and distribution
fees for the year ended December 31, 2024 were $32,407,000 and increased by $2,830,000 from the
corresponding period in the prior year primarily due to an increase in interest income received on U.S. government securities and
bank deposits.
Principal transactions and
proprietary trading for the year ended December 31, 2024 were $14,616,000 and increased by $1,522,000
from the corresponding period in the prior year, primarily due to the factors discussed below.
The
increase in realized and unrealized gain on primarily riskless principal transactions was primarily due to market conditions. The decrease
in unrealized gain on our portfolio of U.S. government securities was due to the maturity of certain U.S. government securities and a
decrease in investment in U.S. government securities based on market yields and cash needs.
Below
is a summary of the change in the principal transactions and proprietary trading line item for the periods presented.
Year Ended December 31,
Principal transactions and proprietary trading
Market making for the year
ended December 31, 2024 was $2,255,000 and increased by $951,000 from the corresponding period in
the prior year, primarily due to strong equity markets.
Stock borrow / stock loan
for the year ended December 31, 2024 was $19,249,000 and increased by $3,077,000 from the corresponding
period in the prior year, primarily due to a growth in stock locate services.
Advisory fees for the year
ended December 31, 2024 were $2,369,000 and increased by $441,000 from the corresponding period
in the prior year, primarily due to growth in platform assets.
Other income for the year
ended December 31, 2024 was $3,390,000 and increased by $1,227,000 from the corresponding period
in the prior year, primarily due to fees related to an increase in maintenance fees during the current year.
Operating Expenses
Employee compensation and
benefits for the year ended December 31, 2024 were $43,999,000 and increased by $12,063,000 from
the corresponding period in the prior year, primarily due to an increase in commission payouts
and executive compensation.
Clearing
fees, including execution costs for the year ended December 31, 2024 were $1,607,000 and decreased by $65,000 from the corresponding period
in the prior year.
Technology and communications
expenses for the year ended December 31, 2024 were $3,940,000 and increased by $576,000 from the
corresponding period in the prior year, primarily due to an expansion of technological infrastructure.
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Other general and administrative
expenses for the year ended December 31, 2024 were $4,488,000 and increased by $78,000 from the
corresponding period in the prior year.
Data processing expenses for
the year ended December 31, 2024 were $3,200,000 and decreased by $36,000 from the corresponding
period in the prior year.
Rent and occupancy expenses
for the year ended December 31, 2024 were $1,631,000 and decreased by $242,000 from the corresponding
period in the prior year, primarily due to a discontinued rent expense related to the temporary Miami office.
Professional fees for the
year ended December 31, 2024 were $5,578,000 and increased by $1,119,000 from the corresponding
period in the prior year, primarily due to an increase in legal and accounting fees offset by a decrease in consulting services.
Depreciation and amortization
expenses for the year ended December 31, 2024 were $1,380,000 and decreased by $640,000 from the
corresponding period in the prior year, primarily due to the write off of development related
to integration of a technology platform that occurred in the prior year.
Interest expense for the year
ended December 31, 2024 was $262,000 and decreased by $1,000 from the corresponding period in the
prior year.
Advertising
and promotion expenses for the year ended December 31, 2024 were $348,000 and increased by $193,000 from the corresponding period in the
prior year, primarily due to an increase in marketing initiatives in 2024.
Non-Operating
Income (Loss)
The earnings of equity method
investment in related party for the year ended December 31, 2024 was $0 and decreased by $111,000
from the corresponding period in the prior year, primarily due to the exit of our investment in Tigress in the third quarter of 2023.
The
impairment of investments for the year ended December 31, 2024 was $0 and decrease by $1,035,000 from the corresponding period in the
prior year, primarily due to the impairment of our investment in a technology provider of a trading platform and the impairment of our
investment in Tigress occurring in 2023.
Transaction termination costs
for the year ended December 31, 2024 was $0 and decreased by $5,943,000 from the corresponding period in the prior year due to costs associated
with the termination of the Kakaopay transaction in 2023.
Provision For (Benefit From) Income Taxes
The provision for income taxes
for the year ended December 31, 2024 was $4,165,000 and increased by $750,000 from the corresponding period in the prior year. The change
from the corresponding period in the prior year is primarily due to increased profitability year over year. Refer to Note 17 – Income
Taxes for additional detail.
Net Income (Loss)
Attributable to Noncontrolling Interests
As
further discussed in Note 2 – Summary of Significant Accounting Policies, we consolidate RISE’s financial results into our
consolidated financial statements and reflect the portion of RISE not held by Siebert as
a noncontrolling interests in our consolidated financial statements. The
net income attributable to noncontrolling interests for the year ended December 31, 2024 was $17,000, and decreased by $1,000 from the
corresponding period in the prior year.
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Consolidated Statements of Financial Condition
as of December 31, 2024 and 2023
Assets
Assets as of December 31,
2024 were $519,668,000 and decreased by $282,132,000 from December 31, 2023, primarily due to a
decrease in securities borrowed and cash and securities segregated, partially offset by an increase in cash and cash equivalents.
Liabilities
Liabilities as of December
31, 2024 were $434,576,000 and decreased by $296,515,000 from December 31, 2023, primarily due to
a decrease in securities loaned and payables to customers.
Liquidity and Capital Resources
Overview
As
of December 31, 2024, a significant portion of our assets were liquid in nature, providing us with flexibility in financing our business.
A significant portion of our assets not held by customers or used for stock borrow / stock loan consisted primarily of cash and cash equivalents,
securities owned, at fair value, which are marked-to-market daily, and receivables from and deposits with broker-dealers and clearing
organizations.
We
expect to use our available cash, cash equivalents, and potential future borrowings under our debt agreements and potential issuance of
new debt or equity, to support and invest in our core business, including investing in new ways to serve our customers, potentially seeking
strategic acquisitions to leverage existing capabilities, and for general capital needs (including capital, deposit, and collateral requirements
imposed by regulators and SROs).
Based
on our current level of operations, we believe our available cash, available lines of credit, overall access to capital markets, and cash
provided by operations will be adequate to meet our current liquidity needs for the foreseeable future. As of the date of this Report,
other than the items detailed in the section below, there are no known or material events that would require us to use large amounts of
our liquid assets to cover expenses.
Kakaopay
The
net capital infusion from Kakaopay to Siebert from the First Tranche was approximately $14.8 million after the issuance cost. This capital
is currently being used to enhance our regulatory capital and is primarily invested in U.S. government securities and is in the line item
“Securities owned, at fair value” in the consolidated statements of financial condition. Refer to Note 6 – Kakaopay
Transaction for further detail.
Cash and Cash Equivalents
Our
cash and cash equivalents were $32.6 million and $5.7 million as of December 31, 2024 and 2023, respectively.
Credit Agreement
On
August 15, 2024, we entered into the Credit Agreement with East West Bank providing a $20 million revolving credit facility, which offers
substantial financial flexibility to support our strategic initiatives. This credit facility allows the Company to fund acquisitions,
execute stock buybacks, and meet general corporate needs up to $10 million, ensuring access to capital for both growth and operational
purposes. The two-year term of the Credit Agreement, combined with a competitive interest rate structure that is tied to either the one-month
Term SOFR plus 3.15% or a minimum of 7.50%, provides a stable and predictable financing source. The personal guarantees provided by key
executives, John J. Gebbia and Gloria E. Gebbia, and their trust, further strengthen the Company’s borrowing position and help secure
favorable terms.
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BMO Credit Agreement
On
November 22, 2024, MSCO entered into a Credit Agreement (the “BMO Credit Agreement”) with BMO Harris Bank (“BMO Harris”).
The BMO Credit Agreement provides for a revolving credit facility of up to $20,000,000. We may use any borrowings under the BMO Credit
Agreement to finance NSCC Deposit Requirements (other than an Adequate Assurance Deposit) and withdrawals from a Reserve Account. As part
of the agreement, we entered into a Parent Guaranty agreement guaranteeing repayment of any debt issued to MSCO.
Borrowings under the BMO Credit Agreement will
bear interest on the outstanding daily balance at a rate of interest per annum equal 2.5% plus the greater of: (a) Term SOFR for such
day plus 0.11448% and (b) Federal Funds Target Range – Upper Limit and (c) 0.25%. The annual commitment fee is equal to one half
of one percent (0.50%) of the average daily unused portion of the commitment of $20,000,000. The BMO Credit Agreement contains customary
affirmative covenants and negative covenants and requires MSCO maintain minimum total regulatory capital of $45,000,000, excess net capital
of 20,000,000, assets to total regulatory capital ratio of not more than 5.0 to 1.0, and a minimum liquidity ratio of not less than 1.0.
We satisfied its condition precedent to deliver
a legal option to BMO Harris on December 18, 2024.
Debt Agreements
We
have $4.2 million outstanding on our mortgage with East West Bank and an unutilized line of credit for short term overnight demand borrowing
of up to $25 million with BMO Harris as of December 31, 2024. As of December 31, 2024, we were in compliance with all covenants related
to our debt agreements.
Cash Requirements
The
following table summarizes our short and long-term material cash requirements as of December 31, 2024.
Payments Due by Period
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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 Exchange Act and
maintains capital and segregated cash reserves in excess of regulatory requirements. Requirements under these regulations may vary; however,
MSCO has adequate reserves and contingency 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 OCC, 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 and the corresponding
regulatory capital requirements.
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 years ended December 31, 2024 and 2023, MSCO and RISE had sufficient net capital to meet their respective liquidity and regulatory
capital requirements. Refer to Note 18 – Capital Requirements for more detail on our capital requirements.
Cash Flows
Cash provided by and used
in operating activities consisted of net income (loss) adjusted for certain non-cash items. Net operating assets and liabilities at any
specific point in time are subject to many variables, including variability in customer activity, the timing of cash receipts and payments,
and vendor payment terms. The total changes in our consolidated statements of cash flows, especially our operating cash flow, are not
necessarily indicative of the ongoing results of our business as we have customer assets and liabilities on our consolidated statements
of financial condition.
For the year ended December
31, 2024, cash used in operating activities increased by $14.9 million compared to 2023, which was primarily driven by the inclusion of
cash and securities segregated for regulatory purposes, which were previously not presented in the operating section. The increase was
further impacted by the outflows related to the Kakao settlement and contract termination payments, as well as a decrease in payables
to customers and securities loaned. These outflows were partially offset by inflows from securities borrowed, receivables from customers,
and other working capital adjustments.
For the year ended December
31, 2024, cash used in investing activities increased by $3.5 million compared to 2023, which was primarily driven by the acquisition
of GE as well as certain development projects related to our Retail Platform in 2024.
For the year ended December
31, 2024, we had a cash outflow of $0.1 million from financing activities, compared to a net cash inflow of $13.0 million in 2023, which
was primarily driven by the issuance of the Company’s common stock related to the transaction with Kakaopay in 2023. Refer to Note
6 – Kakaopay Transaction for additional detail.
Long Term Contracts
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, 2024, we do not expect to terminate the contract
with NFS before the end of the contract term. Refer to Note 16 – Deferred Contract Incentive and Note 21 – Commitments, Contingencies
and Other for additional detail.
Effective
June 2023, MSCO entered into an amendment to its service agreement with Broadridge Securities Processing Solutions, LLC that, among other
things, extends the term of their arrangement for a five-year period ending June 2028, with an option to terminate after three years.
The total minimum expense for this arrangement is estimated at approximately $1.2 million over the duration of the contract.
29
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 their contracted obligations and we are forced to purchase or sell the financial
instrument underlying the contract at a loss. There were no material losses for unsettled customer transactions for the years ended December
31, 2024 and 2023. Refer to Note 19 – Financial Instruments with Off-Balance Sheet Risk for additional detail.
Uncertain Tax Positions
We account for uncertain tax positions in accordance with the authoritative
guidance issued under FASB ASC Subtopic 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 consolidated 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 consolidated 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. FASB ASC Subtopic
740-10 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure requirements
We recognize interest and
penalties related to unrecognized tax benefits on the provision for income taxes line in the statements of operations. Accrued interest
and penalties would be included on the related tax liability line in the statements of financial condition.
As of both December 31, 2024
and 2023, the Company recorded an uncertain tax position of $1,354,000 and $1,405,000, respectively, related to various tax matters, which
is included in the line item “Taxes payable” in the statements of financial condition.
Critical Accounting Policies and Estimates
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, and expenses, and
the related disclosure of contingent assets and liabilities included in the consolidated financial statements. The estimates relate primarily
to 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 expenses incurred, to estimate the amount of such
expenses. We are not aware of any material differences between the estimates used in closing our books for the periods presented and the
actual amounts of expenses incurred when we subsequently receive the actual confirmations, invoices or other documentation.
Our consolidated
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 critical accounting policies listed below 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.
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 consolidated financial statements.
Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the consolidated
financial statements 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.
30
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 FASB ASC Topic 740 – “Improvements to Income Tax Disclosures” (“Topic 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.
We recognize interest and
penalties related to unrecognized tax benefits on the provision for income taxes line in the consolidated statements of operations. Accrued
interest and penalties would be included on the related tax liability line in the consolidated statements of financial condition.
Disregarded entities and income tax treatment
Starting in 2024, both MSCO
and SNXT are single member limited liability companies that will be treated as disregarded entities for tax purposes. As such, both MSCO
and SNXT will no longer be subject to direct taxation and will be disregarded by the relevant tax authorities. The guidance in Accounting
Standards Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes specifies that an entity is not required
to allocate income tax provision to a legal entity that is both not subject to tax and disregarded by the taxing authority, but an entity
may elect to do so. MSCO and SNXT are not making the available election to allocate income taxes. Accordingly, on a prospective basis,
MSCO and SNXT will no longer record current or deferred income taxes.
Recent Accounting Pronouncements
Refer
to Note 2 –Summary of Significant Accounting Policies for information regarding new Accounting
Standards Updates (“ASU”s) issued by the FASB.
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.
We invest cash and securities
segregated for regulatory purposes in dollar denominated bank accounts which are not subject to material changes in value due to interest
rate movements. We also invest cash and securities segregated for regulatory purposes and securities owned, at fair value in U.S. government
securities which may be subject to material changes in value due to interest rate movements. Securities owned, at fair value invested
in U.S. government securities are generally purchased to enhance yields on required regulatory deposits. While the value of the U.S. government
securities may be subject to material changes in value, we believe any reduction in value would be temporary since the securities would
mature at par value.
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.
See
“Item 7 – Management’s Discussions and Analysis of Financial Condition and Results of Operations - Trends and Key Factors
Affecting our Operations” of this Report for our quantitative and qualitative disclosures about market risk.
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SIEBERT FINANCIAL CORP.
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 173) F-2
Notes to Consolidated Financial Statements F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM (PCAOB ID 173)
Shareholders and the Board of Directors of
Siebert Financial Corp. and Subsidiaries
Miami, Florida
Opinion on the Financial Statements
We have audited the accompanying consolidated
statement of financial condition of Siebert Financial Corp. and Subsidiaries (the "Company") as of December 31, 2024, the related
consolidated statements of operations, changes in stockholders’ equity, and cash flows for the period then ended, and the related
notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows
for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is
a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the
audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on
the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion
on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Revenue Recognition
As described in Note 2 to the consolidated financial
statements, the Company recognizes revenue from the following types of services: Commissions and Fees; Principal Transactions and Proprietary
Trading; Market Making; Stock Borrow and Stock Loan; Advisory Services; Interest, Marketing and Distribution Fees; and Other Income. Some
of the revenue streams are related to revenues from contracts with customers, which falls under the scope of the accounting standard for
revenue from contracts with customers (ASC 606) while certain revenue streams are generated from financial instruments and are not in
the scope of ASC 606.
The principal considerations for our determination
that revenue recognition is a critical audit matter are the complexities and challenges related to auditing the significant number of
revenue streams with different applications of revenue recognition, the automated processes to record revenue involving multiple information
systems, and the significant volume of information used in the calculation of each revenue stream supported by automated systems to process
and record these transactions. As previously disclosed by management, there was a material weakness identified over the Company's Information
Technology General Controls (ITGCs) that are used to process the high volume of revenue transactions that existed during the year. These
factors resulted in a high level of audit effort required and involvement of professionals with expertise in information technology (IT)
necessary for us to identify, test, and evaluate the Company’s systems and automated controls.
Addressing the matter involved performing procedures
and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures
included:
Performing substantive test of details over all
relevant assertions for revenue streams which included:
o Testing completeness and accuracy of reports utilized in our audit procedures.
/s/ Crowe LLP
We have served as the Company's auditor since
2024.
New York, New York
March 28, 2025
F-3
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
ASSETS
Current assets
Receivables from broker-dealers and clearing organizations 3,920,000 3,863,000
Deposits with broker-dealers and clearing organizations 4,227,000 7,885,000
Intangible assets, net 697,000 —
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Current liabilities
Payables to broker-dealers and clearing organizations 444,000 481,000
Securities sold, not yet purchased, at fair value 26,000 2,000
Current portion of deferred contract incentive 496,000 808,000
Deferred contract incentive, less current portion — 438,000
Contract termination liability, less current portion 819,000 2,564,000
Commitments and Contingencies
Equity
Stockholders’ equity
Numbers are rounded for
presentation purposes. See notes to consolidated financial statements.
F-4
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
Revenue
Expenses
Earnings of equity method investment in related party — 111,000
Impairment of investments — (1,035,000 )
Transaction termination costs — (5,943,000 )
Less net income (loss) attributable to noncontrolling interests 17,000 18,000
Net income (loss) available to common stockholders per share of common stock
Basic and diluted $ 0.33 $ 0.21
Weighted average shares outstanding
Numbers are rounded for presentation purposes.
See notes to consolidated financial statements.
F-5
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
Common Stock Treasury Stock
Numbers are rounded for presentation purposes.
See notes to consolidated financial statements.
F-6
SIEBERT FINANCIAL CORP. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
Cash Flows from Operating Activities
Share-based compensation 460,000 —
Interest related to contract termination liability payment 102,000 —
Earnings of equity method investment in related party — (111,000 )
Impairment of investments — 1,035,000
Transaction termination costs - Kakaopay fee — 4,462,000
Changes in
Payables to broker-dealers and clearing organizations (37,000 ) (179,000 )
Securities sold, not yet purchased, at fair value 24,000 —
Contract termination payment (1,997,000 ) —
Technology platform integration — (978,000 )
Cash Flows from Investing Activities
Purchase of office facilities and equipment (223,000 ) (223,000 )
Transaction with J2 Financial (35,000 ) —
Cash paid for GE acquisition, net of cash acquired (1,123,000 ) —
Cash Flows from Financing Activities
Kakaopay issuance cost — (1,589,000 )
Shares issued for Kakaopay transaction — 17,363,000
Net cash provided by (used in) financing activities (85,000 ) 13,040,000
Supplemental cash flow information
Non-cash investing and financing activities
Kakaopay issuance cost (1) $ — $ (318,000 )
Transaction with J2 Financial (2) $ 350,000 $ —
Share-based compensation (3) $ 270,000 $ —
Non-cash consideration due to Kakaopay transaction(1) $ — $ (560,000 )
Non-cash consideration due to Kakaopay transaction(1) $ — $ 560,000
Numbers are rounded for presentation purposes.
See notes to consolidated financial statements.
(1) Refer to Note 6 – Kakaopay Transaction for further detail
(2) Refer to Note 10 – Software, net for further detail
(3) Refer to Note 23 – Employee Benefit Plans for further detail
(4) Refer to Note 4 – Transaction with Tigress for further detail
F-7
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:
For
purposes of this Report, the terms “Siebert,” “Company,” “we,” “us,” and “our”
refer to Siebert Financial Corp., MSCO, SNXT, PW, STCH, RISE, STXD, and GE, collectively, unless the context otherwise requires.
Effective January 1, 2024,
MSCO changed its name from Muriel Siebert & Co., Inc. to Muriel Siebert & Co., LLC, and SNXT changed its name to from Siebert
AdvisorNXT, Inc. to Siebert AdvisorNXT, LLC with their tax status changing from C-Corporations to LLCs under state law.
The Company is headquartered
in Miami Beach, FL, with primary operations in Florida, New York and California. The Company has 10 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 engages in a single
line of business as a securities broker-dealer, providing comprehensive brokerage services including custody and clearing of retail accounts,
insurance and advisory services, principal transaction and proprietary trading, market making, and securities lending. The Company currently
has no other reportable segments. All of the Company’s revenues for the years ended December 31, 2024 and 2023 were derived from its operations
in the U.S.
The
Company has evaluated the impact of its recent acquisition of GE on its consolidated financial statements and has determined that the
acquisition is immaterial. As of December 31, 2024, the Company operates as a single reportable 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. Management will continue to monitor the financial significance of the GE acquisition and
may report additional segments in accordance with FASB ASC Topic 280 – “Improvements to Reportable Segment Disclosures”
(“Topic 280”).
F-8
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 U.S. GAAP as established by the 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.
Reclassification
Certain amounts for the year
ended December 31, 2024 and 2023, and certain cash flows within the Investing Activities section have been reclassified to conform to
the presentation of the current period. The reclassification has not materially impacted the Company’s consolidated financial statements,
and did not result in a change in total revenue, net income or cash flows from operations or investing activities for the periods presented.
Principles of Consolidation
The consolidated financial
statements include the accounts of Siebert and all other entities in which we have a controlling financial interest. The Company determines
whether it has controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”)
or a variable interest entity (“VIE”). Upon consolidation, all intercompany balances and transactions are eliminated. The